CHICAGO – United Airlines, which has said it plans to skip nearly $500 million in pension contributions this fall, said in bankruptcy court papers it likely will have to cancel and replace all of its pension plans.
The No. 2 U.S. airline, a unit of UAL Corp. (UAL), said in court documents filed Wednesday it was no secret to any of its stakeholders that the company is considering whether termination and replacement of the plans will be necessary.
"As United has told its board of directors, the creditors' committee, and its labor unions, given the magnitude of the further cost reductions needed to create a viable business plan and attract exit financing, the termination and replacement of all of United's defined benefit pension plans likely will be required," the company said.
No final decisions on the pension plans have been made, the carrier said.
United, which has been operating in Chapter 11 since December 2002, has four pension plans covering various groups of employees.
The airline has said skipping a $72 million pension payment in July as well as the upcoming fall contributions will provide it with the flexibility it needs to save money and attract badly needed investors.
The International Association of Machinists (search), the Association of Flight Attendants (search) and the Pension Benefit Guaranty Corp. (search) , the U.S. agency which insures corporate retirement plans, have all asked the court to prevent United from ceasing payments.
United this week agreed to the appointment of an independent monitor to represent the interests of its pension plan participants.
United also said in the court filing that proposed changes to its bankruptcy financing, which will provide it with an additional $500 million and extend its loan maturity until June 2005, do not expressly prohibit the carrier from making pension contributions.
Rather, the airline said the decision to halt payments was based on prudent business judgment and its need to preserve liquidity. The proposed debtor-in-possession financing merely holds United to its projections about cash available to repay the loan, it said.
A court hearing on the proposed DIP financing is set for Friday.
United also claims there is nothing in federal laws governing pensions that requires a bankrupt company to make minimum pension contributions.
The carrier said it would deal with minimum payments after exiting bankruptcy if the pension plans could be saved.
Even with the additional $500 million in DIP financing and the suspension of pension funding, United said its cash position is still precarious.
"Continued cash balances less than $1 billion are not appropriate liquidity levels for an airline of United's size," the carrier said in court papers.
US Airways Group Inc. has terminated its pilot pension plan and replaced it with a cheaper one as part of its bankruptcy reorganization. Delta Air Lines Inc. (DAL), which is trying to cut costs and come up with ways to revamp its business outside of bankruptcy court, has proposed changes to its pilot pension plan but has not made specifics public.