Bankrupt carrier United Airlines considers terminating employee pension plans the "best of a bad set of options" to help it emerge from Chapter 11 protection, parent company UAL Corp. said in a court filing.
Almost immediately, unions representing the airline's pilots, flight attendants and machinists decried the proposal, with the pilots union claiming that some of its members would lose 50 percent of their pensions.
"But no amount of self-serving sugar-coating by the company's lawyers can mask the plain fact that ... the immediate impact on thousands of individual retired and active pilots will be devastating," the Air Line Pilots Association said in a statement following the court filing Thursday.
Ending the pension plans would dump billions of dollars in future pension obligations onto the already-strapped government-funded Pension Benefit Guaranty Corp., which has filed an objection in bankruptcy court.
United's four plans — covering about 120,000 workers and retirees — are underfunded by about $8.3 billion, and the agency would have to pick up $6.4 billion in pension obligations. In its latest filing, UAL disputed the government's calculations, saying that when a higher rate of return is used the level of underfunding is $2.7 billion. The PBGC had a $9.7 billion deficit as of March 31.
In its filing, UAL said if pensions plans are terminated, active pilots would receive on average 61 percent of the value of their pensions when they retire, in part, because of age-based formulas the PBGC uses to determine payments. Pilots, by law, can't fly after age 60 so they can't work until the traditional full retirement age of 65.
United, the dominant carrier at Denver International Airport, must reduce costs further in order to attract suitable financing to exit bankruptcy proceedings, said chief financial officer Jake Brace.
The Elk Grove Village-based airline is in talks with its unions, seeking an additional $500 million in cuts.
United said its tentative plan to end employee pension plans would save the company $4.1 billion in payments over the next five years. That's on top of the $655 million in yearly cost savings the company identified two weeks ago, and $2.5 billion in wage and benefit cuts it made a year ago.
Though UAL said no decision on the pension plans will be made "until the process runs its course," the carrier said in its filing that "the current numbers suggest that terminating and replacing the company's underfunded pension plans is likely to be the best of a bad set of options for preserving United Airlines."
In its filing, UAL said 99 percent of current retired flight attendants would not see any change in their pension. Active flight attendants who retire at the present average age of 56 would receive on average 66 percent of their pension because of PBGC formulas, and those who work until age 61 would receive 100 percent of their pension, UAL said.
Unions representing United's flight attendants and machinists called the company's pension filing "wholly improper" and said it contained unsubstantiated factual claims.
The Association of Flight Attendants and the International Association of Machinists and Aerospace Workers said they filed an emergency motion in bankruptcy court Thursday asking the court to remove UAL's pension filing from the docket.
"The rhetoric contained in ... United's court brief is clearly aimed at influencing the court, media and employees by attempting to minimize the understood impact of terminating employee pensions," said flight attendants union head Greg Davidowitch said in a statement.
Company spokeswoman Jean Medina said the unions' emergency motion was "ridiculous."
"We're struck by the absurdity of the unions who have sought information from us and now seek to squelch it," Medina said.
If United does decide to terminate its pension plans, UAL said it would create a defined contribution plan that would annually contribute an amount that is approximately equal to 5 percent of each employee's salary.
In a separate bankruptcy filing Thursday, the airline reported that a 5 percent drop in August revenue fueled a $12 million operating loss for the month.
UAL reported a net loss of $56 million, including $11 million in reorganization expenses, despite flying airplanes that were 83.8 percent full.
Brace pointed out that fuel prices averaged $45 a barrel in August, compared with $32 a barrel in August 2003. At the same time, average fares in August decreased substantially because of increased competition.
"The weak domestic revenue environment, coupled with intense competition and fuel prices still well above $40 a barrel, continue to negatively impact United and the industry," Brace said.
Despite the loss, UAL said it met the requirements of its bankruptcy financing agreement. The company ended August with a cash balance of about $2 billion — about $1.26 billion of it unrestricted — reflecting a $77 million decrease for the month.