United Airlines flight attendants' attempts to save their pensions may prove unsuccessful, but their discontent casts a shadow over United's restructuring and could unravel progress recently made on cutting costs.
The Association of Flight Attendants (AFA) is banking that either litigation or legislation will block a plan by United to shift its employee pensions to government insurers.
United won court approval last month to pass along its underfunded pensions to the Pension Benefit Guarantee Corporation (PBGC). But the AFA says it intends to derail that process, even it means going on strike.
"It's a real threat, because United is in a very precarious situation," said Anthony Sabino, a law professor at St. John's University in New York.
"As long as there is a threat of litigation, there is an ongoing battle. There is the risk that this can be undone," Sabino said. "Any little straw could break this camel's back."
United, bankrupt since December 2002, expects to emerge from Chapter 11 this year. In May, the carrier stepped closer to that goal when Judge Eugene Wedoff said the carrier may move its four pension plans to the PBGC.
The plans are underfunded by nearly USD$10 billion, which is the difference between assets and promised benefits. The government will guarantee USD$6.6 billion in benefits. By dumping the pensions, United will save about USD$645 million a year, although employees may lose some retirement benefits.
So far, the PBGC has assumed control of only one plan -- which covers the airline's ground workers.
If the flight attendants were to thwart United's plans, it could be disastrous for the airline, analysts said.
The flight attendants agreed in January to a concessions package worth about USD$131 million annually to the airline. But the AFA put its foot down on the pension issue.
The union has appealed Wedoff's ruling and is asking Congress to block pension takeovers by the PBGC for six months. Early this month, a federal district judge denied an AFA bid to halt pension terminations. The union has appealed that ruling as well.
"We are working against them on all those fronts," United's Chief Financial Officer Jake Brace said, reiterating the carrier's desire for a negotiated retirement plan.
He said, however, that the AFA appears to have "zero interest" in negotiating a new solution.
Meanwhile, the AFA is trying to rally public support through demonstrations and leafleting, which could lead to a strike -- but only if the PBGC assumes the flight attendants' pension.
"We have always said that we will only conduct a legal strike," AFA spokeswoman Sara Nelson Dela Cruz said. "Unless the PBGC terminates the plan, we don't have the right to strike."
The AFA contends that if the PBGC terminates the flight attendants' pensions, then their contract would be unilaterally changed and a strike would be legal. United has argued, however, that a work stoppage based on the pension would be illegal.
Some analysts say the AFA is wasting its time, and that its efforts jeopardize United's bid to attract the financial backing it will need to get out of bankruptcy.
The company's business plan hinges on labor savings. So a threat to the savings is a threat to restructuring and ultimately to jobs, analysts said.
"At this point, they may be the only obstruction," Jon Ash, an aviation consultant at Intervistas-ga2, said of the AFA. "Most other components of the restructuring have been largely put in place."
"Everybody has donated some significant blood in this process," he said. "I think they get themselves into an emotional fury. It's time for them to put that behind them."
