From: New York Times
By: MICHELINE MAYNARD

United Airlines, which is under bankruptcy protection, is almost certain to terminate its employee pension plans and replace them with less-expensive retirement benefits, the airline's chief financial officer said Friday, blaming an “extraordinarily bad” industry environment.

The United executive, Frederic F. Brace III, said in an interview that the airline, a unit of UAL, would have to slash “substantially more” than $1 billion in spending. That would be in addition to nearly $4 billion that it would save once it addressed its pension issue.

His comments came a day after United posted a $274 million third-quarter loss and disclosed that it might be forced to violate the covenants of its bankruptcy financing in the fourth quarter.

United has been under bankruptcy protection since December 2002. The Air Transportation Stabilization Board rejected its application for federal loan guarantees last June, forcing the airline to start over on its revamping.

In August, United said it was likely to terminate pension plans covering pilots, flight attendants, mechanics and other workers at the airline, the second biggest behind American. It owes $4.1 billion in contributions to the plans over the next five years.

Earlier this month, United told a federal bankruptcy court judge that it planned to void its labor contracts and negotiate less-expensive ones with its unions. It said it hoped the process could be complete by mid-January.

United's unions have reacted with outrage to the company's threat to terminate its pension plans, which it left basically intact when it negotiated $2.5 billion in annual wage and benefit cuts from its unions last year.

The federal Pension Benefit Guaranty Corp. also has expressed concern over the impact of a termination. But Friday, Brace said the company had little choice. “I think we will be terminating and replacing the plans,” he said.

Sara Dela Cruz, a spokeswoman for United's flight attendants, criticized the airline for failing to explore alternatives to ending the plans. The pilots' union declined to comment, and the machinists' union could not be reached.A combination of high jet fuel costs, falling ticket prices and aggressive expansion within the industry by low-fare players, led to the bleak outlook, Brace said.

“The industry environment is extraordinarily bad,” Brace said. “That only makes the urgency of the situation and the need to take decisive actions more clear.”

United has said it plans to replace its retirement programs with 401(k) plans. Brace would not estimate how much that would save, but such programs generally cost a fraction of traditional plans.

United must deal with pensions, its loan covenants and its labor contracts before it can complete its exit financing, Brace said, although it is holding discussions with lenders.

Soon after the airline filed for Chapter 11, the United chief executive Glenn F. Tilton said the company might emerge as soon as June 2003. More recently, the airline was aiming to exit bankruptcy early next year, but Brace on Friday would not predict when that would happen.

Some analysts have criticized the airline for spending so much time under bankruptcy protection. But Brace said he was thankful that the airline did not rush to revamp, given its current circumstances.

He said the business plan the airline prepared last year as the basis for its federal loan guarantee application would not have seen the airline through its present situation.

“We did not design a business plan in 2003 that would work in a market where we have $55 fuel and no power to pass any of that through” because of competition from low-fare airlines, Brace said. “I'm glad we are able to use the tools of bankruptcy to address the new realities that we're in.”