LIANE HANSEN, host:
United Airlines is continuing talks with two of its unions in an effort to avoid a strike. The airline's mechanics and groundworkers say they will walk out if United goes ahead with its plan to terminate the existing contracts. A bankruptcy court ruling last week that permits United to end its pensions program has angered many workers. Now other airlines with similar problems wonder what they should do. NPR's Cheryl Corley has the story.
CHERYL CORLEY reporting:
After United Airlines won approval to transfer its pensions to the federal agency that insures them, Randy Canale, the head of the union representing groundworkers, made a quick prediction as he stood outside the courthouse.
Mr. RANDY CANALE (Representative, Groundworkers Union): United's actions with Judge Wedoff has ensured that there's going to be other airlines in this industry going into bankruptcy to terminate their pensions, because if they don't, they're going to be a very disadvantaged competitor.
CORLEY: Under the agreement, United shifts its employee retirement plans, underfunded by nearly $10 billion, to the Pension Benefit Guaranty Corporation. The agency will insure most of those benefits, but not all, and it will receive securities worth about a billion and a half dollars from United. United argued the sorry financial shape of its pensions made it difficult to attract investors and, therefore, impossible to exit bankruptcy. Airline analyst Richard Aboulafia with the Teal Group Corporation says very few airlines have the extreme pension problems of United or US Airways, which shifted its pensions to the PBGC last year. He calls this latest deal a lost opportunity.
Mr. RICHARD ABOULAFIA (Teal Group Corporation): There's entirely too much capacity at the high-end airlines, the sort of hub-and-spoke legacy carriers, the ones with elaborate route networks and high costs. And by getting their pensions off their hands, it gives them another chance to stay in the mix for another year or two beyond this without having to make tough choices about mergers or acquisitions or downright decisions to exit the business.
CORLEY: Aboulafia says the PBGC is subsidizing the industry and distorting the market, but the agency's executive director takes exception. Bradley Belt says the bankruptcy code allows pension plans to be terminated if a company persuades a bankruptcy judge that it cannot be solvent while maintaining its retirement funds.
Mr. BRADLEY BELT: Whether one likes that or not, that's what the law is currently.
CORLEY: Even so, Belt says whether other airlines with traditional pension plans attempt to get rid of them through bankruptcy is a legitimate concern.
Mr. BELT: The CEOs of the other legacy carriers have all stated publicly that if business conditions don't change or if United is successful in off-loading its pension obligations under the government, they might feel some pressure to follow suit.
CORLEY: And all of the other major carriers do have underfunded pensions. According to rating agency Standard & Poor's, Delta is at the top of the list with a pension deficit of $5 billion, followed by Northwest, American and Continental. The industry also continues to struggle with high fuel cost and fierce competition. Last week, Delta warned that it might have to consider bankruptcy. Spokeswoman Benet Wilson says the airline is working to avoid taking that step, however, and is looking to solve its pension woes outside of a courtroom.
Ms. BENET WILSON (Spokeswoman, Delta): Delta has decided that we are committed to our defined benefit pension plans and we've been working with our employees and our retirees on pension reform and we are determined not to abandon our programs.
CORLEY: Delta, along with Northwest Airlines, American and Continental, favor versions of legislation introduced in Congress that would allow them to extend the time they have to eliminate any funding gaps in their pension funds. Analyst Phil Bagley(ph) with Standard & Poor's says United's bankruptcy court example may be enough to push pension negotiations forward at other airlines.
Mr. PHIL BAGLEY (Standard & Poor's): The concern is that even if they are able to achieve some sort of pension cost reductions outside of bankruptcy, that may not be enough compared to what United is getting, and, therefore, if some of these airlines get to the edge for other reasons, this could help persuade them that they might as well go into bankruptcy.
CORLEY: The battle over United's pension agreement may not be over. Unions have announced plans to appeal the decision.
Cheryl Corley, NPR News, Chicago.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.