Posted on: Saturday, September 4, 2004
Continental to miss pension contribution
By Lynne Marek
Bloomberg News
HOUSTON — Continental Airlines Inc., the fifth-largest U.S. carrier, said yesterday it will skip contributions to employee pension plans this year, taking advantage of a law enacted in April to conserve cash.
Bloomberg News Service The U.S. law gave airlines, steelmakers and other companies the option to defer about $80 billion in pension funding during the next two years. Continental spokesman Rahsaan Johnson declined to comment on what the airline will do next year. The company's plans cover almost all of its 41,000 workers, he said.
"We kind of understand the economics of the situation," said Jim Moody, a spokesman for the Continental Air Line Pilots Association. "We wish the economics were better, but that's the airline industry."
Continental on Thursday said it will eliminate 425 jobs, mostly managers and clerical workers, to help reduce annual costs by $200 million. The airline posted a net loss of $141 million in this year's first half as jet-fuel prices rose and increased competition from discount carriers held down fares.
The company said in its second-quarter results that it had about $1.7 billion in cash and short-term investments, not including $177 million in restricted cash.
Continental is trying to trim expenses by $1.1 billion, after almost completing implementation of earlier measures to cut $900 million.
Moody, the pilots union spokesman, said Continental told the union it was going to skip the pension contributions. The carrier and the pilots are talking about the possibility of changing the airline's pension plan, which now pays retirees a set amount of benefits, to one that funds individual retirement accounts.
The pilots union said such a program would be cheaper for the company and would give workers more control of their retirement savings.
Pilots are the highest-paid workers at airlines and receive the biggest pensions because those benefits are based on pay.
UAL Corp.'s United Airlines, which is operating under Chapter 11 bankruptcy protection, said last month that it probably will terminate its pension plans and won't contribute to them the rest of this year. Termination would transfer the failed plans to a federal agency, the Pension Benefit Guaranty Corp., which would cover only $6.4 billion of the $8.3 billion benefits.
United's unions oppose ending the pension plans.
Continental shares fell 13 cents to $9.57 in trading on the New York Stock Exchange at 4:15 p.m. The airline announced its decision on pension contributions after the close of trading. The stock has declined 41 percent this year.
The move will help the company keep $1.5 billion in unrestricted cash during "these difficult and turbulent times," Houston-based Continental said in a statement. The carrier said in a July filing that it planned to put $250 million in the plans and faced a minimum funding requirement of $17 million.
Passengers check in at the Continental Airlines counter at Logan International Airport in Boston, Mass. Rising jet fuel prices contributed to the airline's net loss of $141 million in this year's first half.
