UAL Corp., Chicago, today acknowledged that "the termination and replacement" of its United Airlines' defined benefit pension plans "likely will be required" in order to attract financing to exit bankruptcy, but company officials said they haven't made a decision to terminate the plans. UAL is not required to continue making minimum pension contributions while in bankruptcy, and its proposed amended financing pact is consistent with federal law, according to papers filed today in the U.S. Bankruptcy Court in Chicago.
The proposed $500 million in new financing "does not expressly prohibit United from making pension contributions and is not why United deemed it necessary to cease making pension contributions," the filing said. The airline's postponement of pension contributions was "independently based on its good-faith business judgment concerning its uses of cash and need to preserve liquidity during this phase of its restructuring."
The filing argued that U.S. Bankruptcy Code prohibits UAL from paying any claims that arose before UAL and United filed for Chapter 11 bankruptcy protection in December 2002. It also said the law would allow the PBGC to commence an involuntary termination of the pension plans and take over the obligations but argued there is nothing in ERISA that could force a Chapter 11 debtor to make minimum pension payments.
The PBGC and United's machinists' union and flight attendants union have objected to the amended loan agreement, claiming that it prohibits the airline from funding its pension plans and that it violates ERISA, the Internal Revenue Code and collective bargaining agreements. Under the proposed pact, United would have to get lender approval before making any pension contributions.
The court will consider the proposed financing agreement at a hearing Friday.