The article below from NYTimes.com has been sent to you by psa188@xxxxxxxxx /--------- E-mail Sponsored by Fox Searchlight ------------\ I HEART HUCKABEES - OPENING IN SELECT CITIES OCTOBER 1 From David O. Russell, writer and director of THREE KINGS and FLIRTING WITH DISASTER comes an existential comedy starring Dustin Hoffman, Isabelle Hupert, Jude Law, Jason Schwartzman, Lily Tomlin, Mark Wahlberg and Naomi Watts. Watch the trailer now at: http://www.foxsearchlight.com/huckabees/index_nyt.html \----------------------------------------------------------/ United Warns It May Jettison Pension Plans to Stay Afloat August 20, 2004 By MICHELINE MAYNARD and MARY WILLIAMS WALSH United Airlines said yesterday that it would most likely terminate its four employee pension plans and replace them with less generous benefits, a drastic move that United said was needed to attract the financing that would allow it to emerge from bankruptcy protection. In a 26-page filing with the Federal Bankruptcy Court in Chicago, United stopped short of issuing a formal notification that it was ending the plans and said it had not made a final decision to do so. But the warning from the airline was the clearest indication yet of its intent to shed its pension obligations. If United follows through, as its unions and industry analysts expect, it would be an industry milestone and a remarkable step for a company that was owned by its employees 20 months ago. No other airline has terminated all its pension plans, except in cases of liquidation, where the airline itself was going out of existence. Last year, US Airways terminated its pilots' plan but kept two other employee pension plans in place. It then emerged from bankruptcy and resumed normal operations. It was required to terminate the pilots' plan as a condition of the federally backed loans that paved its way out of bankruptcy. "As a labor issue, this is tremendously significant," said Gary L. Chaison, professor of industrial relations at Clark University in Worcester, Mass. Traditional pensions are a valuable benefit because they shield employees from market risk and come with a government guarantee. For employees accustomed to earning such benefits as a part of their compensation, terminating a pension plan is tantamount to cutting pay. Employees continue to do the same work, but they no longer earn the income promised for their retirements. When they retire, the federal government pays their benefits, and some may receive less than they would have had the original plan been kept intact. Pension specialists say that United's tremendous size means that its actions are likely to set a pattern that other airlines will eventually have to follow, cutting or shedding their pension plans to stay competitive. That would put enormous pressure on the Pension Benefit Guaranty Corporation, the federal agency that would assume responsibility for the terminated plans. While it was created to insure pension benefits, it would be placed in a role for which it was not designed - restructuring an entire industry. United's move came on the eve of a court hearing scheduled for this morning, at which Judge Eugene C. Wedoff is expected to hear motions from the federal pension agency, United's machinists and its flight attendants, all challenging the airline's efforts to get out from under its pension liabilities. Joseph Tiberi, a spokesman for the International Association of Machinists and Aerospace Workers, said the union had been expecting United to take some action to reduce its pension debt since late July, when the airline said it would make no further contributions to its four plans while it remained in bankruptcy. United sought court protection in December 2002 and based its plans for restructuring on the expectation of getting a package of federally backed loans. But on June 28, the Air Transportation Stabilization Board rejected United's application for the loan guarantees for the third time, forcing United, the nation's second-largest airline behind American Airlines, to seek private financing. The airline, which estimates it must contribute $4.1 billion to the four pension plans in the next four years alone, skipped a $72.4 million payment owed to three of its plans last month, setting off a wave of anxiety among its workers. In total, the federal pension agency estimates that United's four plans are about $8.1 billion short of the value of the pensions the workers have earned so far. In its bankruptcy court filing yesterday, United said the rejection of its loan guarantee application, along with record prices for jet fuel, forced it to move against its retirement plans. United, which until recently was not protected by fuel-hedging contracts, estimates it will spend $1 billion more on jet fuel this year than it anticipated at the end of 2003. The airline said it "must have the cash flow and liquidity that the capital markets are willing to finance," and added, "We have taken every effort to restructure our business without affecting accrued pension benefits, and will continue to explore every other option." But "given the magnitude of further cost reductions needed to create a viable business plan and attract exit financing, termination and replacement of all our defined-benefit pension plans likely will be required," United said. By law, United cannot shed its pension debt unless it can persuade the bankruptcy judge that it will not survive otherwise. Since its bankruptcy filing, United's unions have granted $2.5 billion a year in wage and benefit concessions, half of the $5 billion a year in savings that the airline has identified. However, its operating costs, not including fuel, remain higher than those of its competitors, particularly American Airlines, which won wage and benefit cuts from its unions last year by threatening to file for bankruptcy protection. In addition to pension matters, Judge Wedoff is expected at the hearing today to hear motions from the pilots, flight attendants and machinists, challenging United's request for four more months to draft a restructuring plan. The flight attendants and machinists have also challenged a new agreement that United reached with its lenders after its last federal loan guarantee bid was rejected. That agreement replenished the money the airline needs to operate normally while in bankruptcy. United, which originally obtained $1 billion to operate in bankruptcy, used about half of that through July. In disclosing that it had arranged $500 million in new financing, United gave the impression that the terms of the agreements prevented it from contributing to its pension plans. It also said the burden of debt from the pension promises it had made in the past would make it difficult to attract the new investors it needs to restructure. In their motion before the bankruptcy court, the machinists and flight attendants contend that this situation illegally favors United's commercial lenders over its employees, whose representatives sit on the airline's creditors' committee. The pension agency joined the employee groups in challenging the financing arrangements, arguing in a separate motion that pension law requires United to make regular contributions to its pension plans and that any agreement impeding the contributions is illegal. The machinists have filed a separate motion seeking the appointment of a trustee to oversee the airline, contending that senior airline executives have breached their fiduciary duty by refusing to make the pension contributions. That motion, which United has dismissed as baseless, will be heard in September. Yesterday, United softened its earlier statements that the new lending agreement prohibited it from making its pension contributions. In its court filing, the airline said instead that it was suspending the contributions as a prudent business measure. Even with the replenished financing, United said its cash position remained shaky. But, as a result of the way it has dealt with the pension plans, so are its dealings with employees, Professor Chaison said. "Relations between United and the employees are almost beyond the repair of the most skilled mediator," Professor Chaison said. If United is successful in terminating and replacing its plans, he said he expected other airlines to follow suit. Delta Air Lines has already told its pilots' union that it wants to reduce its pension obligations in a less radical way than United is contemplating. Delta has proposed stopping accruals to the pilots' existing pension plan and allowing the pilots to continue earning a retirement benefit, albeit a less generous one. Delta is not proposing to terminate its pension obligations and send the plan to the pension agency. Delta has already reduced the pension benefits its other workers are earning by converting their pension plan to a different format, called a cash-balance plan. Cash-balance plans are fairly common but have become controversial, especially since employees at I.B.M. won a federal court ruling last year that such plans are age-discriminatory. Since then, few companies have adopted cash-balance plans for fear the I.B.M. ruling will be upheld on appeal. http://www.nytimes.com/2004/08/20/business/20air.html?ex=1094028995&ei=1&en=a480eda757774477 --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! Click here: http://homedelivery.nytimes.com/HDS/SubscriptionT1.do?mode=SubscriptionT1&ExternalMediaCode=W24AF HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@xxxxxxxxxxx or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@xxxxxxxxxxxx Copyright 2004 The New York Times Company