Judge OKs United Amended Financing Plan
12 minutes ago
By MIKE COLIAS, AP Business Writer
A United Airlines passenger jet leaves the gate area of Chicago's O'Hare ...More...
CHICAGO - A federal bankruptcy judge approved United Airlines' amended financing plan Friday, rejecting union arguments that United didn't try hard enough to come up with an alternative that would continue company contributions to employee pension funds.
The hearing came a day after the release of court papers in which United warned it likely will have to terminate those pension funds in order to secure the loans it needs to emerge from Chapter 11 bankruptcy.
Such a default by the nation's second largest airline would affect about 119,000 employees and retirees and be the largest ever by a U.S. company.
U.S. Bankruptcy Judge Eugene Wedoff approved United's amended financing plan, which would give the airline an additional $500 million and allow it an additional six months to pay it off, through June 2005.
The judge also approved a 30-day extension for United to work on its restructuring plan with its creditors and unions before it would lose its exclusivity, which would open the process up to other outside parties.
"It's very clear that the proposed financing does not prohibit contributions" to United's pension plan, Wedoff said in approving the financing plan. He said the plan improves United's chances of getting out of bankruptcy, which is in the best interest of employees and retirees.
Wedoff also granted United an injunction preventing the International Association of Machinists and Aerospace Workers from suing the airline's top three executives in U.S. District Court, saying the issue belongs in bankruptcy court instead.
The judge made no ruling on whether or not it would be legal for United to terminate its pension funds or stop its required pension fund payments.
United chief financial officer Jake Brace said Friday that the company had no timeline for deciding whether it would terminate the pension funds or a timeline for when it might emerge from bankruptcy.
"We're very concerned about the effect on our employees," Brace said. "We understand that if we had to go the termination route, it would be a very very difficult step."
Machinists union spokesman Joseph Tiberi said the judge left the unions with no choice but to cooperate with United.
"Now we need to work together to find a less drastic answer to the pension problem," he said.
In July, United deferred a required quarterly pension fund payment of $72 million, characterizing it as a "huge financial burden" and saying it planned no further payments while in bankruptcy. The IAM, representing more than 20,000 ramp workers and customer-service agents at United, and the Association of Flight Attendants filed court objections to the financing plan and its decision to stop pension fund payments.
Robert Clayman, an attorney for the Association of Flight Attendants, argued that United never considered less drastic options that stopping payments.
"Out of the box, the only plan they presented to potential lenders was benefit termination," Clayman told the judge.
United Airlines attorney James Sprayregen countered that federal bankruptcy laws trump employee benefit rules that require companies to make regular contributions to their pension plans. He also argued that United would be within its legal rights if it decided to terminate the plans.
Under the amended plan, Sprayregen said, "United can make the pension fund payments if United's cash flow can support it."
In its 26-page bankruptcy court filing released Thursday, Elk Grove Village-based United cited "stark" financial conditions and the need to maintain liquidity and cash flow to get the financing to emerge from Chapter 11 in saying it "likely" would have to terminate the pension funds.
United faces half a billion dollars in pension contributions in the next two months and $4.1 billion by the end of 2008. The government recently rejected its bid for a $1.6 billion loan guarantee, and rising jet fuel prices are expected to cost it $1 billion more this year than expected.
"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," the airline said in the filing.
Dozens of United retirees sat in the courtroom Friday, many wearing T-shirts reading: "Pensions are promises that cannot be broken."
Shirley Telegdy, who retired three years ago after 37 years as a United customer service representative, said before the hearing that she relies on her pension payment for most of her income.
"I thought I could enjoy retirement at 62," she said. "Now I have to give up everything."
Since United entered bankruptcy in December 2002, employees have been dealt steep wage and benefit cuts as the airline has restructured.
United's pension plans are now underfunded by about $8.3 billion. If the company scraps the funds, the government-funded Pension Benefit Guaranty Corp. would be expected to take responsibility for up to $6.4 billion.
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Ahhh.....shucks (says the IAM),...guess we gonna have to work with them now...(and still get our dues, heheheheh)
…..but I don’t know of many people whom have not said this at one time or another.
