UAL: huge losses, possible strike, and opened the pension Pandora’s box
UAL announced a $1.1 billion first quarter loss, while its unions are threatening to strike and competing airlines seek from Congress relief on their pension funds, following UAL being allowed to default on its pension.
UAL Corp., owner of bankrupt United Airlines reported on Wednesday a $1.1 billion in the first quarter, raising questions as to how long they can continue to operate with these large losses.
While the bankruptcy court relived United from its obligations for their employee pension fund, saving it about $645 million per year, with the tax payers picking up most of the tab. United’s ground workers union voted overwhelmingly to authorize a strike if a judge allowed the carrier to end their union’s labor pact. Flight attendants have also approved a strike strategy.
United had previously reached concession with unions but is seeking an additional $725 million of additional cost cuts from labor.
Meanwhile, United’s non-bankrupt competitors (American, Delta, Northwest and Continental) feel they are at an disadvantage and went to Capitol Hill, to seek legislation which would allow them to extend the period with which they have to pay-in to their under funded employee pensions, versus following United’s bankruptcy route to accomplish the same. American’s flight attendants union is supporting the requested changes.
United’s four pension plans, which cover 120,000 active and retired workers, are underfunded by $9.8 billion. The federal Pension Benefit Guaranty Corp. will take responsibility for $6.6 billion of that amount. Together, the airlines’ traditional pension plans were underfunded by $31 billion as of the end of 2003.
Congress is placed in a dilemma to provide relief for companies who have not met their obligations to fund their pension plans versus having the taxpayer pay for a bailout should all the big airlines follow United and US Airways into bankruptcy court.
Charles Kao
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