Judge Allows United to End Pension Plans

The airline's pension default is the largest in U.S. history.
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A bankruptcy judge has signed off on

UAL's

(UALAQ)

plans to hand off pension obligations to the federal government, a decision that could prompt workers to go on strike.

Judge Eugene Wedoff of the U.S. Bankruptcy Court for the Northern District of Illinois said the settlement doesn't violate any law or the company's collective bargaining agreement, according to a report by

The Associated Press

.

Last month, UAL, the parent of

United Airlines

, and the Pension Benefit Guaranty Corp. agreed on a plan in which the airline will terminate its traditional pension plans and turn over its obligations to the federal pension insurer. The PBGC will receive $1 billion in United debt and up to $500 million worth of convertible preferred stock.

United's traditional pension plans have an estimated $9.8 billion deficit, of which the PBGC has guaranteed $6.6 billion. United's pension default is the largest in U.S. history, well ahead of Bethlehem Steel's $3.7 billion claim in 2003.

Because the PBGC has guaranteed only a portion of United's pension deficit, worker benefits will be reduced.

The airline, which has been under bankruptcy protection since December 2002, said it must terminate its pension plans in order to attract financing necessary to exit from bankruptcy. United said freeing itself from meeting the pension shortfall will save it $645 million annually over the next five years.

But labor groups are furious and have threatened to strike if the judge terminates their pension plans.

The Association of Flight Attendants, which represents about 15,400 United flight attendants, threatened random, intermittent strikes if Judge Wedoff approved the pension termination.

The Aircraft Mechanics Fraternal Association, which represents approximately 6,800 United mechanics, in January approved strikes if United changes any conditions of the union's existing contract with the airline.

The International Association of Machinists and Aerospace Workers, which represents some 19,500 ground workers, is holding a vote on whether to strike; balloting ends Wednesday.

United says strikes would be illegal. The Railway Labor Act, which governs railroad and airline labor relations, requires a lengthy mediation process before workers can strike. But the legislation assumes employees continue to work under existing contracts, and the AFA says pension plan termination would unilaterally violate its contract.