In a bitter split, United Airlines' creditors, along with some banks and unions, have joined the federal government in opposing a deal in which United would terminate its pilots' pension plan and offer the pilots equity in the airline and other sweeteners in exchange.þþThe showdown will come in a federal bankruptcy court in Chicago tomorrow, as the pilots are set to finish voting on the deal, which United reached with the union leadership last month.þþOn Friday, United, the operating unit of UAL Corporation, is set to begin a tumultuous court battle to set aside virtually all of its labor contracts, impose stringent new terms and terminate all of its employee retirement programs, including the one for the pilots. Among those making the company's case Friday will be its chief executive, Glenn F. Tilton.þþThe United situation has riveted the airline industry, in part because of a decision last week by the federal agency, the Pension Guaranty Benefit Corporation, to seize the pilots' pension plan, rather than see its unfunded burden increase. þþIt also has implications for unions at other airlines, which could seek similar cuts if United is successful. þþÿThis is one of the largest airlines, and it's one that everybody is watching,ÿ said Gary M. Ford, a former general counsel at the pension agency who is a partner at the Groom Law Group in Washington. ÿIt is going to set some ground rulesÿ for other airlines.þþUnited, the second-biggest airline behind American, sought bankruptcy protection in December 2002. It hoped to reorganize with a package of federally guaranteed loans. But the Air Transportation Stabilization Board rejected its application last June, forcing the airline to intensify its efforts to cut costs.þþUnited, which had already cut its labor costs by $2.5 billion a year through an initial round of concessions, told its unions last fall that it needed another $725 million in cuts. It asked the bankruptcy court to void the contracts of unions with which it had not reached agreement on wage and benefit cuts. þþIt also said it wanted to terminate four employee pension plans covering pilots, flight attendants, mechanics and agents. Terminating a pension plan in bankruptcy is a difficult process that requires the company to get the consent of any affected unions - something unions are generally loath to give. The deal that United struck with its pilots in December was an effort to set the terms under which the pilots would have consented to the demise of the pension plan.þþThe tentative agreement would impose a 15 percent wage cut, sweetened by a promise by the airline that, if the pilots' plan was terminated, United would give the pilots $550 million in convertible notes when it reorganized. Another provision calls for a separate retirement plan that would not be terminated. þþThe deal was immediately denounced by other unions, angered at what they viewed as an attempt to force them to abandon their pension plans. Meanwhile, the pension agency, which guarantees the nation's pension plans, took legal action to block the arrangements in two different courts. þþSeparately, the agency filed a complaint in federal district court in Chicago, asking the court to terminate the pilots' plan immediately and appoint it trustee. þþUnited has not yet responded to the pension agency's complaint in district court. þþThe pilots' union is urging its 6,400 members at United to approve the plan. Yesterday, Mr. Tilton told employees in a recorded message that the agreement was the kind of ÿcollaborative solutionÿ that United needed to become successful. But in a brief filed with the bankruptcy court, lawyers for the creditors' committee said the deal with the pilots could make it more difficult for United to attract the $2 billion to $2.5 billion in financing that it needs to leave bankruptcy protection, since it would give equity to the pilots. þþThe creditors' opposition to the pilots' deal is likely to bolster the efforts by the pension agency, which generally finds itself alone in such cases, Mr. Ford, the pension agency's former general counsel, said.þþþþ
Source: NY Times
