During the first 20 months of its bankruptcy, United Airlines avoided touching workers' pensions.
Only after losing a bid for a federal loan guarantee two months ago did the world's second-largest carrier realize it might have to terminate deeply underfunded pension plans that pose a daunting, ongoing expense.
Some say United must cut loose its pensions to attract the roughly $2 billion it needs to emerge from bankruptcy.
Others argue that the morale problem created by such a move could push investors away and possibly sink the airline, much the way Eastern Airlines died in the early 1990s after workers refused to make concessions to management.
"I'm worried about labor revolt and massive resignations," said Henry Harteveldt, an airline and travel industry analyst for Forrester Research in San Francisco.
Most experts fall somewhere in the middle, saying costs must be cut to attract exit financing--particularly with rising fuel prices tacking an additional $1 billion onto United's 2004 expenses--but that management should tread lightly to avoid further worker unrest and uncertainty among investors.
A bankruptcy court judge told United's management Friday that it needed to work more closely with unions and others who have been blindsided by the airline's decision to stop paying into its pension plans and by its disclosure last week that it "likely" will terminate the plans.
On Tuesday, Chief Executive Glenn Tilton said in a recorded message to workers that "we will work to intensify our discussions with all key stakeholders."
Many investors would like to see Tilton cut pensions, saving them the hassle of doing it later, said William Swelbar, president of aviation consulting firm Eclat Consulting in Arlington, Va.
"They'd probably be happy that somebody else is getting the dirty work out of the way," Swelbar said.
"The question is, will employees be smart enough not to burn the furniture?"
Philip Baggaley, a managing director in ratings services at Standard & Poor's, said pension relief is necessary for United to attract exit financing. And he believes the airline could convince a judge that termination is necessary.
But the process could create "greater uncertainty" among investors, depending on how a termination unfolded and whether the agency that insures pensions tried to stop it, Baggaley said.
Others are worried that United will push employees too far.
"At a certain point, employees are going to make the decision that this isn't working anymore," said Ron Kuhlmann, vice president of Unisys R2A Transportation Management Consultants in Oakland.
At Eastern Airlines in the early 1990s, some employees "dug in," Kuhlmann recalled. "They said, `We don't care if we take this company down or not,' and they did."
That's the way Frank Lorenzo, former head of Eastern Airlines, remembers it.
"Eastern Airlines was brought down by a plan to fight Eastern and a recognition that unless they stopped Eastern, this disease called cost-cutting would spread around the industry," said Lorenzo, now chairman of the private investment firm Savoy Capital Inc. in Houston.
Labor leader Robert Roach Jr. places the blame for Eastern's demise squarely on Lorenzo.
"He kept reducing employees' compensation until they didn't care anymore," said Roach, now general vice president of transportation for the International Association of Machinists and Aerospace Workers.
The IAM held a strike supported by other workers that ultimately led to Eastern's liquidation.
Roach said United is "going down the same road" as Lorenzo by pushing employees for more concessions.
The IAM has asked a court to appoint a trustee to oversee United's bankruptcy, and other unions say they too have lost faith in management.
"There's no way they can successfully exit bankruptcy under these conditions," Roach said.
Bailout of pension agency possible, study says.
PENSION COSTS VS MORALE
United's options loaded with difficulty
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