Saddled with high fuel costs and lower air fares, the corporate parent of United Airlines announced its 16th consecutive quarterly loss yesterday and one of the airline's unions sued over the carrier's decision to halt contributions to its employee pension funds while it remains in bankruptcy protection.
The International Association of Machinists and Aerospace Workers, which represents United's ramp workers and customer service agents, accused United's senior executives in the lawsuit, filed in U.S. District Court in Chicago, of breaching their fiduciary duty.
United, which has a hub at Dulles International Airport, said last week that as part of its new agreement with lenders, it would not pay into its pension plans this year.
The lawsuit named Glenn F. Tilton, the airline's president and chief executive; Frederic F. Brace, chief financial officer; Peter D. McDonald, chief operating officer; and the UAL Corp. board of directors' Pension and Welfare Plans Committee. The union is seeking judgment against the three executives for the amount owed to the plans. The suit also asks the court to require the three executives to secure funding for the plans.
"United Airlines must get the message that they cannot abandon employee benefits at will," S.R. "Randy" Canale, president of the union's District 141, said in a prepared statement. "They will not be allowed to continue their slash-and-burn approach to restructuring without realizing serious consequences."
Canale, who is also on the UAL board, declined to attend a scheduled board meeting yesterday.
UAL spokeswoman Jean Medina said the union's claims were "baseless."
"We think it's unfortunate that the IAM has decided to personalize this by naming individual officers when it was a corporate decision to work to secure exit financing," Medina said.
United managers met yesterday with officials from the Pension Benefit Guaranty Corp., the federal agency that insures pension payments. Sources familiar with the meeting said both sides had to schedule another session since United's senior officers were not present because of the airline's board meeting.
The pension agency this week sent a letter to United objecting to the airline's failure to make the legally required pension payments and demanding to know how it intended to meet its obligations as it seeks to emerge from Chapter 11 bankruptcy protection.
UAL yesterday announced a second-quarter loss of $247 million ($2.25 a share), compared with a loss of $623 million ($6.26 a share) for the same period a year ago. Yesterday's reported losses included $144 million in reorganization charges. United has been operating under Chapter 11 since December 2002.
A survey of airline analysts by Thomson First Call estimated that UAL would lose about $1.66 a share.
The nation's second-largest airline was able to eke out a small profit from operations during the quarter -- $7 million, compared with a loss of $431 million in the second quarter of 2003.
United's fuel prices increased more than 53 percent from the second quarter last year. Aircraft maintenance expenses increased nearly 70 percent because of increased outsourcing.
And while the airline filled 82 percent of its seats for the period, the yield -- or revenue from passengers for those seats -- increased only 3 percent.
United, based in Elk Grove Village, Ill., said it had about $1.4 billion in available cash. The airline said it has to maintain healthy cash levels to attract post-bankruptcy financing, especially as it heads into the slower travel period this winter. The airline owes more than $500 million in pension contributions this year and $4 billion over the next five years.
William T. Warlick, senior airline debt analyst for Fitch Ratings, said the only way United can maintain its cash levels is to terminate one or more of its four employee pension plans.
"They're going to have to find some way to terminate these plans," Warlick said. "There's clearly a need to conserve cash in any way possible."
Tilton said the airline had more work to do to attract the money it needs to help it emerge from Chapter 11. Analysts have estimated the airline needs about $2 billion in exit financing.
"It is clear that we must continue to reduce our overall cost structure if United is to be competitive and achieve sustainable profitability," Tilton said.