PBGC Opposed to Latest United Pilot's Agreement

January 21, 2005 (PLANSPONSOR.com) - The Pension Benefit Guaranty Corporation (PBGC) has said in court papers that it is objecting to UAL Corp.'s new agreement with its pilot union.

The agency said that it was objecting to the agreement for the same reasons as those used to object to an earlier agreement, according to Dow Jones. The agency also said that it would raise further objections at a Friday hearing.

The deal, announced Wednesday, is an agreement with the pilot unions made in an effort to cut costs and keep the struggling airline afloat. The union agreed to an 11.8% pay cut, as well as provisions which forbid the union from objecting to a company move to terminate the pilot’s defined benefits pension plan. It was supposed to be voted on by members of the union on January 31.

Added to the newest agreement between the two sides is a 90-day window in which United and the Air Line Pilots Association can pursue possible alternatives to the controversial elimination of pensions (See Latest United Pilots Pact Adds 90-Day Pension Fix Window ). Left unchanged however is a company commitment to pay the pilots $550 million in convertible notes when the air carrier emerges from bankruptcy, assuming the group’s defined-benefit pension plan is terminated.

The PBGC assumed responsibility over the struggling air carrier’s pension plan at the end of 2004 in an effort to avoid even further underfunding problems (See PBGC Takes Over United Pilot Pension Plan ). A Chicago Bankruptcy Judge subsequently threw out an agreement between the union and the company, saying that it would unfairly tilt the bankruptcy process in favor of the latter (See Judge Tosses United Pilot Contract ).

United wants to redo all its labor contracts to save costs for the second time in its 25-month bankruptcy. After slashing labor costs by $2.5 billion annually in 2003, the Elk Grove Village, Illinois-based airline says it needs another $725 million in yearly expense cuts.

Other unions are also in negotiations with the company. Besides pilots, flight attendants and mechanics are voting on whether to ratify tentative contract agreements reached by their union negotiators this month. The union representing baggage handlers, ramp workers and public-contact workers faces an April 11 deadline for negotiating a pact following a short-term deal put in place this month.