United sets sights on terminating pension plans
Blames denial of loan guarantee
August 20, 2004

  United Airlines warned Thursday that it likely will have to terminate its severely underfunded pension plans to attract the investment capital needed to get out of Chapter 11 bankruptcy.
  In documents filed in federal bankruptcy court in Chicago, the USA's No. 2 carrier said it will continue to explore other options.
  United previously said it must cut costs further and has said pensions could be a target. The court filing makes significant changes appear more likely.
  But the company said the size of the additional cost reductions necessary to create a business plan investors would support means that "the termination and replacement of all of United's defined benefit pension plans likely will be required."
  United blamed the likely terminations on an adverse decision this summer by the government board created to help airlines recover from the impact of the Sept. 11 terrorist attacks. The board denied United's application for a $1.6 billion loan guarantee.
  Management said the airline needed the loan guarantee to emerge from bankruptcy court. Management also said record-high fuel prices are partly to blame.
  The airline, which entered bankruptcy protection in December 2002, says higher-than-expected fuel prices this year have added $1 billion to operating costs.
  If United does terminate its pension plans, which are underfunded by more than $8 billion, it would be the largest default in the 30-year history of the federal Pension Benefit Guaranty Corp.
  The PBGC says it would be liable for $6.4 billion in payments to United retirees. And in that case, most retirees would receive less money - in some cases, much less - than they expected.
  Last month, United said it would not make $575 million in pension plan contributions due this year to preserve cash. That prompted the PBGC and unions representing United workers to go to court to try to block the move.
  It also prompted widespread speculation that United eventually would terminate its pension plans and trigger a domino effect in which other airlines would be forced to terminate their expensive defined benefit plans in order to remain cost competitive.
  Thursday's filing by United came as a prelude to a hearing today on the renegotiated terms of United's debtor--in-possession loan from a group of banks.
  The new arrangement would give United an extra $500 million in cash and extend the loan through June 2005.
  United's management hopes that's enough time to put together a new business plan.