United Airlines parent UAL Corp. won a showdown with disgruntled unions in bankruptcy court when the presiding judge ruled the company could unload heavily underfunded employee pension plans on the federal government. The result of yesterday's hearing not only will help determine UAL's fate but also could be a watershed moment in the course of the domestic aviation industry's ongoing restructuring and for pension plans around the nation.
"If UAL is successful, every legacy carrier has a pension problem that is not fixable outside of bankruptcy," said Seabury Group analyst and managing director Scott Gibson, speaking last month during the TravelCom Expo in New York.
Specifically, the ruling allows the federal Pension Benefit Guaranty Corp. to terminate UAL's existing defined-benefit pension plans and assume responsibility for $6.6 billion of UAL's pension liabilities.
In a statement issued yesterday, the Association of Flight Attendants noted PBGC already faces a $23 billion deficit. AFA was in Washington to join Reps. George Miller (D-Calif.) and Jan Schakowsky (D-Ill.), who introduced the Pension Fairness and Full Disclosure Act. The union said legislation "has been spurred by the growing trend of corporations lavishly rewarding their executives, while cutting or even eliminating their employees' pensions. Management at United and other airlines have proven to be particularly egregious violators of this employment trust."
In a message this morning to employees, United said the decision of the bankruptcy court represents "a significant step forward" in the company's restructuring and is "critical" for attracting exit financing. United also said that "the court found that in settling with the Pension Benefit Guaranty Corp.
(BTN, March 21), United did not violate its collective bargaining agreements, the bankruptcy code or the Railway Labor Act."
Meanwhile, certain UAL unions had threatened to strike should United unilaterally alter terms of their labor deals. A bankruptcy court hearing is underway today to determine if the company can impose such contractual changes.
"The outcome of this hearing could signal a labor-management confrontation of historic proportions," said Randy Canale, president of the International Association of Machinists and Aerospace Workers, District 141, in a statement issued last night. Canale also noted that IAM intends to appeal the pension ruling and will resume contract negotiations with UAL management next week. "If no resolution acceptable to the membership is reached, the IAM will be guided by the outcome of the strike vote," which is expected to be announced later today.