Bankruptcy Judge Allows US Airways to Drop Pensions

At a hearing in Alexandria, Virginia, US Bankruptcy Judge Stephen Mitchell also allowed US Airways to throw out a labor contract covering its machinists if the union turns away company requests for a package of concessions, according to news reports and a US Airways Web site statement. Mitchell’s decisions should help the company’s efforts to shave $1 billion in labor costs (including more than $300 million in pay and pension givebacks), which US Airways has claimed is necessary if the airline is to survive.

US Airways announced in the Web statement prior to Mitchell’s ruling that the machinists’ union would send the company’s last offer to its membership for a vote, and that tally would likely be completed within two weeks.

“We have worked very hard to craft alternative proposals that still meet the company’s cost savings targets, but preserve jobs and pay as much as possible,” said Jerrold Glass, US Airways senior vice president – employee relations, in the US Airways statement “Regrettably, we cannot save every job and every function, and these employees, like all other workgroups, must share in the changes that the company needs to make. But we are quite hopeful that our employees will see these proposals as viable alternatives, and they will quickly be ratified.”

During Thursday’s hearing, Mitchell said he had “grave questions” whether US Airways could successfully emerge from its second trip through Chapter 11 bankruptcy protection in two years, even with the savings from labor groups.

In its Web announcement the company said it will put off any moves on the machinists contract until after a vote by the International Association of Machinists and Aerospace Workers (IAM) “in the hope that all (concession) proposals will be ratified.”

However, the company asserted it would start talks immediately with the Pension Benefit Guaranty Corporation (PBGC) – the nation’s insurer of private-sector pension plans – “to begin the orderly transfer of the (pension) plans.”

A video news release from IAM General Vice President Robert Roach Jr is at http://www.iamaw.org/wgateway.asp?cID=6014 .

The development is also likely to put an even greater strain on the already gravely stressed PBGC, which has had to shoulder a particularly taxing burden by taking over pension funds from the hard hit airline and steel sectors in recent years (See   PBGC Exec: Pension Insurer Hit by ‘Perfect Storm’  ). The agency already took over responsibility for the US Airways pension covering more than 6,000 pilots in April 2003. (See  PBGC Assumes US Airways Pension Plan ).