United Airlines parent
is seeking to cancel its employee pension plans as part of a new cost-cutting package totaling $2 billion a year.
The savings, which would come on top of $5 billion in annual savings United expects to have in place by next year, are designed to help the carrier emerge from Chapter 11 bankruptcy protection. If successful, United's plan would send tremors through the ranks of other network carriers who might be forced to seek additional labor concessions to compete with a leaner, meaner United.
In a message to employees last night, Glenn Tilton, United's chief executive, told employees that one-third of the $2 billion in savings would come from terminating and replacing the company's defined benefits pension plans. Another third would come from non-labor cost reductions, and a final third would be from other labor concessions. As part of the efforts, Tilton said he and seven executives who report directly to him would together take pay cuts of 15% beginning Jan. 1.
"Within this industry, with all the many challenges that every company faces, we have a better opportunity for success than many, many others," Tilton said in the message. "To take that opportunity, to be successful and to have a future, we together have to meet these challenges today, as difficult as they may be. I know how hard this is for everyone."
A United spokeswoman said the airline would seek to achieve the savings through consensual agreements with its unions. Should negotiations fail, however, the airline is preparing to file a motion in the United States Bankruptcy Court for the Northern District of Illinois to schedule hearings where United could request the judge to cancel its labor contracts under Section 1113 of the federal bankruptcy code.
The airline's pilots union has begun reviewing United's proposals. The Master Executive Council of United's unit of the Air Line Pilots Association has scheduled a meeting from Nov. 15 through Nov. 17 to develop a response, said Steve Derebey, MEC chairman, in a recorded message to union members Thursday.
In the message, Derebey called the proposal "dramatic," but said union leaders would not send out further responses until after the meeting.
UAL shares rose 4 cents to $1.05 Friday.
If United succeeds at terminating its pension plans and can achieve further reductions in labor costs in bankruptcy court, it could emerge a lean network carrier without the financial burdens of its network rivals.
"That holds the key for what happens to the rest of the network industry," said William Swelbar, president and managing partner of Eclat Consulting in Reston, Va. If United can get significant savings, that would put "tremendous pressure" on
Delta Air Lines
, American, a unit of
, and even
to cut costs further to remain competitive, Swelbar said.