United Airlines reached a settlement with the federal government to terminate four underfunded pension plans, and the deal was deplored by some of the airline’s labor unions.
The move brings United, which says it cannot afford the plans, closer to getting out of bankruptcy.
Labor groups reacted angrily. United’s flight-attendants union threatened to strike if necessary, and the machinists union said it is prepared to strike if the issue is not resolved to members’ satisfaction.
“It’s rage. It’s helpless rage,” said Jody Weant, United Association of Flight Attendants’ local council president.
United chief financial officer Jake Brace said, “None of us are looking forward to this day when pension plans are terminated. It unfortunately is something that we just must do.”
United, which employs about 60,000 people nationwide and about 6,000 in Denver, is the largest carrier operating at Denver International Airport.
With retirees and former employees also considered, the four pension plans cover 121,500 people.
If the settlement is approved in bankruptcy court, it would be the largest pension termination in the history of the U.S. Pension Benefit Guaranty Corp., the government’s pension insurance agency.
United expects to file a motion for approval of the agreement early this week for a hearing May 4.
In the settlement, the pension agency would receive promissory notes in the restructured United in return for accepting the liabilities of taking over United’s troubled pension plans, according to the International Association of Machinists. Part of that involves notes convertible to stock that could eventually give the agency an ownership stake in United.
As part of the settlement, the pension agency would withdraw its claim in the bankruptcy. The level of underfunding of the pension plans has reached $9.8 billion.
The pension agency said the settlement is better than any recovery the agency would have received as an unsecured creditor and allows it to reduce its losses. It expects to be responsible for $6.6 billion of the $9.8 billion underfunding. The difference represents the benefits to employees that would be lost.
What led to these problems are promises made to employees that ultimately could not be kept, laws that do not guarantee the promises will be kept, and what United calls a “perfect storm” of an aging population and poor stock- market performance.
Taking on the United pension plans is troublesome for the federal pension insurance system.
Unless Congress reforms pension laws, “the insurance program will continue to be at risk for these kinds of large losses,” said Jeffrey Speicher, spokesman for the pension agency.
Workers and retirees will also be at risk, he said.
“This action may have set in motion the total collapse of our country’s pension guarantee system,” flight attendants union leader Greg Davidowitch said in a statement. “Abandoning promises to employees for retirement security after a lifetime of service is deplorable.”
