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UAL asks Congress for relief on pensions

By Marilyn Adams, USA TODAY

September 10, 2003

United Airlines' parent is asking a U.S. Bankruptcy Court for six more months to file its reorganization plan as it lobbies Congress for temporary relief from billions of dollars in pension payments.

UAL says its pension problem is scaring away potential investors. It has said it hopes to complete reorganization in early 2004. UAL now wants until April to file a reorganization plan, preventing other parties from filing competing plans during that time.

UAL Chief Executive Glenn Tilton will be in Washington on Thursday and Friday, pressing Congress to pass pension-law reform that would lower or defer the airline's payments for the next few years. UAL owes $4.2 billion in pension payments through 2008.

''That's an enormous debt to have to fund for a company coming out of bankruptcy,'' says William Warlick, senior airline analyst for Fitch Ratings, a credit-rating agency. ''It's one of the biggest obligations, if not the biggest financial obligation, the company faces. It won't be any surprise if the company decides to terminate the plans.''

UAL Chief Financial Officer Jake Brace said Tuesday that the pensions are ''one of our larger obligations. We clearly have to find some way for our business plan to accommodate these payments.''

When the federal Air Transportation Stabilization Board denied UAL a federal loan guarantee last fall, the pension liability was one reason. That denial triggered UAL's bankruptcy filing days later. UAL still plans to seek a $2 billion federally guaranteed loan and possibly more private financing.

US Airways, which exited bankruptcy earlier this year, terminated its pilots' pension plan to keep its financing. UAL employees have agreed to give up $2.5 billion a year in pay and benefits for five years, including $1 billion in pension savings from pilots.

''We've not been approached about a (pension) termination, and we won't agree to one,'' pilots union spokesman Elliott Sloane says. ''We think United has the tools to manage its pension liability.''

So-called defined benefit pension plans are insured by the Pension Benefit Guaranty Corp., but workers don't get full benefits if plans are terminated and taken over by the PBGC. When their plan was terminated, US Airways pilots faced the prospect of losing more than half their annual pension check. The airline later decided to supplement the benefits.

Estimates of UAL's total pension liability range from $6 billion to $7.5 billion. Like many large companies, UAL's plans are underfunded because of declines in the values of securities in which the plans invested.