Machinists at Hawker Beechcraft have voted to freeze their pension plan amid fears of losing it during the aircraft maker's bankruptcy restructuring.
   
Union officials say 97 percent of members voting Friday supported a proposal that retains pensions for hourly employees and retirees while freezing future accruals starting Dec. 31. It also creates a new retirement income savings plan and retains a 401(k) plan.
   
Union spokesman Frank Larkin says negotiations are especially complicated when one party is in bankruptcy. He says the company has assured the union that if the changes were ratified, the plan would become part of any sales agreement.
   
The bankruptcy court must still approve the contract changes.

Meantime, the same court has rejected a plan to give eight top executives at Hawker Beechcraft up to $5.3 million in bonuses. The machinists' union and a federal bankruptcy watchdog agency had opposed the plan.

In a letter sent to employees on Thursday, CEO Steve Miller and Chairman Bill Boisure said negotiations with the Pension Benefit Guaranty Corporation (PBGC) led to the following:

  • 100 percent of union plan participants will receive the full amount of pension benefits already vested
  • more than 99 percent of non-union pension plan participants will receive the full amount of pension benefits already vested

Under the terms of the pension agreement, the PBGC will assume administration of pension plans for non-union, salaried employees as well as retirees. The PBGC is a government agency and like other companies, Hawker Beechcraft has paid PBGC premiums to insure pension plants are protected.

Pension plans for union members will remain the responsibility of Hawker Beechcraft under the terms of its contract with the International Association of Machinists and Aerospace Workers. The IAM represents 3,500 Hawker Beechcraft employees.

The plan must also be approved by a federal bankruptcy court.

Superior Aviation Beijing is in talks to acquire Hawker Beechcraft's commercial operations for $1.79 billion. The company's military operations and contracts would not be included in any sale.

A sale of Hawker Beechcraft to the Chinese firm would pre-empt a full-blown debt restructuring. The plane-maker is seeking to exit Chapter 11 bankruptcy protection which it entered in May when it was unable to support a $2.5 billion debt load.

Read the full letter to employees below:

Fellow Hawker Beechcraft Employees,

After productive negotiations with the Pension Benefit Guaranty Corporation (PBGC), our lenders and union leaders, we have reached an agreement in principle on an approach to address our pension plans within the context of our restructuring efforts. Under the terms of this agreed approach, we estimate that 100 percent of union plan participants and more than 99 percent of non-union pension plan participants will receive the full amount of pension benefits that have already vested.

According to the terms of our agreed approach, accrued retirement benefits for participants in our hourly/union plan will remain the responsibility of Hawker Beechcraft. The agreement with the union is subject to approval by its membership.

Hawker Beechcraft will seek permission from the bankruptcy court to “terminate” the base and salaried plans. “Plan termination” is the legal term used to describe the process by which the PBGC assumes administration of a pension plan if the employer is in financial distress and the plan does not have enough money to pay all pension benefits owed to participants. The PBGC is a government agency that pays monthly retirement benefits when an employer is no longer able to do so. Hawker Beechcraft, like many other companies, has paid the PBGC premiums over the years to insure our pension plans and protect the retirement security of our employees and retirees.

Following termination, the PBGC will pay benefits to vested participants in the base and salaried plans in much the same way we do. The precise benefit you ultimately receive will be subject to the specifics of your situation and relevant PBGC rules. However, as an example, an individual retiring at age 65 who does not elect survivor benefits could receive up to $56,000 per year. The agreement with the PBGC is subject to documentation acceptable to the parties and approval by the Bankruptcy Court.

The company currently utilizes a defined contribution plan, known as Retirement Income Savings Plan, for employees hired after Jan. 1, 2007. Going forward, Hawker Beechcraft will provide all employees with contributions to a defined contribution plan in lieu of future contributions to the pension plans. Over the coming months, every employee will receive information about this plan and details about their individual benefits.

We are in advanced negotiations with Superior Aviation Beijing Co., Ltd., regarding the terms of the potential acquisition announced in July, and Superior supports the agreement in principle with the PBGC and Hawker Beechcraft’s proposed new defined contribution plan. We are confident that any final agreement with Superior will result in these agreements being fully honored and preserved.

The restructuring process requires us to make difficult decisions, taking into careful consideration the requirements placed on us by our lenders and a challenging market for our products and the industry in general. After extensive analysis and very careful consideration, we determined that this agreement is critical to preserving as many jobs as possible and emerging from this process in the strongest operational and financial position.

For your reference, attached are answers to some of the questions we anticipate you may
have about this announcement.

Your continued focus on designing, manufacturing and servicing the best airplanes in the world is critical to our future success. Thank you for your continued hard work and dedication.