=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2004/07= /30/BUG4M7VMHM1.DTL --------------------------------------------------------------------- Friday, July 30, 2004 (SF Chronicle) United faces pension lawsuit/Carrier narrows loss to $247 million in second= quarter David Armstrong, Chronicle Staff Writer United Airlines' journey out of bankruptcy has been slow and painful. That was certainly evident on Thursday when the carrier's parent company said it had narrowed its loss in the second quarter to $247 million ($2.25 per share) from a $623 million loss ($6.26) for the same period a year ago. However, that news was dimmed by a lawsuit filed by the International Association of Machinists and Aerospace Workers that is designed to force the company to resume pension fund contributions it says it must skip to emerge from Chapter 11 bankruptcy protection. With revenue up 30 percent to $4 billion from higher passenger traffic, UAL Corp. of Elk Grove, Ill., posted a $7 million operating profit from April to June, a far cry from an operating loss of $431 million in the second quarter of last year. United, the dominant airline at San Francisco International Airport, whe= re it handles about half of all passengers and flights, put a positive spin on the quarter while allowing that high jet fuel prices and weak domestic demand kept it from doing better. "We are focused on driving continuous improvement," UAL President, Chairman and Chief Executive Officer Glenn Tilton said. "We are making progress, but we know there is much work to do. It is clear we must continue to reduce our overall costs structure if United is to be competitive and achieve sustainable profitability." United has reduced costs in part by extracting about $2.5 billion a year over the next several years in reduced pay and benefits from its employees. UAL employs 63,000 people, including 11,000 workers in the Bay Area. Last week, UAL said it would defer a $72 million payment into pension funds scheduled for July 15 and would also hold off on subsequent scheduled payments until it emerged from Chapter 11 bankruptcy protection. The decision prompted strong criticism from employee unions, including t= he International Association of Machinists and Aerospace Workers, which on Thursday filed suit against UAL and three of its top executives, including Tilton, in an Illinois federal court. "As fiduciaries of the pension plans, the defendants had a responsibility to compel United to meet its funding obligations," said Robert Roach Jr., the union's general vice president of transportation. "Clearly, they failed." The suit is intended to force UAL to resume the payments, which fund pensions for 58,000 retired United workers. UAL officials met in Washington, D.C. on Thursday with officials from the Pension Benefit Guaranty Corp., the federal entity that insures pension plans. On Monday, the agency said UAL's decision to suspend payments is illegal. The Thursday meeting was scheduled before UAL's announcement, according = to agency spokesman Gary Pastorius, who said it was standard procedure for the agency to meet with bankrupt companies. UAL could ask the federal bankruptcy court overseeing its Chapter 11 reorganization to void one or all of its four pension plans, in which case the pension agency would be required to make up about $5 billion of the $7.5 billion needed to fund the plans, Pastorius said. The agency has done this before in bankruptcies, he said, including those of now-defunct Eastern Airlines and Trans World Airlines. The amount the agency would pay is capped by Congress. A worker who retires at age 65, for example, could collect up to $44,386 a year under such an arrangement. UAL has not decided whether to ask the bankruptcy judge to void any pension plans, said UAL spokeswoman Jean Medina. Medina said the machinists' lawsuit is "baseless. It's unfortunate the I= AM has decided to personalize this by naming these officials individually when it was a corporate decision made to preserve our liquidity and flexibility as we work to secure exit financing." The airline touted its second-quarter 83 percent load factor -- the percentage of passenger seats filled -- as a sign of recovery, and said its on-time performance is growing consistently stronger. Airline analyst John Coleman, a vice president of Unisys R2A's transportation consulting group, said United's second-quarter performance, while better than last year, was lackluster. "The second and third quarters are the strong quarters for the airline industry," he said. "To pull $7 million out of that does not bode well for the year, especially heading into a fall season that everyone expects to be weak." The machinists' lawsuit, Coleman said, "displays a continuing inability = of various factions within the company to work together toward a common goal." Beyond that, he said, "There still doesn't seem to be a definition of wh= at the grand plan for the company is." E-mail David Armstrong at davidarmstrong@xxxxxxxxxxxxxxxx --------------= -------------------------------------------------------- Copyright 2004 SF Chronicle