United ‘Likely’ to Cancel Pensions

United Airlines, moving closer to a cost-cutting change feared by employees and retirees, said it probably would cancel its pension plans in hopes that the move would help the carrier emerge from bankruptcy proceedings.

“This is not good news,” said Redondo Beach resident John Givens, 58, a former United reservations director and union official who retired last year.

United, a subsidiary of UAL Corp., already has stopped making contributions to its four pension plans. They are $8.3 billion short of what would be needed now to fully fund future retiree obligations, according to the Pension Benefit Guaranty Corp., a federal agency that insures corporate pension plans and stands to inherit United’s obligations if the airline scraps its plans.

The pension agency estimates that under federal law it would be liable for $6.4 billion of the four plans’ total deficit -- leaving a $1.9-billion shortfall for recipients. That would make it the largest pension-plan failure.

In a Bankruptcy Court filing Wednesday, United said that because it was so short of cash, “termination and replacement of United’s defined-benefit pension plans likely will be required” if it hopes to raise the new financing it needs to get out of bankruptcy.

“Let there be no mistake: United would like nothing more than to keep the pension plans intact,” the filing said. But doing so would require more than $500 million in pension payments over the next two months alone, “and dig an even deeper hole for United.”

No final pension decision has been made, the carrier said, adding that it “remains willing to consider any alternative to pension termination.”

A hearing on the future of the plans is scheduled for today at the U.S. Bankruptcy Court in Chicago, where United’s case is being handled. UAL and United, the nation’s second-largest airline behind AMR Corp.’s American Airlines, are based in Elk Grove Township, Ill.

According to the pension benefit guaranty agency, about 119,000 United retirees, current workers and former employees who are vested, as well as their dependents, are covered by United’s plans.

United doesn’t break out its pension-plan membership by state. But 16,300, or 26%, of United’s 62,000 current employees live in California. Based on that percentage, nearly 31,000 of the plans’ participants would be located in the state.

The airline declined to elaborate on what it meant by a possible “replacement” of its current pension plans. That probably would be some type of less generous, supplemental retirement program, with United’s existing pension plans absorbed by the pension agency, people familiar with the situation said.

The agency has filed objections in court over the airline’s decision to stop making payments to the plans. United’s action, it said earlier this month, “increases the risk of loss not only to the company’s workers and retirees, but to participants in other plans insured by” the agency.

In response to United’s latest threat to kill its pension plans, agency spokesman Gary Pastorius said: “Unless and until United’s pension plans terminate, we believe the company has a legal obligation to pay for the pension promises it has made to its workers.”

Some of United’s unions have filed lawsuits on the same grounds. Since United missed a $72.4-million pension contribution July 15, “we’ve expected their ultimate goal was to terminate the plans,” said Joseph Tiberi, a spokesman for the International Assn. of Machinists, which represents 37,000 active and retired United baggage handlers, ramp workers and other ground employees.

UAL -- which lost $2.8 billion last year and an additional $706 million in the first half of this year -- filed for Chapter 11 in December 2002. It tried to secure a $1.6-billion federal loan guarantee to help it exit bankruptcy protection, but the U.S. government denied the request.

“In the absence of a federal loan guarantee, combined with the high fuel-price environment, United must have the cash flow and liquidity that the financial markets are willing to finance,” United said in its court filing.

United’s workers and retirees are concerned that, if United ends its pension plans and they’re picked up by the federal agency, the workers’ benefits could be cut because the agency is bound by federal limits on how much it can pay out.

Givens, the retired reservation director, said he would be among those shortchanged. He estimated that his benefits, now $4,500 a month, would plunge to about $1,800 a month if the federal agency had to take over United’s plans.

“It’s going to be rough,” said Givens, a former president of IAM Local 1932 in Los Angeles, “and require a drastic lifestyle change.”