United Airlines Inc. could terminate its pension plans as soon as January and replace them with a defined contribution plan, said Jake Brace, executive vice president and CFO of parent UAL Corp., Elk Grove Township, Ill. The company expects to present a plan in November to its unions and other stakeholders, including lenders in the financial markets, on ending its pension plans, Mr. Brace said today after a hearing on UAL's Chapter 11 proceedings in U.S. Bankruptcy Court in Chicago.
Mr. Brace said United is still working on a potential defined contribution plan as a replacement and would have to assume the cost of that plan would offset some of the savings from terminating the defined benefit plans. He had no estimate of the defined contribution cost.
Mr. Brace said airline officials don't see any alternatives to termination. United will have to seek another $1 billion in overall cost savings beyond pensions if it hopes to successfully reorganize. "Right now United doesn't have a business plan that's financible," Mr. Brace said.
United would save $4.5 billion over the next five years by terminating the plans, he said. United owes $563 million in pension contributions for the rest of this year and faces $4 billion in pension obligations through 2008. United plans have $12.65 billion in accumulated pension liabilities as of Dec. 31, according to UAL's 10-K filing.
"United's pension liability is currently the most significant issue in this case," James H.M. Sprayregen, attorney at Kirkland & Ellis, which represents UAL, said before Judge Eugene R. Wedoff.
Separately, UAL and the International Association of Machinists and Aerospace Workers today agreed to a settlement of the IAM's motion asking the court to appoint an independent trustee to oversee efforts to develop a reorganization plan for the airline. Mr. Sprayregen said the settlement will be confidential for now; he couldn't say when it will be divulged, or why it is confidential.
Also, Mr. Wedoff granted UAL a 30-day extension to have the exclusive right to present a reorganization plan, precluding any competing proposals. UAL's request was in response to a union challenge this summer to open up the process to proposals from other parties.