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Down in Flames

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Dennis Miller

What about my Member
Joined
Mar 13, 2003
Posts
200
Airlines go for broke while executives take the cash

Down in Flames

by Beth Hawkins
July 13, 2005


On May 10, following a lengthy bankruptcy hearing in a crowded Chicago courtroom, federal Judge Eugene R. Wedoff concluded that United Airlines could default on its pension plans. The airline could wash its hands of its $9.8 billion funding shortfall and walk away from the 134,000 people covered by the four plans. Payments to the retirees would plummet, in some cases by thousands of dollars per month, as their pensions became the obligation of a federal bailout agency.

United CEO Glenn Tilton's own $4.5 million retirement benefit, however, was safe and sound in an untouchable trust. Indeed, in recognition of his cunning leadership of the United, which has been operating in bankruptcy protection for more than two years, Tilton is the highest paid airline executive in the country at $1.1 million a year.

"In his time at United, which began shortly before the airline filed for Chapter 11 protection, Mr. Tilton has--wittingly or not--used bankruptcy protection as a competitive tool. And he has gained respect in the industry, however grudgingly, for doing so," the New York Times reported a few days later. "If nothing else, United has made itself an airline to be reckoned with--not in the traditional way, through strong operations, but in a completely new way, by leveraging its weaknesses."

The ruling was certainly a boon for United, and analysts were quick to predict that by lowering costs for one airline, the decision would compel its struggling competitors to follow suit. A cascade of pension defaults would in turn bankrupt the bailout agency, the Pension Benefit Guarantee Corporation, itself already underfunded to the tune of $23 billion.

Because going into bankruptcy is virtually the only way corporations can walk away from pension obligations, some even predicted that the ruling would spell the end of the pension system nationwide as automakers and other cash-poor industries relieved themselves of a burdensome debt. Taxpayers could ultimately end up liable for the pensions of hundreds of thousands of people.

Less than a month after the United ruling, Northwest CEO Doug Steenland appeared before the U.S. Senate Finance Committee asking for help. Without permission to "freeze" its pensions--that is, to stop making new payments into them--and to come up with the shortfall over 25 years instead of 5, he said, Northwest will be forced to file for bankruptcy by the end of the year.

In any case, according to a transcript of the congressional hearing, Steenlan said, the airline's pensions are going the way of the wooly mammoth: "Northwest has concluded that defined benefit plans simply do not work for an industry that is as competitive as we are and that is as vulnerable to forces ranging from terrorism to international oil prices."

There's no word on whether Northwest will freeze its executives' pensions, or whether United's Tilton has set the tone there as well. Right now, Northwest brass stand to retire in style, according to documents filed with the Securities and Exchange Commission on June 30. Under the current terms of his employment, Steenland can expect to receive pension benefits (including health care for life) totaling $947,417 a year. Other "named executive officers" can expect to receive $414,000 to $560,000 a year. Former CEO Richard Anderson, who left Northwest last year, walked away with a lump sum payment of $3.5 million in retirement money.

Northwest's executive retirement plans come with some additional perks, according to the federal documents: The airline agreed to grant Steenland and Anderson each 10 extra credited years of service, to calculate their benefits for certain periods at three times their actual salaries, and to consider their 36 most highly paid months when determining their pension payouts--not their last three to five years of wages like other employees.

The rationale given to shareholders and federal regulators in the SEC filing: "Given the difficult industry environment and the continued financial pressures facing Northwest, the Committee is presented with a challenge--to adopt executive compensation policies that provide incentives for and assist in the retention of Northwest's senior management team and that at the same time are consistent with Northwest's need to restructure its labor costs."

Not everyone buys the argument. Two weeks after Steenland's testimony, the U.S. House voted to bar the pension bailout agency from spending any money taking over United's pensions. "There are just a lot of concerns about whether or not these companies have unfairly targeted the workers to bear all of the brunt of their management decisions," Illinois Democrat Jan Schakowsky told the Chicago Tribune. As for other airlines employees, the parachutes are far less golden. With the exception of its pilots, Northwest's rank-and-file employees aren't anticipating lavish pensions. Monthly pensions for mechanics and custodians are pegged to job classification and years of service. A cleaner on the job for 10 years stands to receive $510 a month; a repair technician with 30 years on the job will receive $2,550. And in either case, an employee must have been on the job for 26 years or more to receive health care.
 
Dennis Miller said:
United CEO Glenn Tilton's own $4.5 million retirement benefit, however, was safe and sound in an untouchable trust. Indeed, in recognition of his cunning leadership of the United, which has been operating in bankruptcy protection for more than two years, Tilton is the highest paid airline executive in the country at $1.1 million a year.

Northwest's executive retirement plans come with some additional perks, according to the federal documents: The airline agreed to grant Steenland and Anderson each 10 extra credited years of service, to calculate their benefits for certain periods at three times their actual salaries, and to consider their 36 most highly paid months when determining their pension payouts--not their last three to five years of wages like other employees.

Aw, c'mon...When you bilk your employees for >$1 Billion/year what's a few million. They'll never notice its gone.
 
And people wonder why I make sarcastic remarks about management on this board.
 
Dennis Miller said:
In any case, according to a transcript of the congressional hearing, Steenlan said, the airline's pensions are going the way of the wooly mammoth: "Northwest has concluded that defined benefit plans simply do not work for an industry that is as competitive as we are and that is as vulnerable to forces ranging from terrorism to international oil prices."

Other than government jobs, are there any industries that aren't subject to "competitive" forces?
 
So, NWA needs to pay big to attract and retain good management folks in a tough environment, huh ? Ask Delta how that worked for them. How can these people say stuff like that and expect any chance of being credible ? Of course, if you've got enough money, credibility is merely a luxury.
 
I bet you could get a bunch of buisness school interns with no real airline experience and fresh ideas and they could run the airline alot better than most of the so-called EXPERIENCED managers.
 
Of course they make sarcastic remarks about managment on this board, you ought to see what they say about pilots on the managment board. Sorry no one here has access you have to make over 1M per year to get on that site. Only kidding
 
Guitar Guy said:
Other than government jobs, are there any industries that aren't subject to "competitive" forces?
OhOh,
Read in newsweek that govt. agencies are having trouble funding their pension obligations also, seems like the only way to set up for the future is to be a politician or ceo.
sux to be us
PBR
 
I bet you could get a bunch of buisness school interns with no real airline experience and fresh ideas and they could run the airline alot better than most of the so-called EXPERIENCED managers.

I bet you're wrong. United spent a lot of money to get Tilton away from ChevronTexaco, and we could argue all day it was worth it or not. I am convinced there are very few who could have gotten the company in the position they are at today. The board went after Tilton specifically for his past experience in successful dealings with unionized labor, and whether you like it or not he did what no one thought was possible in respect to the many unions at United. I wish Tilton would work for free, that is not the reality of the situation.
 

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