The Air Line Pilots Association agreed yesterday not to oppose United Airlines parent UAL Corp.’s effort to terminate the group’s generous defined-benefit pension plan in return for UAL’s agreement to issue to the union $550 million in convertible notes that the active pilots could sell in the capital markets to raise money to cover a portion of the pension shortfall.
The agreement is a key development in UAL’s effort to meet conditions of its exit financing so that it can emerge from its now seemingly unending chapter 11 case. Here are earlier posts on UAL’s bankruptcy case.
UAL is seeking to foist its four pension plans on to Pension Benefit Guaranty Corp. the quasi-governmental agency that insures pension plans. Such a move would save UAL $4 billion in pension contributions through 2008 and is a condition to UAL’s exit financing for emerging from its chapter 11 case. Although the PBGC opposes UAL’s plan to terminate the pension plans, if UAL can persuade the bankruptcy court that it cannot emerge from bankruptcy with that financial burden, then the PBGC would likely be forced to take over the plans.
Inasmuch as lucrative defined-benefit pensions are a highly important component of compensation in legacy airlines’ labor contracts, the fact that ALPA agreed to a deal over its pension with UAL indicates that the union understands that UAL really is on the brink of liquidation.
And that, folks, is the most important lesson that the parties-in-interest in the UAL case must understand if United Airlines is ever going to emerge from chapter 11.