From the Wall Street Journal
Last sentence pretty much sums up my post above.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>.
U.S. to Assume UAL Pension Plans
Judge Backs Plan to Move
Liabilities of $9.8 Billion,
Aiding a Bankruptcy Exit
By SUSAN CAREY
Staff Reporter of THE WALL STREET JOURNAL
May 11, 2005
The judge hearing the bankruptcy case of UAL Corp.'s United Airlines late yesterday approved the airline's settlement with a federal pension insurer -- likely allowing UAL to transfer all four of its underfunded pension plans to the government.
Such a move is certain to fuel continuing union ire as many workers potentially will see their retirement benefits cut and because the judge decided they have no right to strike over the issue.
After a full day of heated testimony, U.S. Bankruptcy Court Judge Eugene Wedoff approved the deal reached last month between UAL and the Pension Benefit Guaranty Corp., a federal agency that guarantees corporate pension plans and pays benefits to workers whose employee-sponsored plans have failed.
The agreement, which requires the PBGC to make a final determination soon that the plans are insolvent and need to be taken over, would allow UAL to sidestep more than $3 billion in minimum-funding contributions over the next five years.
In all, the PBGC estimates it would assume $9.8 billion in total liabilities by assuming the plans, which count more than 120,000 active and retired United workers as participants.
Judge Wedoff said removing that liability would make UAL's chances of obtaining financing to step out of Chapter 11 "more likely," despite the fact that UAL would give the pension insurer as much as $1.5 billion in securities to settle its claims.
The judge, who has been presiding over the nation's largest airline bankruptcy case for nearly 30 months, also said the settlement would save UAL from the costs and distraction of litigation and would give the airline more "certainty about its future."
Responding to objections voiced by attorneys representing three unions who objected to the deal, Judge Wedoff found that the agreement between the PBGC and UAL "does not unduly affect the rights of third parties" not privy to the negotiations.
He said both U.S. Bankruptcy Code and the federal Employee Retirement Income Security Act "are very protective of [union] collective bargaining rights." If UAL had itself initiated the pension terminations, the PBGC wouldn't have been able to act without union consent.
But in the case where the PBGC initiated the action, even with UAL's consent, that union's labor contracts wouldn't be considered to be breached. "This places the needs of the pension benefit guarantee system ahead of collective bargaining agreements," the judge said. That means the workers can't strike.
The likely jettisoning of the costly defined-benefit pension plans is central to UAL's business plan as it works to attract $2 billion to $2.5 billion in debt financing in order to emerge from court protection this fall.
Prospective lenders have told the airline in no uncertain terms that they aren't interested in raising money if the airline is going to pay it all out in pension contributions in the next few years.
Sidestepping that liability will immediately transform UAL into a more-attractive candidate for funding, and give it a huge cost advantage over big airline rivals that also are saddled with underfunded defined-benefit retirement plans.
US Airways Group Inc., in Chapter 11 for the second time since 2002, transferred all of its defined-benefit pension plans to the PBGC.
It now is providing cheaper defined-contribution plans, which is UAL's intention subject to approval by the PBGC. Many of the nation's more successful low-cost airlines only offer defined-contribution plans similar to 401(k)s, which give them another competitive advantage over the older so-called legacy airlines, which have been flying for 70 years.
UAL has been suggesting since last summer that it couldn't come out of Chapter 11 with big pension liabilities. In a second round of employee concessions to help the airline become more efficient -- and financible -- the pilots agreed to let their pension plan be shifted to the government in exchange for $550 million in convertible notes in the reorganized UAL.
But the retired pilots, who stand to take a huge hit between what they were getting from the airline and what they will receive in payments from the PBGC, continued to object yesterday in court.
The Association of Flight Attendants, which has grown increasingly vocal in recent months, also agreed to a second round of pay cuts, but continued to press for retention of its pension plan and threatened to strike if the plan was terminated, saying that would violate its contract.
Now with Judge Wedoff's decision that the union has no legal grounds for a strike, it isn't clear how the union will give voice to its deep unhappiness.
