- Two men accused of selling meth to undercover cop (6/22/17)
- Cape man stabbed in head, arm after strip-club incident; skull fractured, police say (6/25/17)3
- Custom cuts: Local hairstylist provides free haircuts to special-needs children (6/26/17)3
- Police: Man grabbed wheel, tried to kill driver and himself in Jackson crash (6/23/17)
- Jackson scores high in survey of residents; better streets, Aldi are high priorities (6/20/17)4
- Annual SEMO District Fair event lineup announced (6/23/17)2
- Marble Hill mayor hires city manager without board approval (6/21/17)4
- Oran town board fired officer before hiring him as police chief; city officials say they can't remember reason for firing (6/25/17)2
- Playing with fire (6/25/17)
- Two charged in theft of jewelry from Cape storage facility (6/23/17)1
United - Pension plans likely to go
CHICAGO -- United Airlines warned that it "likely" will have to halt employee pension funds in order to secure the loans it needs to get out from bankruptcy -- a drastic step that would represent the largest pension default ever by a U.S. company. The statement, made in bankruptcy court papers filed Wednesday, confirmed fears of unions that had gone to court to fight United's decision to halt pension contributions while in Chapter 11.
Cash-strapped United faces half a billion dollars in pension contributions in the next two months and $4.1 billion by the end of 2008.
In its 26-page court filing, the nation's second-largest carrier cited "stark" financial conditions and the need to improve its prospects of landing bankruptcy exit financing. The government recently reject United's bid for a $1.6 billion loan guarantee. The airline also faces a jump in jet fuel prices, expected to cost it $1 billion more than anticipated in 2004 alone.
The Elk Grove Village-based carrier said it must maintain cash flow and liquidity levels "that the financial markets are willing to finance."
"Given the magnitude of further cost reductions needed to create a viable business plan and attract exit financing, termination and replacement of all our defined benefit pension plans likely will be required," the company said.
"United remains willing to consider any alternative to pension termination," it added. "But the undisputed facts as of now paint a stark picture that United and this court cannot ignore."
Unions have bitterly opposed halting pension contributions. United employees have already been dealt steep wage and benefit cuts during the airline's restructuring, and other financially ailing carriers are also watching United's moves closely as they consider their options as spiraling fuel costs worsen huge losses.
The International Association of Machinists and Aerospace Workers, representing more than 20,000 ramp workers and customer-service agents at United, sued the airline's top three executives in federal court, accusing them of a breach of fiduciary duty.
Both the IAM and the Association of Flight Attendants have also filed objections in bankruptcy court to the company's plan to borrow an additional $500 million in interim financing, which they claim is predicated on United halting its pension contributions. A bankruptcy judge is presiding over a Friday hearing on that dispute.
Machinists' union spokesman Joseph Tiberi said United's latest filing came as no surprise.
"Although they never disclosed it, their decision to stop funding the pension plans was a clear indication that they had no intention of keeping those plans active," he said.
Sara Nelson Dela Cruz, spokeswoman for the flight attendants union, reiterated criticism over United's handling of the pension situation. "Management's decision to skip pension payments is what put the pension plans in jeopardy," she said.
Dave Kelly, a spokesman with the Air Line Pilots Association, said the group was waiting to see what happens in bankruptcy court Friday before issuing a comment.
United's four employee pension plans currently are underfunded by about $8.3 billion. If the company scraps the funds, that would dump $6.4 billion of that funding responsibility onto the government-financed Pension Benefit Guaranty Corp., which is already operating at a steep deficit.
Gary Pastorius, a spokesman for the pension protection program, said the $6.4 billion is the maximum amount the agency would be allowed to cover under its congressional mandate. The difference, about $1.9 billion, is how much employees could lose.
The PBGC already has accused United of violating federal law by cutting off contributions while in bankruptcy and asked the court to throw out parts of the company's latest private financing deal.
"Unless and until United's pension plans terminate, we believe the company has a legal obligation to pay for the pension promises it has made to its workers," Pastorius said. "If the plans do terminate, we think it should serve as a powerful lesson on the need for stronger pension funding rules."
United denied any such lending requirement in its court response and insisted that it is neither violating bankruptcy law nor breaching its fiduciary duties by not making pension contributions.
"United's cessation of its pension funding contributions was independently based on its good faith business judgment concerning its uses of cash and need to preserve liquidity during this phase of its restructuring," the company's lawyers said in the filing.
While it mentioned in the latest court filings the possibility of replacing the pension plans, United did not offer any specifics.
"No final decisions have been made," spokeswoman Jean Medina said. "We are still in the process of reviewing that."
United filed for Chapter 11 bankruptcy in December 2002 after billions of dollars in losses. It has not been profitable in more than four years.
On the Net: