Fitzgerald Urges PBGC Vigilance Concerning Possible United Airlines Pension Bailout

Senator Questions United's Costly Commitment to O'Hare Expansion

at Expense of Employee Pension Plan



27 Sep, 2004, 01:00 ET from Office of U.S. Senator Peter G. Fitzgerald

    WASHINGTON, Sept. 27 /PRNewswire/ -- In a letter to the Pension Benefit
 Guaranty Corporation (PBGC), U.S. Senator Peter G. Fitzgerald (R-IL) today
 urged Executive Director Bradley Belt to answer important questions before
 approving a potential taxpayer bailout of the beleaguered airline's costly
 employee pension plans.
     Among other things, Fitzgerald noted that despite United's default on
 payments to its pension plans, the airline remains committed to proceeding
 with the expansion of O'Hare International Airport.  According to Fitzgerald,
 "It's perplexing how United can, in effect, divert money from its employee
 pension plans into a humongous capital improvement project."
     Fitzgerald's letter follows a recent announcement by United that it will
 likely skip required payments to its employee pension plans for the remainder
 of the year -- indicating the airline may seek a taxpayer-funded bailout of
 its $6.4 billion pension obligations.
     The full text of Fitzgerald's letter is below:
 
     September 27, 2004
 
     Mr. Bradley D. Belt
     Executive Director
     Pension Benefit Guaranty Corporation
     1200 K Street, NW
     Washington, DC  20005-4026
 
     Dear Mr. Belt:
 
     As Chairman of the Senate Governmental Affairs Subcommittee on Financial
 Management, the Budget, and International Security, and a Senator from
 Illinois, I write to you to express my concern that United Airlines has failed
 and refused to make its most recent payment into its employee pension plans,
 and that the airline intends to skip its required contributions for the
 remainder of the year unless it secures financing to emerge from bankruptcy.
     On August 4, 2004, the Chicago Tribune reported that plans for the $2.9
 billion phase one expansion of O'Hare International Airport, United's primary
 hub, are moving forward.  According to Global Aviation Associates (GAA), a
 consultant for the Suburban O'Hare Commission, the complete expansion of the
 O'Hare airport will cost a total of $14.8 billion.  United appears to have an
 agreement in principle to fund a certain percentage of the overall cost for
 the airport expansion.  A GAA analysis has concluded that United's share of
 the overall cost, including debt service, of O'Hare's expansion, will reach as
 high as $522 million per year, assuming United retains its current 47.5
 percent share of operations at O'Hare.  Given the magnitude of United's
 financial commitment to the O'Hare airport expansion, how can United in effect
 divert money from its employee pension plans into a humongous capital
 improvement project such as the tearing up and rebuilding of O'Hare airport?
     On September 15, 2003, during a hearing I chaired on the defined benefit
 pension system and the Pension Benefit Guaranty Corporation (PBGC), I
 expressed concern about United's severely underfunded pension plans and the
 growing risk they posed to American taxpayers.  At that hearing, Steven
 Kandarian, then executive director of the PBGC, testified that the PBGC would
 assume an additional debt burden in excess of $5 billion, should United's
 pension plans terminate.  Since that time, the additional potential debt
 burden from a termination of United's pension plans has risen to $6.4 billion.
 Given the magnitude of United's current unfunded pension liability, a bailout
 of United's pension plans by the PBGC may trigger a bailout of the entire PBGC
 by American taxpayers.
     In July 2003, the General Accounting Office, now renamed the Government
 Accountability Office, placed the PBGC's single employer insurance program on
 its "high risk" list because of the agency's large accumulated deficit and the
 significant risk that a number of large, underfunded plans may terminate in
 the near term.  The termination of United's pension plans would have a
 profound impact not only on the company's employees and retirees in Illinois
 and elsewhere in the country, but also on the PBGC itself, which would then
 face the largest accumulated deficit in its history.
     To ensure that the interests of United's employees and retirees -- and all
 American taxpayers -- are at the forefront, I request that the PBGC provide me
 the following:
 
     (1) an explanation of how a company in bankruptcy may simply stop making
 contributions to its pension plans without violating the law;
 
     (2) a description of how United's failure to make required payments into
 its pension plans may reduce benefits to plan participants;
 
     (3) an analysis of the impact on United's competitors, PBGC premium
 payers, and U.S. taxpayers, should the company default on its pension
 promises;
 
     (4) an explanation of how United can legally divert money from its
 employee pension plans to the O'Hare construction project, and a determination
 as to whether any company can finance capital improvements by ceasing to make
 payments to employee pensions plans; and
 
     (5) an immediate notification of the termination of any of United's
 pension plans, whether requested by United or initiated by the PBGC.
 
     Thank you for your prompt attention to this matter.
 
                                           Very truly yours,
 
                                           Peter G. Fitzgerald
 
     Chairman
     Subcommittee on Financial Management, the Budget, and International
 Security
 
 

SOURCE Office of U.S. Senator Peter G. Fitzgerald
    WASHINGTON, Sept. 27 /PRNewswire/ -- In a letter to the Pension Benefit
 Guaranty Corporation (PBGC), U.S. Senator Peter G. Fitzgerald (R-IL) today
 urged Executive Director Bradley Belt to answer important questions before
 approving a potential taxpayer bailout of the beleaguered airline's costly
 employee pension plans.
     Among other things, Fitzgerald noted that despite United's default on
 payments to its pension plans, the airline remains committed to proceeding
 with the expansion of O'Hare International Airport.  According to Fitzgerald,
 "It's perplexing how United can, in effect, divert money from its employee
 pension plans into a humongous capital improvement project."
     Fitzgerald's letter follows a recent announcement by United that it will
 likely skip required payments to its employee pension plans for the remainder
 of the year -- indicating the airline may seek a taxpayer-funded bailout of
 its $6.4 billion pension obligations.
     The full text of Fitzgerald's letter is below:
 
     September 27, 2004
 
     Mr. Bradley D. Belt
     Executive Director
     Pension Benefit Guaranty Corporation
     1200 K Street, NW
     Washington, DC  20005-4026
 
     Dear Mr. Belt:
 
     As Chairman of the Senate Governmental Affairs Subcommittee on Financial
 Management, the Budget, and International Security, and a Senator from
 Illinois, I write to you to express my concern that United Airlines has failed
 and refused to make its most recent payment into its employee pension plans,
 and that the airline intends to skip its required contributions for the
 remainder of the year unless it secures financing to emerge from bankruptcy.
     On August 4, 2004, the Chicago Tribune reported that plans for the $2.9
 billion phase one expansion of O'Hare International Airport, United's primary
 hub, are moving forward.  According to Global Aviation Associates (GAA), a
 consultant for the Suburban O'Hare Commission, the complete expansion of the
 O'Hare airport will cost a total of $14.8 billion.  United appears to have an
 agreement in principle to fund a certain percentage of the overall cost for
 the airport expansion.  A GAA analysis has concluded that United's share of
 the overall cost, including debt service, of O'Hare's expansion, will reach as
 high as $522 million per year, assuming United retains its current 47.5
 percent share of operations at O'Hare.  Given the magnitude of United's
 financial commitment to the O'Hare airport expansion, how can United in effect
 divert money from its employee pension plans into a humongous capital
 improvement project such as the tearing up and rebuilding of O'Hare airport?
     On September 15, 2003, during a hearing I chaired on the defined benefit
 pension system and the Pension Benefit Guaranty Corporation (PBGC), I
 expressed concern about United's severely underfunded pension plans and the
 growing risk they posed to American taxpayers.  At that hearing, Steven
 Kandarian, then executive director of the PBGC, testified that the PBGC would
 assume an additional debt burden in excess of $5 billion, should United's
 pension plans terminate.  Since that time, the additional potential debt
 burden from a termination of United's pension plans has risen to $6.4 billion.
 Given the magnitude of United's current unfunded pension liability, a bailout
 of United's pension plans by the PBGC may trigger a bailout of the entire PBGC
 by American taxpayers.
     In July 2003, the General Accounting Office, now renamed the Government
 Accountability Office, placed the PBGC's single employer insurance program on
 its "high risk" list because of the agency's large accumulated deficit and the
 significant risk that a number of large, underfunded plans may terminate in
 the near term.  The termination of United's pension plans would have a
 profound impact not only on the company's employees and retirees in Illinois
 and elsewhere in the country, but also on the PBGC itself, which would then
 face the largest accumulated deficit in its history.
     To ensure that the interests of United's employees and retirees -- and all
 American taxpayers -- are at the forefront, I request that the PBGC provide me
 the following:
 
     (1) an explanation of how a company in bankruptcy may simply stop making
 contributions to its pension plans without violating the law;
 
     (2) a description of how United's failure to make required payments into
 its pension plans may reduce benefits to plan participants;
 
     (3) an analysis of the impact on United's competitors, PBGC premium
 payers, and U.S. taxpayers, should the company default on its pension
 promises;
 
     (4) an explanation of how United can legally divert money from its
 employee pension plans to the O'Hare construction project, and a determination
 as to whether any company can finance capital improvements by ceasing to make
 payments to employee pensions plans; and
 
     (5) an immediate notification of the termination of any of United's
 pension plans, whether requested by United or initiated by the PBGC.
 
     Thank you for your prompt attention to this matter.
 
                                           Very truly yours,
 
                                           Peter G. Fitzgerald
 
     Chairman
     Subcommittee on Financial Management, the Budget, and International
 Security
 
 SOURCE  Office of U.S. Senator Peter G. Fitzgerald