By Milt Neidenberg
A potential catastrophe is bearing down on airline workers and their unions, initiated by United Air Lines, the world's second-biggest airline. The issue at stake is billions of dollars that UAL workers have accrued in pension accounts.
The Aug. 1 New York Times reported that UAL "said last month that it would no longer contribute to its pension plans; United also seems intent on shedding some or all of its $13 billion in pension obligations as the only way to succeed in emerging from bankruptcy proceedings."
UAL has been in Chapter 11 bankruptcy reorganization for the last 20 months. Following the December 2002 bankruptcy, the airline--with the bankruptcy judge's approval--forced disastrous concessionary contracts on UAL unions.
The Flight Attendants union, now merged with the Communication Workers, gave concessions amounting to $2.4 billion a year for 2003-2008. The Pilots union agreed to a whopping 29-percent cut. And the Machinists union, which includes mechanics and other on-the-ground service workers, agreed to a 13-percent cut.
According to UAL top brass, these huge union sacrifices were necessary to save the company. The truth: UAL was in collusion with Citigroup, J.P Morgan Chase, Bank One--which recently merged with J.P. Morgan Chase--and CIT to fund operations during the bankruptcy.
UAL guaranteed their investments and fees--profits--by savaging the union contracts. During the last 18 months, these Wall Street allies, including the bankruptcy court, continued to defraud the workers of their resources. They demanded more concessions, approved by the trustee of the court--in work rules, restructuring and downsizing airplane maintenance, fur loughing flight attendants, cutting health care for retirees, and forcing pilots and flight attendants to work longer hours.
Pension system under attack
According to an Aug. 1 New York Times headline, "If Airlines Shed Their Pensions ... the U.S. Taxpayers [the workers] Could Face Huge Bills if United Sets Off Chain Reaction."
The Pension Benefit Guaranty Corp oration, which insures pensions, has stated that "the pension insurance program is there to protect workers' benefits ... it shouldn't be used as a piggy bank to help companies restructure." By law, the UAL pension liability should be secured.
The liability is roughly $13 billion set aside by the corporation. As of last December, the company has only about $7 billion in the fund.
And now the bosses want to default on that.
UAL is violating pension law. ERISA, the Employment Retirement Income Security Act, protects pensions. Once a pension is earned it cannot be legally taken away. But UAL is in bankruptcy. The banks, in collusion with UAL and the bankruptcy court, are preparing to break the law by defaulting on UAL pensions that ultimately can amount to $13 billion.
This is scary to the seriously underfunded PBGC. It has picked up the tab for 3,200 failed pension funds in its 30-year life. Yet the pension law Congress passed in 1974 clearly states that any company that promises pensions to its workers would be required to set aside funds to pay them. And ERISA guarantees a grievance and appeals process to fight violations.
Breaking the law to suit their class interests is nothing new for Wall Street corporate and banking institutions. The pension swindle is a critical issue that the entire labor movement must meet head on. It can spread to other airlines, which can also claim they can't meet their pension obligations, as well as to the rest of corporate America, only too anxious to dump pension funds.
Coming on the top of the recent defaults of seven steel companies, including Bethlehem Steel with a default of almost $4 billion that the PBGC was forced to take over, all this undermines the PBGC's scarce resources. The Aug. 1 New York Times report compared the situation to the savings and loans collapse of the 1980s.
"The similarities are incredible," said George J. Bentson, a finance professor at Emory College. He has written extensively on the regulatory failures that led to the multi-billion-dollar S&L bailout.
UAL unions are furious
Earned pension funds are security for workers when they reach retirement age. They have worked long and hard to build up this equity. In 1974, they won ERISA legislation in struggle, protesting a string of pension failures in the auto industry.
Machinists President Randy Canale, representing 37,000 members, responded to UAL: "We are at war with United Airlines." (New York Times, Aug. 3)
On July 29, the Machinists filed lawsuits against UAL Chief Executive Officer Glenn Tilton, Chief Financial Officer Frederic F. Brace III and Chief Operating Officer Peter McDonald claiming, "As fiduciaries of the pension plan, the defendants had a responsibility to compel United to meet its funding obligations."
Airline Workers Unite, a rank-and-file caucus of flight attendants, has spread the word in their recent bulletin: "UAL cannot operate without us. We have power and strength. We must contemplate a courthouse [bankruptcy court] protest. "NO MORE CONCESSIONS!"
Protests including wildcat strikes, sickouts, and other actions to disrupt airline operations are being considered. Such protests would present an ideal opportunity for the UAL unions to force the bankruptcy court to grant them status as the principal UAL creditor.
What gives them that right? The workers' skills, experience and labor power are indispensable to keeping the airline afloat. Their pensions and other unpaid benefits have won them the right to succeed the current trustee.
The trustee is the person or group of persons appointed by the bankruptcy court to take charge of UAL's affairs. Once the UAL unions demand to take over the trusteeship, they can immediately restore their equity in the accrued pensions and other benefits that have been taken away. They can end the lucrative contracts of senior management like Tilton, Brace, McDonald and the board of directors, who receive huge salaries, guaranteed stock options and huge bonuses that have depleted the airline's resources.
When UAL filed for bankruptcy, the company could no longer claim ownership. It had to surrender the title and legally became a debtor, granted possession by the bankruptcy court. UAL had to get permission from the trustee to dispense those obscene benefits. The UAL management can't sign checks, disperse funds or make any decisions affecting the UAL unions without the authority and approval of a trustee.
Two of the UAL unions sit on the bankruptcy court's Creditors Committee, a decision-making board. But they are a minority, outvoted on important issues affecting their members. Once the UAL unions become the trustees, they would be the de facto owners of the company.
As representatives of over 100,000 airline workers, they are capable of running the corporation during this crisis. It is only under workers' control that UAL can be saved.
The company has reneged on its promise that it would soon be free of bankruptcy. It's now in worse shape despite all the sacrifices, the concessions and downsizing won from the UAL unions.
Employee ownership is a tall order but it is a challenge to the company's illegal practices. This may sound novel to the unions, but so did the idea of organizing unions hundreds of years ago, and so did occupying plants in the 1930s. For a short time, it goes beyond the established labor-management relationship that is the framework of capitalist exploitation.
This perspective needs the support of the Million Worker March and the entire labor movement. Pension rights are the line in the sand.