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May 9, 2005

United Airlines takes another blow

ual240.gifAs United Airlines continues to flounder in its nearly two and a half year old chapter 11 case amidst union strike threats and troubling pension obligations, an even bigger problem is emerging -- that is, keeping its jetliners.

As noted in this earlier post from last November, the Bankruptcy Court in the United Airlines chapter 11 case made a clearly erroneous ruling regarding the rights of airplane lessors to repossess their planes because of UAL's failure to make timely payments under the leases covering those planes. In this strongly-worded Judge Easterbrook opinion issued this past Friday, the Seventh Circuit Court of Appeals reversed the earlier Bankruptcy Court order barring repossessions of 14 of United's 460 jetliners and ruled that the repossessions can proceed unless United makes the full rental payments as required under section 1110 of the Bankruptcy Code. The ruling raises the distinct possibility that lessors will repossess a number of United's jetliners, which would be an unprecedented occurrence for a major American airline.

Over the weekend, United attempted to play down the Seventh Circuit's ruling by disclosing that the number of planes in the dispute is now down to eight because the airline previously rejected leases on the other six. However, the ruling means that United still must negotiate terms on all of its 175 leased planes, and the ruling does not exactly provide United much leverage in those negotiations.

Meanwhile, other aspects of the United chapter 11 case are just as messy. The Bankruptcy Judge in the case is expected to rule later this week on a proposed settlement between United and the Pension Benefit Guaranty Corp., the federal pension insurer, that would allow United to turnover to the PBGC its four underfunded pension plans in the largest corporate-pension default in U.S. history. The proposed settlement is essentially a debt for equity swap between United and the PGBC in which the PBGC would receive up to $1.5 billion in notes and convertible stock in the reorganized United. Unions representing flight attendants, mechanics and other ground workers have objected to the deal, although the United pilot's union previously approved the proposed settlement.

Also this week, a trial in the United chapter 11 case commences on whether United can establish that the labor contracts of the flight attendants, mechanics and other ground workers should be annulled so the airline can impose new terms on the workers. For its part, the flight attendants have already announced that they will implement a series of work stoppages that target specific flights or routes without warning if United goes through with its action to annul the union's labor contract.

What a first class mess.

Posted by Tom at May 9, 2005 4:30 AM |

Comments

The real losers in this are United workers. I just read on ThinkProgress that they're trying to dump pensions and leave these people out in the cold. It's pretty interesting: http://thinkprogress.org/index.php?p=838

Posted by: Steve at May 10, 2005 2:05 PM

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