Pressure Mounts on Other Airlines to Seek Pension Relief

Now that United Airlines and US Airways have been granted bankruptcy court approval to terminate their pension obligations, competitive pressure is mounting on other struggling carriers to seek relief.


William J. Rochelle, a bankruptcy lawyer with Fulbright and Jaworski in New York, said Congress needs to devise some way for airlines and other businesses, such as automakers and truckers, to lighten their pension burden outside of bankruptcy court, where workers' retirement benefits are quite likely to be gutted at the hands of banks and other creditors.

The current system isn't fair to retirees, Rochelle said, in that they lose their pensions and any money they had invested in the company's stock, which typically becomes worthless during the bankruptcy reorganization. Investors, on the other hand, often are able to snap up debt at pennies on the dollar and then profit if the company recovers and their debt is converted into equity in the new company.

''Right now our system is creating a transfer of wealth from retirees to junk bond investors,'' he said.

But James F. Hendricks, a senior partner at the law firm Fisher & Phillips LLP in Chicago, said he expects airline executives to work very hard for some kind of compromise from Congress so that they can avoid handing over their fates to creditors, who might just seek liquidation.

''I don't think any airline wants to go into bankruptcy,'' said Hendricks, who represents companies negotiating with labor groups. ''The question is, will they be forced to?''

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