Is this one more casualty of 9/11? The court’s ruling that United Airlines is legally allowed to default on its pension plans is a devastating blow to those who were counting on that money as a nestegg, and as it would happen, a devastating blow to Guaranty Corporation, the federal agency that guarantees the plan.
- The ruling releases United, a unit of the UAL Corporation, from $3.2 billion in pension obligations over the next five years. The federal agency that guarantees pensions, the Pension Benefit Guaranty Corporation, will assume responsibility for the plans, which cover about 134,000 people.
Some retirees could see sharply lower pension payments as a result; others will see little change in benefits, depending on a variety of factors. Some retirees at US Airways, which has terminated its plans, have seen benefits drop by as much as 50 percent.
What does all this mean?
Well it could mean a jumping of the ship for other struggling airlines, like Delta. As they continue to tread water, many have been waiting to see what United does before making their next move. Most of the major airlines (like much of the consumer transportation sector) have been struggling to make ends meet since 2000. Dealt a particularly vicious blow with the 9/11 terrorist attacks, these industry giants have been swaying in the wind like a Goliath Tower of Pisa. And it seems the gravitational pull of government protection is too much to bear.
Besides 9/11 and the subsequent fallout from the airline industry being shut down for days, there were other factors creating a burden for the airlines and they aren’t insignificant either: increased expenses for security, oil prices, a faltering economy, skittish travelers and serious competition for domestic travel. These are relatively new developments for the big boys. Most were already feeling the squeeze from the new kids on the block even before the recent downturn.
The business model for these monolithic airlines has been going out of fashion for the last decade, as industry innovators like Southwest and JetBlue have carved a niche for themselves with a streamlined, no frills, targeted marketing approach.
Having major industries falter is hardly news nowadays with corporate scandals shaking the tree, a sluggish economy and the government’s reluctance to get involved until it’s too late.
What concerns me most about this particular ruling is the impact it will have on pensions in general, and those covered by Guaranty Corporation. United Airlines is the biggest pension bailout ever at 7 billion dollars of the ten billion or so United Airlines is short. As I mentioned earlier this is NOT good news for Guaranty Corporation, which itself is also underfunded.
Clearly this is the best case scenario for United to dig itself out of its hole, but what about Delta? Does this set a precedent for Delta to follow suit? Looking down the road a ways I can see Delta using the United case to dump their pensions also.
Thousands of workers being shafted seems a distinct possibility.
What looms darker is the possibility that Guaranty Corp. might also default on their backing of these pensions should they continue to bailout these companies.
Makes you wonder if the government is in cahoots with the airline industry to force the Social Security reform hand, as pensions of the past aren’t the golden goose of the future.