Posted on: Thursday, May 12, 2005

United's rivals seek pension deal, too

By Dan Reed
USA Today

United Airlines' big competitors are looking first to Capitol Hill, not bankruptcy court, to offset the advantage gained by the No. 2 airline in dumping its pension plans.

The ruling Tuesday in Chicago by U.S. Bankruptcy Judge Eugene Wedoff allowing United to walk away from its pensions is expected to save the airline $645 million annually, a huge advantage in the highly competitive airline business. While other struggling carriers may quickly want to level the playing field, none is rushing into bankruptcy court to accomplish what United has.

Instead, American, Delta, Continental and Northwest favor some version of pending legislation that would allow them to stretch out over a period of years the payments needed to eliminate the underfunding of their plans. United's four pension plans, which cover 120,000 active and retired workers, are underfunded by $9.8 billion.

Assuming Wedoff's ruling survives expected legal challenges by United's unions, the federal Pension Benefit Guaranty Corp. will take responsibility for $6.6 billion of that amount.

United management says it needed to jettison the retirement plans to emerge from Chapter 11 bankruptcy after 29 months.

It also will put the four remaining high-cost "legacy carriers" that aren't already in Chapter 11 bankruptcy — American, Delta, Northwest and Continental — at a disadvantage. Those four continue to offer traditional defined-benefit pension plans like those abandoned by United. A defined-benefit plan sets monthly payments in retirement according to average salary and years on the job.

Congressional approval of any relief proposal is no sure thing. Some view the proposals as ill-advised special treatment for corporations that have failed to live up to the obligation of funding their pension plans.

But the proposal could win support from some in Congress who would prefer such special treatment instead of the likely need for taxpayer bailout of the PBGC if all the big airlines follow United and US Airways into bankruptcy court.

The PBGC's deficit — the gap between the value of its invested assets and its insured pension obligations — is $23.3 billion before the pending United take- over, an agency spokesman said.