CHICAGO, Jan 18 (Reuters) - A U.S. bankruptcy judge overruled objections on Wednesday to plans by United Airlines (UALAQ.OB: Quote, Profile, Research) to offer an estimated $115 million in equity incentives to certain management personnel.
Judge Eugene Wedoff said the plan, which was fiercely opposed by unions as excessive after they took steep wage and benefit and pension cuts, was reasonable and in the best interests of the company.
Wedoff indicated there was no standard in bankruptcy law for setting compensation levels and the practice of rewarding executives and other salaried workers as part of a business plan was common in corporate America.
"It may well be that we have a culture in this country that overcompensates management," he said. "But United is just one enterprise that operates in that general environment."
Wednesday was the first day of a confirmation hearing that could last through Friday. United Airlines employees packed the courtroom.
The decision on executive compensation was another big hurdle cleared by the No. 2 airline in its three-year reorganization.
Creditors, including unions, approved the airline's reorganization plan last week. United hopes to step out of Chapter 11 protection in February.
Objections to the incentive plan were broader before the company agreed recently to pare it back. But unions held firm. They took two rounds of concessions, including termination of pension plans, to see the airline through restructuring.
"They're paying themselves with the sacrifices that have been given up by all the other constituencies in this case," said Sharon Levine, an attorney for the International Association of Machinists.
The labor group represents baggage handlers and other ground workers.
Experts have long predicted that UAL's reorganization plan would receive a court OK.
"I think it's just formalities at this point," said airline consultant Robert Mann. "Now it's up to them. Let's see the performance. They're going to be cost competitive. They're going to be well financed."
Also on Wednesday, United reached a tentative deal with its flight attendants union on a new pension plan to replace one dumped on government insurers last year.
The deal is less lucrative than the labor group's previous retirement plan. It includes an annual cash contribution by the company, $20 million in convertible notes, and immediate vesting for all flight attendants currently employed.
Members of the Association of Flight Attendants must still ratify the agreement. A vote is to take place by the end of February, the union said.
The Pension Benefit Guaranty Corp. has assumed the plan for current and retired flight attendants that had $1.4 billion in assets to pay $3.3 billion in promised benefits. The government-run insurance program will only make up part of the shortfall.
United employees had been covered by defined benefit plans, which the employer funded. The plans paid a fixed monthly benefit at retirement and were a staple of airline industry employee contracts for years.
United, along with other major carriers have struggled under the weight of soaring fuel costs and low-fare competition.
Northwest Airlines (NWACQ.PK: Quote, Profile, Research) and Delta Air Lines (DALRQ.PK: Quote, Profile, Research) also are in bankruptcy trying to restructure into competitive companies. (Additional reporting by John Crawley in Washington)
Judge Eugene Wedoff said the plan, which was fiercely opposed by unions as excessive after they took steep wage and benefit and pension cuts, was reasonable and in the best interests of the company.
Wedoff indicated there was no standard in bankruptcy law for setting compensation levels and the practice of rewarding executives and other salaried workers as part of a business plan was common in corporate America.
"It may well be that we have a culture in this country that overcompensates management," he said. "But United is just one enterprise that operates in that general environment."
Wednesday was the first day of a confirmation hearing that could last through Friday. United Airlines employees packed the courtroom.
The decision on executive compensation was another big hurdle cleared by the No. 2 airline in its three-year reorganization.
Creditors, including unions, approved the airline's reorganization plan last week. United hopes to step out of Chapter 11 protection in February.
Objections to the incentive plan were broader before the company agreed recently to pare it back. But unions held firm. They took two rounds of concessions, including termination of pension plans, to see the airline through restructuring.
"They're paying themselves with the sacrifices that have been given up by all the other constituencies in this case," said Sharon Levine, an attorney for the International Association of Machinists.
The labor group represents baggage handlers and other ground workers.
Experts have long predicted that UAL's reorganization plan would receive a court OK.
"I think it's just formalities at this point," said airline consultant Robert Mann. "Now it's up to them. Let's see the performance. They're going to be cost competitive. They're going to be well financed."
Also on Wednesday, United reached a tentative deal with its flight attendants union on a new pension plan to replace one dumped on government insurers last year.
The deal is less lucrative than the labor group's previous retirement plan. It includes an annual cash contribution by the company, $20 million in convertible notes, and immediate vesting for all flight attendants currently employed.
Members of the Association of Flight Attendants must still ratify the agreement. A vote is to take place by the end of February, the union said.
The Pension Benefit Guaranty Corp. has assumed the plan for current and retired flight attendants that had $1.4 billion in assets to pay $3.3 billion in promised benefits. The government-run insurance program will only make up part of the shortfall.
United employees had been covered by defined benefit plans, which the employer funded. The plans paid a fixed monthly benefit at retirement and were a staple of airline industry employee contracts for years.
United, along with other major carriers have struggled under the weight of soaring fuel costs and low-fare competition.
Northwest Airlines (NWACQ.PK: Quote, Profile, Research) and Delta Air Lines (DALRQ.PK: Quote, Profile, Research) also are in bankruptcy trying to restructure into competitive companies. (Additional reporting by John Crawley in Washington)
