United Pilots Sue over Payout Dispute

October 27, 2006 (PLANSPONSOR.com) - Three United Airlines pilots have sued their union over charges it gave certain furloughed pilots none of a $545 million fund set up as part of a deal to let the air carrier replace its pension plan.

The US District Court suit filed in Portland, Oregon charged that the pilots cut out of the deal to get money from the fund administered by the Air Line Pilots Association International had been furloughed and then recalled after the airline’s February 1, 2006 reorganization and exit from US Bankruptcy Court, according to the Portland Oregonian.

The deal with the union at the heart of the lawsuit came about after United moved away from its defined benefit plan in favor of a 401(k) plan – a move the airline claimed was a necessary prerequisite for it to be profitable again. The airline also negotiated a new labor contract with its pilots’ union pledging to pay the union’s 6,600 active pilots $545 million in convertible notes.

According to the news report, plaintiffs’ attorneys say there may be as many as 1,500 pilots who were out on furlough when United left Bankruptcy Court and who did not receive anything from the $545 million fund. The lawyers say they will seek class-action status for their case to represent the affected pilots.

John Crowell, a Portland attorney representing pilots Eric Passannante of Portland, Raymond Chop of Florida, Bruce Hudson of Colorado, said he believes the union has sold the notes but disbursed money in lump sums to only to pilots flying or recalled from furlough before the bankruptcy exit. “The older pilots will get a lump sum of anywhere from $25,000 to $50,000,” Crowell told the newspaper. “Our guys will get nothing. That doesn’t make sense to us.”

In a related development, a federal appellate court has upheld a US Bankruptcy Judge’s ruling approving the deal setting up the $545 million fund and the defined benefit to defined contribution plan transition (See Bankruptcy Judge Upholds Termination of United Pilots’ Pension Plan ),

In agreeing with the Bankruptcy Court, the 7 th US Circuit Court of Appeals threw out a decision by US District Judge John Darrah siding with a group of retired United pilots who charged that they should have been allowed to participate in working out the deal (See ALPA Agrees not to Fight UAL Pension Termination ).