Contra Costa Times - June 25, 2005
House Action Might Stymie United Pension Bailout Plan
Amendment would prohibit government from taking over troubled air carrier’s $6.6 billion plan
By James Temple
The House of Representatives moved Friday to prohibit a government insurer from assuming control of United Airlines’ $6.6 billion pension plan, threatening the company’s ability to emerge from bankruptcy.
The amendment to appropriations bill — introduced by Reps. George Miller, D-Martinez, Jan Schankowsky, D-Ill., and Joseph Crowley, D-N.Y. — is intended to prevent a savings-and-loan style run of the Pension Benefit Guaranty Corp. and force United to negotiate higher pensions.
“This vote sends a strong message to United Airlines and any other employers looking to follow United’s lead: You can’t just walk away from promises you made to your workers,” Miller said in a prepared statement.
The message was clearly intended for companies like Delta and Northwest airlines, which also have severely under-funded pension plans. The PBGC is already running a $23.3 billion deficit, according to Miller’s office, and any shortfalls are covered by tax payer dollars.
The current deal with the PBGC would slice benefits for some 120,000 United workers and retirees by 25 percent to 50 percent, Miller’s office said. But some observers say the amendment, which must sill be passed by the Senate and signed by President Bush, may not result in higher pay out for workers — in fact, it could be the opposite.
If United can’t afford to pay higher pension benefits, as it claims it can’t, the remaining option is to ask the bankruptcy judge to break the union contract and set a rate, which could fall below that now guaranteed by the PBGC.
“It would probably be very unlikely that United Airlines could be able to afford the pension payments,” said David Broman, CEO of Lafayette-based compensation and benefits consulting firm Syzygy Consulting Group. “I don’t think that anybody should assume that the pension would be restored.”
If the pension payout is set at a higher rate, it could make it significantly more difficult for Chicago-based United to emerge from bankruptcy, said Ron Kauhlmann, vice president of Unisys Transportation Consulting in Oakland.
The amendment has the added potential of dissolving the fragile accord between United and several labor unions. Specifically, the show of congressional support may embolden workers, many of whom have yet to vote on tentative labor deals that include steep wage and benefit cuts and that are critical to the airline’s emergence from bankruptcy.
In a prepared statement, United stressed the amendment would have no immediate impact on its bankruptcy proceedings, and said the company would confer with PBGC and legal counsel to ascertain the impact if it became a law.
Company spokesperson Jean Medina chastised the House of Representatives for wedging itself into the proceedings.
“Given the complex and lengthy process, it is inappropriate for the House to single out United and interfere now, especially since the pension is has been consensually resolved with every union other than the (Association of Flight Attendants),” Medina said in a prepared statement. “Our agreement with PBGC enabling the agency to assume our defined benefit pension plans is, as both PBGC and the Bankruptcy Court have agreed, necessary — a fact that no legislation can change.”