Illinois Attorney Lawyer

On May 10, the Illinois bankruptcy court that is overseeing UAL’s reorganisation allowed UAL to terminate its four defined benefit pension plans. The ruling means that the Pension Benefit Guaranty Corporation (PBGC), a federal agency, is in control of pensions for 120,000 active and retiree UAL employees. It is the largest pension collapse and takeover in the PBGC’s 30-year history.

The first UAL plan to be officially turned over to the PBGC was the “Ground Plan”. It covers mechanics and other ground employees. The PBGC only covers about two thirds of UAL’s US$9.8 billion pension obligation. The shortfall — a result of ERISA (Employee Retirement Income Security Act of 1974) regulations — means a reduction of benefits for all future retirees and workers who retired since July 2000.

It is common for management and the corporate media to push the line that pensions are simply “promises”, as though they fell from the sky. In truth, in both the private and public sectors, defined benefit pensions are benefits negotiated by unions. Workers accept lower wages now in a tradeoff for better pension benefits in the future. To cut pensions or terminate pension plans is simply another way to reduce workers’ total wages.

The termination and replacement of pensions at UAL has led to a broad discussion about pensions. At a June 7 Senate finance committee hearing, UAL CEO Glenn Tilton gave his analysis of the pension crisis for airlines.

“The major carriers have massive legacy costs”, Tilton told the senators. High on the list of “legacy costs” were an “uncompetitive cost structure, restrictive labour agreements; a lack of alignment between management, employees and customers; and a governance structure that fundamentally weakened United”.

The “uncompetitive cost structure”, Tilton claimed, includes “restrictive labour agreements” and overly expensive defined benefit pension plans. These had to be restructured, he said, for the company to be saved.

Chapter 11 is a unique US law that allows bankrupt corporations to survive and use courts to tear up labour and other legal contracts. It provided UAL with the tools to rip through its collective bargaining agreements and fundamentally alter its business practices. This included termination and replacement of the pensions and forcing unions to accept concessions in wages and benefits that would have been impossible in “normal” negotiations.

Airline employees waged a heated debate among themselves as to the inevitability of concessions under the bankruptcy process. The issue assumed centre stage late last year when UAL informed the unions on November 4, 2004, that it intended to file 1113c motions before the bankruptcy court to “abrogate” the contracts if concessions were not granted “consensually”. The power of the court to allow the company to impose its own terms was not an idle threat.

The six unions at UAL had to decide to negotiate or fight the court motion to “reject” their contracts through legal action or “self help” (strike), even though UAL said a strike would be illegal. That argument is still untested and has no legal precedence.

The pilots union quickly decided it had to make a deal, including allowing UAL to voluntarily terminate its pension plan. The union sought a deal with UAL early on.

The mechanics represented by AMFA (Aircraft Mechanics Fraternal Association, an independent union not affiliated to the national labour federation, the AFL-CIO), the flight attendants, and the baggage handlers/customer service employees — all resisted quick settlements.