UAL Unions Not Planning For More Concessions - But More Cuts Expected...

[On Your Six]

Ouch! Does not sound good for the pilot group - looks like more cuts on the way given the reliance on a private investor who will likely DEMAND more cuts to reduce investment risk. Not a good situation...



UAL unions say not planning for more concessions
Tuesday June 29, 4:40 pm ET
By Meredith Grossman Dubner


CHICAGO, June 29 (Reuters) - United Airlines, denied a big federal loan guarantee, will most likely have to turn to its unions again to cut costs, analysts said on Tuesday, but union leaders said they were not yet planning for the possibility of more givebacks.

United has been working to secure funds for its bankruptcy exit since its second application for government backing of a $2 billion private sector loan was rejected June 17.

The company's third and final application was turned down on Monday, about 18 months after its first application was denied, sending it into Chapter 11.

"We're really in a waiting process. The company hasn't asked us for anything, they're talking to their lenders," said Capt. Herb Hunter, a spokesman for United's unit of the Air Line Pilots Association (News - Websites) . "I can't imagine quite honestly that they would ask for any other concessions."

Statements issued by United's unions on Monday indicated that any requests for further concessions would not be received warmly.

United's unions already have agreed to $2.5 billion a year in concessions. The pilots contributed 40 percent of that package.

The pilots said on Monday they expected United to resolve its finances without turning to employees again. The International Association of Machinists also called on United to avoid further employee sacrifices.

"If United does ask us for a meeting, we'll meet with them (and) respond at that time," IAM spokesman Joe Tiberi said, declining to speculate on what may come next.

A United spokeswoman also said it was premature to say whether the company would seek more cost cuts from unions.

DIGGING DEEPER

Glenn Tilton (News) , chief executive of parent UAL Corp. (OTC BB:UALAQ.OB - News), told employees last week the company would have to dig deeper to find more savings. He also said UAL was looking for sources to raise capital.

Several private equity firms have taken stakes in other troubled airlines, but analysts said it was too early to speculate on which ones might emerge as major players in the United case.

Among the common suspects are Texas Pacific Group (News - Websites) , a private equity firm that has taken stakes successfully in Continental Airlines (NYSE:CAL - News), America West Airlines (NYSE:AWA - News) and Ryanair (Irish:RYA.I - News), and Greenbriar Equity Group, headed by former United CEO Gerald Greenwald.

"In order to attract new equity investors and credit, they will probably have to further lower their operating costs, and part of that would likely involve further concessions from labor," Standard & Poor's analyst Philip Baggaley said.

He noted that although previous concessions included pay cuts and work rule changes, they had little impact on benefits and left pensions untouched.

Pilots at US Airways (NasdaqNM:UAIR - News) had their pension terminated and replaced with a cheaper one as part of its reorganization.

Baggaley said it could take the rest of the year for United to line up financing and negotiate with unions and other stakeholders, making early 2005 -- rather than this year -- a more realistic date for a bankruptcy exit.

There is no question, analysts said, that asking for additional concessions from workers would be painful.

American Airlines (NYSE:AMR - News), Delta Air Lines (NYSE:DAL - News), and US Airways all have seen their top brass resign within the last 15 months, in part related to major union strife.

Still, United could be better off in the long run without the loan guarantee since it will be forced to make changes needed to survive, said Bill Rochelle, a bankruptcy attorney at Fulbright & Jaworski.

"They will have a running head start over the other network carriers in making for a more drastic reduction of their costs," he said. "Arriving at the goal first may allow them to survive long-term when others don't."

 

[storminpilot]

Pensions will go "poof", if they don't give a little. What an Industry!

Lee Iacocca said "Lead, Follow or Get Out of the Way"

Is United destined to be like Pan Am, Eastern, Braniff, People Express, Midway, and on and on.

 

[SMMustang]

Still, United could be better off in the long run without the loan guarantee since it will be forced to make changes needed to survive, said Bill Rochelle, a bankruptcy attorney at Fulbright & Jaworski.

Interesting...I believe this is true if they do come out of banckruptcy. However, will the folks at UAL be applying to Virgin and Mesa to get a pay raise?

 

[trip]

How about going after the F/A and Mechs this time around since they escaped the brunt of the cuts last time. Just maybe some of them senior mamas will pack it in as a bonus!.

 

[UALjan15]

There won't be any talk from Mngt right away about slashing pensions. FIRST, they will go after more pay from everyone (except themselves). The unions will be led to believe that giving more in wage and work rules will save their pensions. THEN, with another round of cuts securely in place, the airline will try to exit BK, but the pieces just aren't going to fall together without raping the pension, and, just like over at US Airways, that will be the cost to emerge.

No, I'm not bashing anyone (except maybe mngt) over at UAL. I'm just pointing to the well-worn page in the management playbook. Now, the real question is if a leaner UAL can make a comeback in the marketplace. I believe they can.

Looking from the outside in,
UALJan15

 

[Groucho]

The possible return of bankruptcy court intervention

The situaition at United and even more so at US Airways brings to light the various limitations and possibilities of the U.S. Bankruptcy code.

For those of you who receive the world's most expensive magazine, ALPA's Air Line Pilot, there is a paragraph or two on the Bildisco decision in the last edidtion. This decision rendered by the supreme court in 1984 upheld the cancellation of labor contracts bankruptcy. This decision happened while ALPA was appealing the Continental bankruptcy court decisions of 1982, and as a result, they lost their appeal on the leagality of the abrogation of union contracts.

The congress amended the bankruptcy law to give labor some more protection and required a good faith effort by management in bankruptcy to come to some kind of agreement prior to asking the court for relief.

A web search of the Bildisco decision brought up the following from a law school review site:
"The second circuit announced a third more onerous standard for rejection. The Court holds that rejection of a contract would be permitted only after a careful weighing of all factors and equities involved, and a determination the the contract is so onerous and burdonesome that it would thwart efforts to save a failing carrier in bankruptcy from collapse."

Considering the current state of United and US Airways management at these carriers may try to have the court abrogate the contracts of those groups who don't come to rapid agreements. UA Airways would be the obvious first choice in another Chapter 11 filing. The only way to avoid Chapter 7 might be to pitch to the judge that all other remidies have failed and this is the only course of action left. Airways management is attempting to bargin with all unions on the property at this time but only ALPA and CWA have responded.

United still has more assets and more staying power but thier losses are also greater and they may find theselves in the same contract abrogation boat in the near future.

This situaition would make ol "Frankie-smooth-talk" Lorenzo happy.

 

[Ganja60Heavy]

Overheard in the ORD UAL pilot crew lounge....

UAL pilot: "I'll build time here until I can get hired at Comair. I need the money."

 

[AAflyer]

Groucho,

You hit the nail on the head, and I bet Frankie is probably going gaga right now watching this!!

The spooky part about the pensions are if UAL gives them up, ours are next. In fact I can feel AMR looking at our A fund right now, it gives me the creeps.

In the end UAL,AMR,US operating without pensions, that will put more heat on DAL,NWA, and even CAL.

This roller coaster ride to bottom is picking up speed!

AA

 

[pilot141]

U goes Ch 11......and abrogates the pension.


UAL goes Ch 11.......and unless something changes.....is eyeing the pension as the "obstacle" to emerging from bankruptcy.


Any guesses as to what DAL might go after if they file Ch 11?

Any guesses as to where ANY airline pensions will be in 10 years?

Say goodbye to A-funds and B-funds forever. The future is 401(k) matching and stock options.

Start saving now, folks.

 

[Boeingman]

U goes Ch 11......and abrogates the pension.

Their pension is already gone from the last one. U's next trip to BK court will be a C7 filing.

UAL goes Ch 11.......and unless something changes.....is eyeing the pension as the "obstacle" to emerging from bankruptcy.

UAL is already in Chapter 11. Your right though, the pension will vanish as creditor pressure mounts for a plan of reorganization. There is no way UAL can fund the pension at this rate...especially when they get nailed with above market rate financing if they find it at all.

Any guesses as to what DAL might go after if they file Ch 11?

Unknown, different financial animal

Any guesses as to where ANY airline pensions will be in 10 years?

I'd say the kump sum payouts will be gone. Some type of annuity, if there are even any plans left.

Say goodbye to A-funds and B-funds forever. The future is 401(k) matching and stock options.

Yep.

Start saving now, folks.

And plan on working until you drop dead.

 

[46Driver]

Wonder how losing all of the pensions will affect the age 60 rule? My observation was that the people for age 60 all had pensions, those against age 60 had 401k's. If the pensions go away, will ALPA change their position (again)?

 

[AA717driver]

When they threatened TWA's MEC with an 1113 filing to get us to void our SCOPE clause, no one gave a sh!t. Now, they're knocking at your door. Too late.

At least Duane Woerth has his... TC

 

[fam62c]

Pensions

I hate to say it but I think that defined benefit pensions are going to be a thing of the past in private industries. The world of business has become a far less stable and more competitive place and DB plans have too many future unknowns. It's hard to plan for future pension liabilities with an unknown investment return going forward for large numbers of employees that are increasingly living longer. When employers negotiate these plans they have to assume that they will be able to pay for them in the future.....this has proven to be a bad assumption. This doesn't mean that "pensions" will disappear it just means that defined contribution plans like 401K's with matches and "money purchase" plans will be the norm. Major airlines are actually already one of the last private industries to have the plans. Look for widespread conversion to DC plans. Industry just can't afford these plans anymore. DB plans are a good deal if you have a long career with a company that remains financially viable and in business for the duration of your career. This is getting hard to do in our industry.

I know that most people here will strongly disagree with me here but I believe that, in the end, DC plans are a better deal if the vesting schedule and matches are decent. DC plans are "portable" in that once you are vested if you leave the company (or if the company leaves you.) the money goes with you and can usually be rolled over into a new employer's plan or an IRA. In some cases 410K's allow you to begin saving for retirement with jobs you have in High School and College and keep rolling the money forward as you get new jobs during your lifetime. Also, generally you have some degree of control over how your retirement is invested through various plan investment options. DB plans are also very heavily weighted towards years of service and final average earnings near the end of your career. When employees careers get cut short ten or fifteen years into a career with an employer people really get hurt. We live in a different era now and I'm afraid that DB plans are going to be a relic from another time and place.

 

[MLBWINGBORN]

If anyone thinks that UAL will find investers with their huge pension liability they are dead wrong..

You can pretty much kiss both the A and B funds goodbye as being the cost of getting new financing..

But..

I had lunch with a very senior 777 driver at UAL..

He more or less said that no one was going to touch the pensions at UAL..
He went on further and said that"they would run the company into the ground first"..

When i asked him about giving up the A/B funds to save the company..

He said that he thought they could find investers and keep the funds..

I wonder what color the sky is on his planet?

 

[UpNDownGuy]

There are other options-

I hate to say it but I think that defined benefit pensions are going to be a thing of the past in private industries.


I agree with you as far as DB plans as practiced by airlines and ALPA are concerned. Please understand that not every industry is afflicted with the same lack of vision as ours. For example, my Dad is retired and collecting a full pension from the Operating Engineers. The companies their members work for pay the Operators a per-hour rate directly, and the Union is responsible for the money. The Engineers have a very sharp investment firm managing their retirement fund. They invest (mostly) in long term, tangible assets that will appreciate, such as shopping malls and other real estate. They are so successful that every year, twice a year and regular as clockwork the members have to take a vote. The vote is to determine whether to increase benefits or decrease contributions. Every year, they vote to increase benefits. You see, federal law restricts how large the fund can get before one of those two things must happen. So every year, twice a year, my Dad gets his pension increased. It is outpacing inflation quite nicely.


I was a member of ALPA's Board of Directors some years ago, and went to the Retirement and Insurance folks to propose a similar arrangement. I had hardly got the first words out of my mouth before I was assaulted with a wave of ignorance and misconceptions from these supposed "experts". "We're not the Teamsters", "raiding the pension fund".."I'd never trust ALPA with my money". I pointed out some of the obvious benefits, including portability from job to job, immediate vesting, and not having your pension be dependant on your carriers financial health. I pointed out that the funds can be arranged to prevent misuse or access by ALPA; it all fell on deaf ears. It hasn't been done in our industry before, thus it can never be done.

This whole thing runs through my mind every time I hear a pilot talk about how well educated pilots are, such as the tired doctor/lawyer/pilot wage comparison. Yep, we're really something all right. Maybe in 20 years or so we can be as bright as the construction workers that aren't flumoxed by managing a retirement fund.

 

[lowecur]

xxxxxxxxxxxxxxxxxxxx

July 2, 2004

[size=-1]NEWS ANALYSIS[/size]

United's Pensions on Increasingly Shaky Ground

[size=-1]By MARY WILLIAMS WALSH[/size]

s United Airlines prepares to ask workers for a new round of cutbacks, its pension plans look increasingly vulnerable. The airline has four big plans, and shedding any one could lop off more than $1 billion in debt.

Such a drastic step could nudge other airlines to trim their pension plans as well, to keep their labor costs competitive. The long-term prospect could be a series of failed pension plans and lost benefits reminiscent of those in the steel industry, a costly outcome for the government.

Which workers' pensions at United are most at risk? Those with the biggest pensions - the pilots - might not, in fact, be first in the cross hairs.

Because the pilots' fund had good returns during the stock market boom, it built a big reserve of credits for funding purposes. That cushion has allowed United, a unit of the UAL Corporation, to contribute less cash to that plan than to the others since entering bankruptcy, even though the pilots have been promised by far the most benefits.

The most recent data suggest that the pension plan for United's mechanics has been consuming the most cash in the last two years. United's plan for administrative workers and managers appears to have required the second-largest amount of cash, followed by the plan for flight attendants.

As long as this pattern continues, United could conserve more cash in the short term - and make itself more attractive to lenders - by chopping one or more of its skimpier pension plans. It could either freeze the benefits at their current level, or terminate one or more plans outright - a far more drastic step that would require approval by the bankruptcy court.

A termination would save the airline more money but also cause an uproar in the workplace. To minimize the backlash, United might start with the plan that has promised the smallest benefits - the flight attendants' plan - because government insurance would cover more of those promises. The flight attendants have already agreed to pension reductions, and they are bitter about a new plan to cut retiree health insurance. United might ease the pain by giving them other retirement benefits, like an enriched 401(k) plan.

United declined to discuss any aspect of its pension plans, and officials of the unions that represent its employees said the airline had not yet contacted them for discussions. Just a few weeks ago, United said in a bankruptcy court filing that it viewed its pension plans "as untouchable unless there was no other choice." But that was before the government denied loan guarantees to United. O. V. Delle-Femine, national director of the Aircraft Mechanics Fraternal Association, said he now feared the worst.

"You've got to gut the pension plans," he said. "I don't see any other way."

Whatever United does will be closely watched by the other major airlines and their employees, who have substantial pensions of their own to worry about. If United ultimately revives itself by terminating one or more of its pension plans, other airlines may also try to shed pension debt, to remain competitive.

This would not happen overnight. Pension terminations are difficult and costly. But over time, the industry could find itself in a long, slow race to the bottom - a succession of bankruptcies and pension defaults similar to those in the steel industry over the last quarter of a century. Steel maker after steel maker went bankrupt, and the only ones to bounce back were those that scuttled their pension plans.

In the process, the government had to take over $9.4 billion worth of pension obligations. Because pension insurance has limits, many steel workers had their benefits reduced.

A replay of those grim events in the aviation sector would be painful for airline employees, and ominous to workers in other mature industries, like automaking, where the pension obligations are also large and growing faster than revenues. And it would probably swamp the government's insurance program.

In May, the Pension Benefit Guaranty Corporation disclosed that it was beginning to stabilize after two years of losses, but it warned that it had just classified $23.4 billion worth of airline pensions as "reasonably possible" to default.

The agency did not specify how much of that amount was owed to United employees. But last year it calculated that if United terminated all four pension funds immediately, they would be $7.5 billion short.

In earlier rounds of cost-cutting, United scaled back some of its pension plans. The flight attendants, for instance, are building their pensions at a slower rate than before the bankruptcy filing, saving United a reported $43 million a year.

Mr. Delle-Femine of the mechanics said that the unions might be able to form a coalition to negotiate pension cuts. But the employee groups' interests diverge, and Mr. Delle-Femine said that if full-blown terminations were coming, as he expected, the unions would be unable to stick together.

"Everybody's crying that they're not going to take it out of my hide," he said.

United has disclosed that it has contributed $127 million to its four pension funds this year. It must still contribute $598 million, some by July 15 and the rest by Oct. 15. A United spokeswoman declined to specify what portion applied to each plan, or to provide up-to-date information about the plans' financial strength.

Despite the sums at stake, the airline is not required to disclose current, detailed information about its pension funds. No company is. Some pension data must be disclosed in financial reports, but companies with several funds, like United, usually provide aggregate figures.

More detail on individual plans can be found in the annual reports filed with the Labor Department. But the filing deadline is seven months after the close of the year, and companies are given ample extensions, so the information is out of date - particularly in rapidly changing situations.

United's most recent pension reports are dated Dec. 31, 2002. Since then, the stock market has turned up, some plans have been reduced, and Congress has relaxed the pension-funding rules. But the numbers offer a rough sense of how the termination of any one pension plan might affect United's finances and workers' benefits.

Not only has the pilots' plan promised the most benefits, but it has promised them to the smallest number of people, meaning very rich individual benefits are at stake. As of December 2002, about 500 active pilots had worked enough years to earn pensions of more than $100,000 a year. Sixty-four of them had earned pensions of $150,000 a year.

If United defaulted on that plan, the pilots at these levels could experience big losses. Government insurance generally covers a maximum of $44,386 a year. People who have already retired when a plan fails can sometimes get more, depending on the amount in the plan. But those too young to retire are often out of luck. Those who have tried to recover their losses in court, like the pilots of Pan Am, have found that the pension agency is a tireless litigator.

The average United pilot was about 44 years old in 2002 and had built up a pension of just $26,000, the records show. Such pilots would probably have full insurance coverage if the plan failed. But they would miss the opportunity to accumulate the six-figure pensions that were standard in the past, and would probably not back down without a fight.

When US Airways found it had to terminate its pilots' pension plan to emerge from bankruptcy, the pilots threatened to force the airline into liquidation. US Airways countered with a very rich retirement package that fell short of a guaranteed pension plan. That satisfied US Airways' lenders, but the cost of the new benefits canceled out much of the savings from ending the old ones.

All that makes the pilots' pension plan an unappealing starting point for United to look for savings.

The mechanics' plan has some similar issues. Its benefits are much smaller than the pilots', but a significant share of them were granted in 2002. The government does not fully cover benefits granted within five years of a pension termination. So part of the mechanics' most recent raise would disappear if the plan went to the government.

"They'd lose big time," Mr. Delle-Femine said, adding that if United gave notice of a termination, the union would try to block it in court. "If they said, 'Let's sit down and negotiate this stuff,' I'd say, 'Let's see what the bankruptcy judge says first.' "

The other two plans, for flight attendants and administrative workers, might be the most vulnerable. The administrative workers, managers and ticket agents are not represented by a union. Terminating their plan would wipe some $1.7 billion in unfunded pension debt off the books. These workers tend to earn pensions safely within the government's insurance limits. The 34 longest-serving employees in this category have earned pensions averaging about $32,000 a year, the records show.

Most flight attendants would also be fully covered by the government's insurance. The most senior had salaries of a little more than $40,000 a year in 2002. Forty-two had 39 years of service, entitling them to pensions of about $36,000 a year.

 

[skykid]

While pure speculation, the last article is the most interesting I've read in a while. Bottom line is that with so many willing to do this job w/o a traditional pension, it is difficult to conceive of pensions being around in the long haul. Is United mgt going to have to come after pensions? I think so. Are the unions willing to try to force liquidation to stop it? I don't know. In theory the FAs could have their plan terminated and not feel much of a difference when the gov takes over. I can tell you there isn't a pilot in his right mind at any major airline that is counting on an 'A' plan or traditional pension. The gov wants to tax airlines like beer and cigs, leave 8.5 billion of loan guarantees on the table, fine - here's 10-15 billion in failed pensions from a handful of airlines. Think the ATSB hasn't thought this through? They thought this line of reasoning out not for days, but months. Why didn't the other majors lobby against this last guarantee bid? If United can successfully shed a couple pension plans and scale back on the rest, it will force a domino effect.