UAL Possibly to TERMINATE Pension Plan - Ouch!

[On Your Six]

From bad to much worse.... Flying the friendly skies.



UAL: Pension Plan Terminations Likely
Thursday August 19, 1:00 pm ET


CHICAGO (Reuters) - United Airlines, which has said it plans to miss nearly $500 million in pension contributions this fall, said in bankruptcy court papers it likely will be necessary to cancel and replace all of its pension plans.

The No. 2 U.S. airline, a unit of UAL Corp. (OTC BB:UALAQ.OB - News), said in court documents filed on Wednesday it was no secret to any of its stakeholders that the company is considering whether termination and replacement of all its pension plans will be necessary.

"As United has told its board of directors, the creditors' committee, and its labor unions, given the magnitude of the further cost reductions needed to create a viable business plan and attract exit financing, the termination and replacement of all of United's defined benefit pension plans likely will be required," the company said.

No final decisions on the pension plans have been made, United said. United, which has been operating in Chapter 11 bankruptcy since December 2002, has four pension plans covering various groups of employees.

The airline has said skipping a $72 million pension payment in July and the upcoming fall contributions will provide it with the flexibility it needs to save money and attract badly needed investors.

United also said proposed changes to its bankruptcy financing, which will provide it with an additional $500 million and extend its loan maturity until June 2005, do not expressly prohibit the carrier from making pension contributions. Rather, the airline said halting payments was based on prudent business judgment and its need to preserve liquidity.

U.S. pension insurers, as well as unions representing the airline's machinists and flight attendants, have asked the court to prevent United from ceasing contributions.

 

[On Your Six]

Sorry, didn't see that it had already been posted. If this happens at UAL you can expect similar changes and DAL, CAL, NWA, AMR, etc... Not a good day.

 

[Mugs]

So what? The public gets cheap fares. As I have learned from this board, good defined benefit pension plans at the legacy carriers were only possible in the past becasue the legacy carriers ----let's see, what was the word used here again ----oh yeah, they "raped" the traveling public with high fares. Since such a huge injustice was done to the public for so long which allowed for some pilots to retire with a nice pension, it is only proper that those benefits now be terminated.

Have I got it right now?

 

[GuppyPuppy]

If you are a furloughed UAL pilot like me, cash out on your PLSA now!!!

Contact the furlough coordinator for more information. Take the money now. If you ever go back you decide whether to pay it back or not. But, that won't matter if the plan is terminated.

GP

 

[Tanner]

Did it last year. had to pay the penalty, but w/ 3 yrs seniority felt like it was worth it.

 

[canyonblue]

oh yeah, they "raped" the traveling public with high fares.
Have I got it right now?

No. If you buy a Porsche because you must have German engineering but end up with a Volkswagen product, you pretty much stop relying on Porsche to deliver. Same stands true for Air travel. If you can't differentiate your product from the next guy, and demand a premium price, you are going to have problems. I don't believe any airline "raped" their passengers with prices, I think the product just didn't deliver. Why is it JetBlue fares are sometimes higher than Delta's? The perceived value must be there.

 

[JohnDoe]

quote from mugs:
"So what? The public gets cheap fares. As I have learned from this board, good defined benefit pension plans at the legacy carriers were only possible in the past becasue the legacy carriers ----let's see, what was the word used here again ----oh yeah, they "raped" the traveling public with high fares. Since such a huge injustice was done to the public for so long which allowed for some pilots to retire with a nice pension, it is only proper that those benefits now be terminated.

Have I got it right now?"



"Raped" the travelling public??? What the heck??

Isn't your post an example of the "supply and demand" theory that everyone is crying about in this forum? People wanted to fly, airlines said ok it will cost you this much, and the travellers flew. Supply and demand right? Now things are different. People want to fly, but at different costs. The airlines have to charge less now because there is a new "supply" of flights that cost less. Again, supply and demand.

"Raped" the traveling public.......Give me a freaking break. Supply and demand. It was no different than any other business in this country. Do oil companies have to charge $1.90 a gallon for gas while they are making billions in profits??.......no. Are they raping the consumers too??

 

[Cardinal]

I detect a note of sarcasm in mugs' post

 

[Mugs]

The marketplace is what it is. I am not denying that. Obviously, the pensions that will be vanishing were the product of a completely different revenue environment and I accept that. At one time commercial air travel could command a premium that allowed for such a benefit. In general, it now no longer can. As I said, I have read a defense a few times on this board about how the legacy carriers "raped" the traveling public for a long time and that now things were being set straight. That sure is a sad way of thinking for those that feel they need to justify themselves. But hey, I read it here first.

 

[iaflyer]

retirements

Southwest seems to have a very nice retirement program. Maybe I'm wrong, and don't know the details, but they don't seem to be "raping" the traveling public.

Anyway - the retirement programs were negotiated by the unions as part of the overall pay- it's now being taken away. Poof. Imagine if your employer came back to you afte ten years of work and said, "yeah, we're going to have to take back some of the money we paid you. That $15,000 you saved for a rainy day in a savings account? Well, we are going to take it back."

I think at Southwest the retirment is all 401K, so it's in your name - so if the company stopped the retirement, you wouldn't lose any.

iaflyer

 

[MW44]

Well ual had a 401k type retirement as well, I believe it's called the B-fund. I think it's too bad SWA never negotiated a pension because a 401k/lump sum account AND a pension used to be the norm; now it's becoming standard just to have a 401k like SWA and be at the mercy of the stock market.

 

[Boeingman]

I detect a note of sarcasm in mugs' post

And quite a bit of truth to it. Does this situation with UAL really surprise anyone?

 

[skykid]

MW44, you are correct, UAL has a B fund that the company paid in 11% before contract 2002, and now pays in 9% of your pay. You don't have to be at the mercy of the stock market, most of mine is invested very conservatively, because I'm expecting another large terrorist attack to affect the market. I am amazed at how fast mine built up after the ESOP till now, by matching to the limit.

So when the A fund goes "poof," and it will have to be at least severely reduced in my opinion, UAL will be left with what most of the LCCs have. In fact, most of the businesses in this country only have these 401K type retirement funds, and I'd be surprised if anyone except Uncle Sam has traditional pensions in 20 years.

This is not to say I don't appreciate the situation retired guys are in. Esp guys who left Eastern or Pan Am and only got 10 years or so at UAL. Hopefully most matched their 401K or maxed their IRAs since they started working. That's my advice, if you have to eat peanut butter and jelly, max it out.

 

[MW44]

I think it's unortunate that LCC's never secured a pension. I think the only reason that the "legacy" carriers costs are considered excessive is because they are compared to all the LCC's that only offer 401k retirements. If everybody including SWA, F9, etc had a pension program I don't think they would be terminating any of them now. Once ual succeeds in dumping their pension plans then I imagine this whole industry is going to adopt the LCC compensation plan.

I'm curious what's going to happen to the ual retirees who got out in the last five years. Their retirement seem to be very dependant on the A fund and obviously they won't have time to make up the difference with increased B fund contributions.

 

[canyonblue]

I think it's too bad SWA never negotiated a pension

Are you really this stupid? If we had a full blown pension we'd be losing money like everyone else. I'll take a better 401k match than let any company run my retirement. If we had a pension how would that help another carrier? "Hey, you can't cut our pension Southwest has one". If that were true nobody would be paid less than us, and you can see how that turned out. Pensions are going away and it's the fault of all the Low-Cost carriers. Typical management stooge response, and the sad part is you don't even get it. Try sorry Airline Management maybe they could get some blame.

 

[MW44]

quote from canyonblue "If we had a pension how would that help another carrier?"

Canyon,

I'll answer that question but do me a favor and consider my response before going off on an emotional tirade. If SWA and the other LCC's had a pension plan it would help the traditional carriers by creating a more equitable cost structure throughout the industry. The reason you guys can charge $69 dollars a ticket and make money is because your cost structure is dramatically lower. I'm not arguing whether you're underpaid, overpaid, right, wrong, good, bad, whatever but the fact of the matter is that your lower OVERALL labor costs (including retirement) have put pressure on the majors to lower their labor costs to a similar level. The fact of the matter is that the major carriers would not be in their current state if the LCC's paid similar wages. Again I'm not saying this is necessarily good or bad it is just the state of the industry.


One of the major reasons your cost structure is lower is because you don't offer nearly as costly/generous of a retirement plan. SWA and other LCC's have changed the public expectation of what a fair price for a ticket should be. One of the reasons the LCC's can offer such cheap fairs is because they don't pay BILLIONS in pension costs. The majors, no matter how well managed, can not match your prices when their pilots work half the hours, generally make more money, and then retire with 100-160k/year pension in addition to a lump sum. The math just doesn't add up.

When Ual was denied for the third time by the ATSB one of the three officials noted that if SWA had Ual's pension obligations then SWA would have lost a couple hundred million dollars last year. Obviously SWA would not have lost money and they would have been forced to RAISE their prices to stay profitable easing the strain on the majors. Having a pension plan would not guarantee losses at SWA it would have merely leveled the playing field a little. As it is the LCC's with their lower cost structures have become such a formidable competitor that most likely all the majors will have to dump their DB plans in order to stay competitive with the "new" cost structure. I'll say it again, if the LCC's had high cost items like pensions included in their contracts the pressure to cut these at the legacy carriers would not be as extreme because they would not be seen as out of line with the industry. And I don't agree with your argument that a pension at SWA would result in your airline "losing money like everyone else."

Obviously we are in a capitalistic society and the LCC's should attack a market that is bloated but I don't think a sane man can argue that the LCC's have absolutely nothing to do with the demise of wages at the legacy carriers.

Now please tell me, with a rational argument, how I'm wrong. And man, I don't know who you are or care who you are so lets hold off on the name calling unless you just have to get it out.

 

[canyonblue]

I apologize for any name calling, I don' think it belongs on an anonymous forum, and I stupidly did it myself. That being said I still disagree with the fact that SWA having a pension would have saved another airline from losing money. SWA started flying in 1971 and the "Legacy" airlines had their pensions long before Deregulation, Actuaries and minimum funding. SWA has been target one for most of it's 33 years. We've seen Braniff, Shuttle by United, Metro-Jet, Delta Express and Continental Lite. This pilot group has tried to make gains in pay and benefits only to see it's airline attacked by the afore mentioned anomalies. As far as pensions making everyone equal, that would all depend on how the money was invested by each airline. Ford Motor Company has an under funded pension, while recording record profits, and probably does pass that cost onto the consumer, but were talking about $30,000 cars not $300 airplane tickets. The shortfall in a pension is harder to makeup in an industry know for thin margins, the airlines. I have an article that talks about the "misled belief" that pensions are there to take care of you in your old age it's a little long but worth the read. And just like China, SWA came late into the game compared to the other airlines

Here it is......

http://www.lewrockwell.com/north/north297.html

and it ends with...........

[font=Times New Roman, Times, serif]The lessons are simple:[/font]

[font=Times New Roman, Times, serif]Read the fine print of your pension program.
Assume that your future is not guaranteed.
Your past employer regards you as a liability.
It is easier to create money than to create wealth.
The government is not your friend.[/font]​