UAL Corp.'s United Airlines said yesterday that it would postpone paying into its pension fund for the rest of the year as part of a new financing agreement with its lenders.
Labor leaders called the action "devastating" and said it moves United one step closer to terminating its defined-benefit pension plan. United's retirees will still receive their pension checks but the airline will delay replenishing the pension fund.
As part of its bankruptcy reorganization, United said it had secured an additional $500 million in financing to help sustain its operations during bankruptcy reorganization. The airline filed for bankruptcy in December 2002.
The latest agreement includes a new lender, GE Capital, a unit of General Electric Co., along with United's previous creditors, J.P. Morgan Chase & Co., Citigroup Inc. and CIT Group Inc.
Under its new financial agreements, United said it was "prohibited" from making further contributions to its employee pension plan before it exits bankruptcy. United has 65,000 employees and 35,000 retirees.
By not making pension payouts until it emerges from bankruptcy, United said, it would ensure adequate funding for operations while management continues to seek additional cost reductions.
"Such payments would diminish the company's liquidity and reduce flexibility, thus impairing the company's ability to attract exit financing," the company said in a statement.
United owes about $525 million in pension payments for the remainder of the year for its four employee groups. Last week, the airline deferred a $72 million pension payment.
The future of the airline has been in question since the government last month rejected its application for $1.1 billion in loan guarantees.
United needs about $2 billion to emerge from bankruptcy, said Helane Becker, an airline analyst at Benchmark Capital. Becker says she does not expect the airline to exit bankruptcy until sometime next year.
"There's no pressure for them to emerge this year. If they emerge at all, it won't be before sometime in 2005," Becker said.
The airline said it is undertaking a thorough review of its operations. "United is in the process of re-examining every aspect of its business to identify additional cost reductions and efficiency improvements," Frederic Brace, United's chief financial officer, said in bankruptcy court testimony yesterday.
Union leaders said they opposed the airline's pension decision.
"United Airlines has betrayed their employees and destroyed what little credibility they had with us," said Randy Canale, president of United's machinist union. "This airline cannot exist for long without the support of its employees, and right now we don't see much that is worthy of our support. We're primed for a brutal fight."
Since filing for bankruptcy, United has cut about $5 billion in costs, including about $2.5 billion in employee pay and benefits. Greg Davidowitch, head of United's flight attendants, said the pension move was "demoralizing" to workers.
"While United's action falls short of an outright termination of the pension plans, the company's actions make termination of the pension plans likely," he said. "Current management should explain to us why flight attendants should continue to support their reorganization efforts if this is the best United can offer for a lifetime of service."