Since 2001, on the background of a challenged economy, the airlines industry encountered great difficulties and became one of the most hard-tried industries, with soaring fuel costs and soft revenue. The biggest airlines, such as United Airlines, had yet another disadvantage, that of facing competition from low-cost rivals.
Thus, world’s second largest air company, United Airlines has been under Chapter 11 bankruptcy protection ever since 2002, when the Air Transportation Stabilization Board (ATSB) decided to reject United Airlines’s request for $1.8 billion in loan guarantees.
During this long while, the company has been continuously striving to escape this status, unfortunately without impressive results. What the airlines have achieved was survival on the verge by massive job cuts and playing hardball with suppliers.
In December 2004, the company has presented potential lenders another business plan stipulating the intended measures to emerge from the actual ongoing crisis status. Among the planned actions are more employee sacrifices, including the termination of pension plans and another pay cut. In exchange, United promises bigger contributions to a new retirement plan and $550 million in convertible notes for the pilots who accepted a 15 percent pay cut and did not oppose the elimination of their pension plan, once the carrier emerges from bankruptcy.
The problem is that the machinists’ union and the flight attendants’ union and the Pension Benefit Guaranty Corporation have questioned whether the deal is legal, since it dictates the actions of other unions.
The machinists’ union and the flight attendants’ union do not agree with the company’s bid to terminate the pension plans and last summer they started motions in the federal bankruptcy court in Chicago for replacement of the company’s chief executive with a trustee. The motions were finally withdrawn as the Union agreed to have its plan reviewed by a consulting firm. In the review on the Union’s business plan, the hired consulting firm, Bridge Associates, said that, although feasible, the plan may not be achievable if United cannot meet its financial objectives. The airline will need about $2.5 billion to emerge from bankruptcy.
Robert Roach Jr., vice president for transportation at the International Machinists and Aerospace Workers, said the business plan is not workable, as the termination of United’s four employee pension plans would not be taken voluntarily by the machinists. Mr. Roach bases his allegation on the fact that this action would ruin the employees’ motivation and would bring down their morale.
Apparently, the bankrupcy emergence trial of United Airlines has failed again this time, reaching a deadlock, at least for the time being, and unless the company come with other exit solutions.