U.S. Pension Insurer Is Concerned
About Terms of UAL-Pilots Pact
By SUSAN CAREY
Staff Reporter of THE WALL STREET JOURNAL
December 20, 2004; Page A2
The Pension Benefit Guaranty Corp. said it is concerned that terms of a tentative contract UAL Corp. and its pilots union have agreed to "sets a dangerous precedent."
The quasigovernmental pension insurer is worried that the airline is making generous new pension promises while refusing to honor old pension agreements.
Last week, the United Airlines parent, which is operating in bankruptcy-court protection, reached accord with the Air Line Pilots Association on a five-year concessionary labor agreement that would give active pilots $550 million in convertible notes if they agree not to fight UAL's efforts to terminate their defined-benefit pension plan and shift that plan onto the PBGC. The shift is expected to sharply reduce the pension benefits of many active and retired pilots.
Bradley Belt, the PBGC's executive director, said it will "scrutinize the agreement very closely and take all appropriate steps to protect the financial interests" of the underfunded agency, which guarantees 31,000 private-sector defined-benefit pension plans.
Mr. Belt said one troublesome aspect of the tentative labor agreement, which will go to a ratification vote by United's 6,600 pilots next month, is that the pilots are insisting that three other pension plans covering other United workers and retirees also be terminated. "The company and the pilots' union have no authority to force other workers and the PBGC to accept the termination of those plans," he said.
The tentative agreement would require the pilots to take a 15% pay cut, which would help provide UAL with an estimated $180 million to $190 million in annual savings. The carrier is seeking a total of $725 million in worker givebacks and intends to terminate the four pension plans covering 123,000 active and retired workers, for further savings of about $639 million a year. As part of the plan, UAL's 8,300 salaried and management workers will serve up $112 million in annual savings starting Jan. 1. These economies are intended to help UAL build a business plan that could attract $2 billion in fresh financing so it can step out of Chapter 11 next year.
If employees don't voluntarily agree to concessions, UAL will ask the bankruptcy judge next month to annul existing labor contracts and impose terms on the workers. The company also intends to prove to the judge that it wouldn't survive outside Chapter 11 if it maintains the costly, underfunded pension plans, and thus must shift those obligations to the PBGC. UAL would then create cheaper defined-contribution retirement plans for its current workers.
UAL, under terms of the new accord, would contribute 15% of the pilots' pay into 401(k)-type plans. The convertible notes, which would be issued to the pilots association after the company emerges from Chapter 11, could be sold in the capital markets to cover a portion of the pension losses for the active pilots. The 6,000 retired pilots wouldn't share in that incentive, which is calculated to make the tentative agreement palatable to the active pilots.
Write to Susan Carey at [email protected]
About Terms of UAL-Pilots Pact
By SUSAN CAREY
Staff Reporter of THE WALL STREET JOURNAL
December 20, 2004; Page A2
The Pension Benefit Guaranty Corp. said it is concerned that terms of a tentative contract UAL Corp. and its pilots union have agreed to "sets a dangerous precedent."
The quasigovernmental pension insurer is worried that the airline is making generous new pension promises while refusing to honor old pension agreements.
Last week, the United Airlines parent, which is operating in bankruptcy-court protection, reached accord with the Air Line Pilots Association on a five-year concessionary labor agreement that would give active pilots $550 million in convertible notes if they agree not to fight UAL's efforts to terminate their defined-benefit pension plan and shift that plan onto the PBGC. The shift is expected to sharply reduce the pension benefits of many active and retired pilots.
Bradley Belt, the PBGC's executive director, said it will "scrutinize the agreement very closely and take all appropriate steps to protect the financial interests" of the underfunded agency, which guarantees 31,000 private-sector defined-benefit pension plans.
Mr. Belt said one troublesome aspect of the tentative labor agreement, which will go to a ratification vote by United's 6,600 pilots next month, is that the pilots are insisting that three other pension plans covering other United workers and retirees also be terminated. "The company and the pilots' union have no authority to force other workers and the PBGC to accept the termination of those plans," he said.
The tentative agreement would require the pilots to take a 15% pay cut, which would help provide UAL with an estimated $180 million to $190 million in annual savings. The carrier is seeking a total of $725 million in worker givebacks and intends to terminate the four pension plans covering 123,000 active and retired workers, for further savings of about $639 million a year. As part of the plan, UAL's 8,300 salaried and management workers will serve up $112 million in annual savings starting Jan. 1. These economies are intended to help UAL build a business plan that could attract $2 billion in fresh financing so it can step out of Chapter 11 next year.
If employees don't voluntarily agree to concessions, UAL will ask the bankruptcy judge next month to annul existing labor contracts and impose terms on the workers. The company also intends to prove to the judge that it wouldn't survive outside Chapter 11 if it maintains the costly, underfunded pension plans, and thus must shift those obligations to the PBGC. UAL would then create cheaper defined-contribution retirement plans for its current workers.
UAL, under terms of the new accord, would contribute 15% of the pilots' pay into 401(k)-type plans. The convertible notes, which would be issued to the pilots association after the company emerges from Chapter 11, could be sold in the capital markets to cover a portion of the pension losses for the active pilots. The 6,000 retired pilots wouldn't share in that incentive, which is calculated to make the tentative agreement palatable to the active pilots.
Write to Susan Carey at [email protected]
