United gets approval
to shift pension plans

updated 5:57 p.m. ET May 11, 2005

CHICAGO - United Airlines gained a significant financial victory with court approval Tuesday to dump its four pension plans, but the airline faces a tough challenge to win back the support of thousands of angry employees.

While smoothing the path toward a targeted exit from Chapter 11 bankruptcy later this year, Tuesday’s ruling in U.S. Bankruptcy Court inflamed United’s unions, with some hinting at the possibility of strikes or other disruptive actions.

It also prompted a renewed warning from some members of Congress that taxpayers may someday have to bail out the deficit-riddled government pension agency, which now will assume an additional $5 billion in pension obligations from United.

“Taxpayers had better buckle up because we will be in for a bumpy ride of bailout after bailout, as more and more corporations dump their pension plan obligations on the PBGC,” said U.S. Rep. Jan Schakowsky, D-Ill., referring to the Pension Benefit Guaranty Corp. that already is operating at a more than $23 billion deficit.

The pensions cover 120,000 current and retired United workers, including 62,000 active employees.

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The agreement approved by Judge Eugene Wedoff would give the PBGC $1.5 billion in notes and convertible stock in a reorganized UAL Corp., United’s holding company. The agency, which called the agreement a “matter of last resort,” must still formally sign off on the termination before it takes effect.

United was set to head back to court Wednesday to take up another sensitive matter: The proposed overhauling of collective bargaining agreements.

Wedoff approved the pension plan over the objections of several unions, noting that the federal pension system preserves the majority of benefits for employees at troubled companies. He called it “the least bad” of the available choices, since it gives unprofitable United the best chance to keep functioning.

United’s chief financial officer, Jake Brace, said the verdict was important but acknowledged it was “not a joyous day” for the Elk Grove Village, Ill.-based airline.

“Approval of the PBGC settlement agreement is a crucial step forward for the future of United, as it strengthens the financial platform this company needs to attract exit financing and compete effectively,” the airline said in a statement. “At the same time, we clearly recognize that the court’s decision is difficult for our retirees and our employees, who have been doing extraordinary work throughout this restructuring process.”

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