United Dumps Pension Problem on Taxpayers

A US bankruptcy judge has let United Airlines off the hook for pension commitments it made to its workers. Judge Eugene Wedoff has given the carrier until Tuesday to end four pension plans covering various workers and retirees -- "It involves choosing the least bad of the unfortunate choices." The liability will go to the Pension Benefit Guaranty Corp. (which means taxpayers), and some retirees won't get everything that was promised. The International Association of Machinists has said 94% of its voting members have approved a strike if the existing labor contract is voided and the retirement package isn't good enough. But that still gives UAL a huge advantage over other "so-called" legacy carriers.

United announced that it had lost as much money in the first quarter of 2005 as General Motors -- $1.1 billion, which translates to $9.23 a share. No entity other than a sovereign state can continue to run such a lousy balance indefinitely, and United has been in bankruptcy since December 2002. Getting out of Chapter 11 requires a massive restructuring, including dumping the pension funding for employees. This would save United $645 million per year.

Yet, if United is freed from its pension obligations, the other legacy airlines (Continental, Delta, American and US Airways) are at a disadvantage. So, one can expect them to press congress to act on legislation that would essentially excuse them from their existing pension requirements. With Delta teetering on the edge of bankruptcy even now, with some analysts predicting a third quarter filing for Delta, there is support in Washington to give them the same break.

Now, comparing the mess that the legacy carriers are in with the profits Southwest Airlines just reported, one sees that the changes are needed. As the judge said, "least bad of the unfortunate choices." Southwest offers its employees a 401(k), not a pension. But letting the airlines off the hook hurts the retirees, whose retirement income will be cut by around 25%, and taxpayers, who will pick up the tab from here.

What is most troubling is the situation of the Pension Benefit Guaranty Corp. Even before the airlines get bailed out, it's $23 billion in the red from other pension funds it has handled. The feds need to address this question before the airlines' problems get resolved. Otherwise, the PBGC's difficulties just get worse. It isn't as much as the latest Iraqi war funding bill -- it's about $60 billion less, but it still isn't just pocket change.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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