UAL’s Union Director Protests Pension Cutoff
The decision by UAL Corp.’s United Airlines to stop funding its employee pension funds while the carrier operates under Chapter 11 stirred further turmoil Wednesday when a union leader who is also a UAL director said he would boycott today’s board meeting.
“I will not be party to their illegal efforts,” said Randy Canale, whose machinists union has threatened to sue over the issue.
“United is breaking a promise to employees to make another promise to lenders,” added Canale, whose union represents 37,000 active and retired United ramp, public contact, food service and security workers.
United deferred a required quarterly pension payment of $72 million this month and then said last Friday that it planned no further payments in bankruptcy. The airline was facing more than $4 billion in required payments to the underfunded pension plans through 2008.
The plan to cut off pension payments drew a warning from the Pension Benefit Guaranty Corp., a federal agency, which called such a move inconsistent with pension and tax laws.
United, however, said its new, $1-billion interim borrowing effectively prohibited further pension contributions while it was under bankruptcy protection.
UAL Chief Executive Glenn Tilton, in a recorded message to employees, said it was essential that the company use its interim bankruptcy funding “to preserve our liquidity and preserve our flexibility as we enter the slower fall and winter travel seasons.”
But he said no final decision had been made. “Any possible changes will be discussed thoroughly and openly with our union leadership and all of our other stakeholders, and those meetings are now being arranged,” Tilton said.
Separately Wednesday, a former executive director of the pension agency said it could be overwhelmed if United defaulted on its pension obligations.
“The PBGC wasn’t designed to withstand the level of under-funding that we are now witnessing in the system,” said Steve Kandarian, who stepped down in February.
The PBGC, which pays retiree benefits only up to certain limits, has a deficit of $9.7 billion. A default by United would add $5 billion to its red ink.
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Associated Press and Reuters were used in compiling this report.
