United Airlines (search) said Friday it plans no further payments to its employee pension funds in bankruptcy in order to improve its chances of attracting exit financing, a move that upset union leaders.

The disclosure came nine days after United deferred a required quarterly payment of $72 million to the pension funds, which are under review as it scours its operations for further cost cuts in a Chapter 11 restructuring now set to last into mid-2005.

The nation's No. 2 carrier said its new $1 billion interim financing package lined up this week effectively prohibits further pension contributions before it leaves bankruptcy. That financing, formally outlined at the company's monthly bankruptcy court hearing, does not come due until next June 30.

"Such payments would diminish the company's liquidity and reduce flexibility, thus impairing the company's ability to attract exit financing," United said in a statement filed with the U.S. Securities and Exchange Commission (search).

Two of United's biggest unions swiftly condemned the move, and the one representing United ramp workers and public contact employees said it is considering legal action to fight it.

"United Airlines is following a very dangerous path and cannot successfully exit bankruptcy without living up to the commitments they made to their employees," said Robert Roach Jr., general vice president of transportation for the International Association of Machinists and Aerospace Workers (search).

The machinists say that if United terminates the pension funds, which cover 125,000 active and retired employees, it would be the largest default ever in the airline industry.

"United Airlines has betrayed their employees and destroyed what little credibility they had with us," said Randy Canale, president of IAM District 141. He added that his group is "primed for a brutal fight."

Greg Davidowitch, head of the union representing United flight attendants, said the company's actions make termination of the pension plans likely.

"United's actions today are devastating for the security of our pensions and the direction of our airline," he said. "Management's deferral of pension payments is demoralizing to employee confidence, marginalizes employees' future security and further burdens our members, who have already sacrificed so much."

There was no immediate comment from unions representing United's pilots and mechanics.

By securing the new financing and not making additional pension contributions, the company believes it will have adequate funding until its exit from bankruptcy.

The Elk Grove Village, Ill.-based airline had been facing more than $4 billion in required payments to the underfunded pension plans through 2008, including $725 million for 2004 alone.

Its need for cash intensified last month when the government rejected its bid for a government loan guarantee it said was needed in order to emerge from bankruptcy. The company now needs to get that backing from private lenders or investors, who are certain to demand that it shed more costs.

United said it is studying the situation involving its pension funds and beginning to hold talks with union leaders.

"Because existing pension plan contributions will remain a huge financial burden after exit, it is incumbent on United to study all possible options and to determine whether United can sustain this burden and still attract exit financing," the airline said. "At present, no decisions have been made and much work and analysis needs to be completed."