Overflow Crowd Delays United Airlines Court Battle

An overflow crowd of current and former United Airlines workers turned up at a downtown bankruptcy court Tuesday, delaying a courtroom showdown between the carrier and its labor unions over its most radical attempt yet to slash costs.


CHICAGO (AP) -- An overflow crowd of current and former United Airlines workers turned up at a downtown bankruptcy court Tuesday, delaying a courtroom showdown between the carrier and its labor unions over its most radical attempt yet to slash costs.

The target this time: employee pensions.

The carrier is seeking a judge's approval of its plan to have the government's pension insurer take over its defined-benefit plans, resulting in the largest-ever U.S. pension default. United workers would lose about a quarter of their total pensions if they are shifted to the Pension Benefit Guaranty Corp.

Before the hearing, United Chief Financial Officer Jake Brace said the carrier has no choice but to seek the difficult action.

''All the work we have done and continue to do is about ensuring a healthy United for all our employees and our customers,'' Brace said. ''That work enables competitive jobs and a successful future for our company.''

The hearing was delayed for about an hour while court staff sought a courtroom that could accommodate the larger-than-expected crowd, which included dozens of United workers and retirees.

The effort to dump its pensions is being watched closely by the rest of the airline industry, where record fuel costs, the lowest fares since the early 1990s and stiff competition have caused network carriers to lose billions of dollars. A successful move by United to get out from under its pension obligations, following a step taken successfully by US Airways Group Inc. in February, would clear the way for similar actions elsewhere.

United's biggest competitors would be under the most pressure to follow suit. American Airlines, the largest U.S. carrier and a unit of AMR Corp., has said it will keep its pension plans but is concerned about No. 2 United gaining a financial advantage with the elimination of its pensions.

On Wednesday, flight attendants for American Airlines will gather in Washington to lobby for federal pension reform that would allow carriers to extend the amount of time they have to replenish underfunded plans and provide relief to airlines that seek, through collective bargaining, to preserve rather than terminate their pension obligations.

No. 3 Delta Air Lines Inc., which has said it is in danger of being forced to file for Chapter 11 bankruptcy, faces $3.1 billion in pension payments over the next three years.

United's controversial move risks provoking action by employees who already have agreed to sharp cuts. Unions have raised the possibility of striking if United terminates the pensions and has its labor contracts overhauled - a process the airline is set to start Wednesday at a separate hearing.

Some airline industry analysts say United has left itself few options besides taking that risk.

''If they don't do it, they're not going to get the financing to get out of bankruptcy,'' said Ray Neidl of Calyon Securities. ''They're at the point where they need movement.''

United Airlines defended its plan in a 300-page court filing Monday, calling its blueprint for terminating the defined-benefit pensions a ''landmark achievement'' in its restructuring.

The company, a unit of UAL Corp., renewed its claims that eliminating the pensions is a necessary step that would save it billions _ more than $4.4 billion of funding contributions over six years and $1.7 billion in potential claims against it. The pensions are underfunded by an estimated $9.8 billion.

The Elk Grove Village, Ill.-based carrier said the agreement ''also will provide significant momentum for United's emergence from Chapter 11 and its continuing efforts to become a competitive, sustainable enterprise - and create greater clarity and certainty for its customers and employees.''

United also reiterated its criticism of the Association of Flight Attendants for threatening to strike over the pension issue, saying it has no legal right to do so.

''AFA is wrong and irresponsibly so,'' United said in the filing.

This content continues onto the next page...

We Recommend