The US government on Thursday took over pension plans covering flight attendants and other workers at United Airlines, a move that may trigger a strike by the flight attendants.
The take-over by the Pension Benefit Guaranty Corporation (PBGC) moves United closer to securing the labor savings it needs to exit Chapter 11.
But it also spotlights a threat by the Association of Flight Attendants, which has vowed to protect its members' pensions even if it means a strike. The AFA has said it is ready to conduct strategic intermittent strikes designed to cause havoc on certain routes if the PBGC takes the plans.
"We don't ever announce when or where. We might strike Paris. We might strike Texas," AFA spokeswoman Sara Nelson Dela Cruz said.
She added, however, that the union continues to fight pension termination through legislation and litigation and that the AFA encourages passengers to fly the airline.
"The idea here is not to strike United Airlines," Dela Cruz said. "The idea is to save our retirement security."
United has said a strike would be illegal and that it is prepared to go to court immediately if the flight attendants stop work.
"We believe any actions to disrupt operations would be illegal, and would only punish our customers and employees," United spokeswoman Jean Medina said.
"We don't believe any actions would be legal," she said. "And we are prepared both operationally and legally to meet the needs of our customers."
The AFA is the only union whose leadership has yet to negotiate a replacement retirement plan for its members. United said it still hopes to reach a negotiated deal.
United, bankrupt since December 2002, expects to emerge from Chapter 11 this year. The airline industry has been battered by soaring fuel costs, weak revenue and competition from low-cost carriers.
Analysts say that if the flight attendants were to strike, it could mean big trouble for the airline.
"I can't speak for whether or not it's legal for them to do so. But it certainly would not be good for United," Morningstar equity analyst Chris Lozier said. "If it impacts their flight schedules at all, it would be a serious loss in revenue and exacerbate the losses they're already experiencing."
United won court approval in May to shift its four pensions 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.
The pension agency will receive USD$1.5 billion in securities of the restructured company to help pay its obligations in return for settling its primary claims in bankruptcy court.
The PBGC said the plans covering attendants and administrative employees are underfunded by more than USD$4 billion and cover more than 70,000 current and former workers.
The flight attendants plan covers 29,000 current and former workers. It has USD$1.3 billion in assets and USD$3.4 billion in liabilities. The government will cover USD$1.8 billion of the shortfall.
The plan covering management, administrative and public contact employees covers 43,000 people. It has assets of USD$1.4 billion and liabilities of USD$3.9 billion. The government will cover less than USD$2 billion of the shortfall.
The PBGC has already assumed control of the pension plan for airport ground workers and expects to take over the pilots' plan once legal issues are resolved.
The deficit-ridden PBGC is funded by corporate premiums and has been rocked by large-scale pension terminations at airlines and steel companies.
