ALPA Agrees not to Fight UAL Pension Termination

December 17, 2004 ( - The Air Line Pilots Association (ALPA) has agreed that it won't oppose the efforts of United Airlines parent UAL Corp. to terminate the group's defined-benefit pension plans.

The unusual concession is contained in a labor contract approved Thursday by the ALPA leadership, the Wall Street Journal reported.

While it is rare for a union to agree to give up its defined-benefit pensions for a less-lucrative retirement plan, the union’s move comes as the company prepares to ask a US Bankruptcy Court to dissolve its labor contracts and pension plans, unless it could reach new labor accords first.

The ALPA also agreed to accept a 15% pay cut, which is in addition to at least a 30% cut in pay that kicked in last year. The agreement still must be ratified by the union’s membership. UAL also will be seeking cost concessions from its other unions.

According to the Journal, the United/ALPA agreement is aimed at helping UAL cut expenses as it seeks to restructure under bankruptcy-court protection. In return, UAL, as it reorganizes, would issue to the union $550 million in convertible notes that the 6,600 active pilots could sell in the capital market to raise money to cover a portion of the pension shortfall they would encounter, according to the union’s investment banker.

The Journal said the arrangement could serve as a template for cost savings at other airlines, which are also struggling amid a persistent recession in the industry. For example, US Airways Group Inc. entered bankruptcy-protection proceedings in September for the second time in two years. Other carriers, including Delta Air Lines and Continental Airlines, have sought concessions. “We brought this concept to the company,” Stephen Presser, ALPA’s investment banker, told the Journal. “It could be replicated for other work groups.”


That could be problematic for the nation’s private pension plan insurer, which stands to get stuck with the tab if UAL is successful at terminating its pension plans.  The New York Times reported Pressler as suggesting that the plan was specifically crafted to overcome the Supreme Court’s rejection of an “abusive follow-on plan” in the LTV bankruptcy, since the UAL deal was designed as compensation, not in the form of a plan.

Also at issue for the PBGC is the fact that t he agreement would require United to keep the pilots’ pension plan afloat until at least May 2005, a provision intended to get the pilots as much coverage as possible from the pension insurance program – and one that could put even more pressure on the PBGC, if allowed by the court.


On Friday, Bradley Belt, executive director of the Pension Benefit Guaranty Corporation (PBGC), said in a statement, “We are concerned that this agreement sets a dangerous precedent. The company is making generous new pension promises even as it is refusing to honor its old pension promises. Equally troublesome is the notion that the pilots’ union insists on the termination of the pension plans for other United employees. The company and the pilots’ union have no authority to force other workers and the PBGC to accept the termination of those plans. We will be scrutinizing this agreement very closely and will take all appropriate steps to protect the financial interests of the pension insurance program.”

UAL hopes to dump its four pension plans to the Pension Benefit Guaranty Corp.(PBGC), the nation’s private pension fund insurer, which would save UAL from making more than $4 billion in contributions through 2008 (See  United Makes Formal Pension Demise Request ). The PBGC (See PBGC Files Brief Supporting Independent United Fiduciary ) supports the position of an independent fiduciary (See  UAL Fiduciary to ask Court for $1B in Pension Contribs ) in the case that opposes UAL’s plans because it says the pension debt of $8.3 billion is a legally binding obligation to UAL’s 123,000 active and retired workers.

This new deal provides UAL with about $180 million to $190 million more in annual savings, not including the cash savings that would accrue to UAL if it terminates the pension plans.

ALPA doesn’t represent the rights of United’s 6,000 retired pilots, and this tentative agreement doesn’t pertain to them. The retirees have created their own committee to fight the termination in bankruptcy court, or at least to try to soften the blow to their constituents.