Bankrupt UAL Corp., parent of United Airlines, is seeking an additional $2 billion in annual cost savings to be achieved in part by further reducing labor cuts and terminating the existing employee pension plan. "It is fair to ask if it's worth it," said CEO Glenn Tilton in a message to employees last night. "We feel we have a better opportunity for success than many others."
Savings from labor, non-labor and employee pensions each would contribute one-third of the $2 billion target. Tilton and other members of senior management also will take a 15 percent pay cut, effective Jan. 1, 2005. If the new target is achieved, Tilton said, United by the end of its restructuring would have removed $7 billion in average annual costs.
United's decision to terminate existing employee pension plans has been expected since the company this summer stopped funding those programs
(BTNonline, Aug. 10). The reverberations of the decision likely will be felt around the industry as other carriers consider similar measures to stay competitive.
The Pension Benefit Guaranty Co., a federal corporation, in September said it would "guarantee the basic pension benefits of workers from US Airways and United Airlines should the plans of those companies terminate," but asked Congress for reform.
"Bankruptcy should not be the path of least resistance to deal with your pension obligations," said PBGC executive director Bradley Belt.
According to a United proposal posted yesterday on the International Association of Machinists Web site, the company would replace existing defined benefit pensions plans with defined contribution plans. The proposal also states that United will ask the bankruptcy court to amend agreements with unions, under section 1113(c) of the U.S. bankruptcy code, unless consensual agreements are achieved. United's unions last year agreed to concessions worth $2.5 billion a year, following the company's bankruptcy filing in Dec. 2002.
United domestic partner US Airways filed a similar motion as part of its bankruptcy restructuring. The judge overseeing that case granted the motion last month.
United, meanwhile, has retained restructuring firm Bridge Associates to independently review its current business plan. In light of that decision, both the Association of Flight Attendants and the IAM withdrew motions requesting appointment of a trustee to oversee the company's bankruptcy reorganization
(BTN, Aug. 16). The bankruptcy court on Oct. 27 approved the motion to retain the independent firm. United and both unions said Bridge would examine the carrier's business plan during a 30-day period following court approval.