Delta Air Lines announced it would cut thousands of jobs, after securing agreement from its pilots to give back $1 billion in salary and benefit cuts.

Delta said it plans to eliminate 2,000 maintenance jobs, and nearly 3,000 customer service jobs along with 1,800 management positions over 18 months, starting January 1. Executives at the airline said it may still go into bankruptcy even though the pilots’ union agreed to a 32.5 percent pay cut to help the company avoid Chapter 11.

Northwest Airlines said its pilots had approved a package of concessions, including a 15 percent pay cut totaling $265 million.

United Airlines, in bankruptcy proceedings since 2002, has asked a judge to allow the company to tear up pension agreements involving 120,000 retirees and current workers and replace employee retirement plans with 401(k) contribution programs. These are invested in the stock market and are vulnerable to evaporate at any market plunge. United stopped paying its obligations into these pension funds this summer.

United asked for a November 19 hearing. It has also asked the bankruptcy judge to set a deadline for the unions to come to a “consensual” agreement in out-of-court talks on the concessions it is seeking. “Having a deadline often helps the parties in reaching a consensual resolution,” the company said in court papers, according to the Post.

The action by United would dump about $8.3 billion in pension debt onto the federal Pension Benefit Guaranty Corp (PBGC), according to the Washington Post.

PBGC is the federal agency created by the Employee Retirement Income Security Act (ERISA) under the Gerald Ford administration in the 1970s. It requires companies to set aside enough funds to cover pension obligations. Where a company defaults on its pension payments, the agency picks up a portion of the costs. In the case of United, the agency will pay $6.4 billion. The remaining $1.9 billion will come out of workers’ pockets from reduced benefits to retirees.

Top executives at United will not be charged with lawbreaking or any other wrongdoing for any of this because they have adhered to ERISA rules, said a November 6 New York Times article. ERISA allows plenty of latitude for companies to make their pension obligations look smaller, or make its financial health appear strong when a company is actually near collapse.

In the 1990s United set aside more money than needed to cover pension costs, building up a credit balance of $1.3 billion by 2000. Then the technology bubble burst and stock prices, in which the pension fund was heavily invested, plummeted. Much of the $1.3 billion in credits evaporated.

By the ERISA rules, however, the $1.3 billion that United lost gambling on the stock market stayed on the books. When quarterly or annual contributions by the company came due, United did not have to part with a penny in cash because the books showed this $1.3 billion credit, which was in fact worthless. In 2001, when funding for the flight attendants’ pension fund fell below 88 percent for the second time in three years, the company juggled $68 million from the fictitious credit into the fund to make it appear solvent. As a result, it did not have to inform flight attendants of the precarious status of their pension fund or make higher premium payments to the PBGC, which are required by law when funding falls below 90 percent of a company’s pension obligations. With this kind of creative accounting, in 2002 United was able to declare the pilots’ pension program to be funded at 102 percent—that is for every dollar owed to employees in pension benefits there was $1.02 in the pension fund.

A spokesman for the International Association of Machinists, which represents 20,000 ramp workers and stock clerks along with gate and reservations agents at United, said the union is reviewing the company’s request for cuts.

In December 2002, United threatened bankruptcy unless the unions approved $5.2 billion in wage and benefit concessions over five and a half years. The federal government, through its Air Transportation Stabilization Board (ATSB), said these kinds of concessions from the unions were needed as a condition for granting United $1.8 billion in federal loan guarantees. United had asked for the loan guarantees to avoid insolvency. Union officials gave in. But the company went into bankruptcy anyway. It has used insolvency proceedings ever since as press for deeper and deeper cuts.  
 
 
Front page (for this issue) | Home | Text-version home