Pension trustee seeks payment from United Airlines

Tue Nov 30, 2004 03:40 PM ET
CHICAGO, Nov 30 (Reuters) - The trustee for three United Airlines (UALAQ.OB: Quote, Profile, Research) pension plans filed a motion in bankruptcy court on Tuesday asking that the No. 2 carrier be required to pay into those plans before it emerges from bankruptcy.

The motion, filed by Independent Fiduciary Services, seeks to classify the unpaid pension contributions as "administrative expenses," giving them higher priority in bankruptcy proceedings.

If the pension plans are classified in this way, UAL Corp., parent of United, would have to contribute to them before the carrier exits bankruptcy.

"Today's motion asks the court to rule that United's unpaid minimum funding contributions must ultimately be treated as administrative expenses," Filiberto Agusti, an attorney with Steptoe & Johnson, the firm representing IFS, said in a statement.

"As part of the collectively bargained consideration for post-petition labor from its employees, United's unpaid mandatory funding contributions to these plans qualify for and are entitled to administrative expense priority," Agusti said.

IFS hopes to collect no less than $260 million and up to about $994 million for United pension plans for flight attendants, mechanics, ramp and store employees and public contact employees. A hearing on the motion is expected Dec. 17.

United considers the unpaid contributions "general unsecured claims" that are not entitled to priority status, a spokeswoman said.

"Our decision not to make these contributions was based on our good faith business judgment concerning our use of cash and need to preserve liquidity during this phase of our restructuring," the spokeswoman said. "It is the prudent exercise of our discretion under the Bankruptcy Code."

United told the bankruptcy court in July that it plans no further pension payments this year. This angered unions, which fear United may scrap the retirement plans altogether as it tries to cut costs.

United, based in Elk Grove Village, Illinois, filed for Chapter 11 protection from creditors in December 2002. The carrier said last week it needs to cut its pension liabilities to secure needed financing, and it wants permission to remove any requirement in collective bargaining agreements that it maintain defined benefit pension plans.

United asked a bankruptcy judge last week to let it reject its labor contracts with its six unions if it fails by January to extract an additional $725 million of annual savings from its employees. The proposed cuts are on top of $2.56 billion of concessions that unions have already provided.

The airline industry has been hammered by soaring fuel costs, weak revenue and low fares resulting from competition from low-cost carriers.

UAL shares were down 4 cents at $1.01 in Tuesday afternoon trading.