Posted on 08/11/2004 5:15:34 AM PDT by OESY
United Airlines's recent announcement that it will skip payments to its four pension funds while it is in Chapter 11 has some observers murmuring about a government bailout. And not just any old bailout, but something akin to the hundreds of billions spent on the savings-and-loan debacle in the late 1980s. An overreaction? Unfortunately, no.
What has people nervous is that United's decision to stop contributing to its pension plans is not as limited as it might seem. The carrier skipped its July payment of $72 million, and the September contribution of almost $500 million and the October one of almost $100 million will also be missing in action. United has not made a decision, but it says it is considering dumping its pension plans altogether. Few companies have restarted their retirement plans after they emerge from bankruptcy.
To get rid of its four plans, United would have to persuade the bankruptcy court that a so-called distress termination is necessary for its very survival. This isn't a frivolous argument. New investment money is balking at assuming pension debts that could be as high as $7.5 billion, with about half due before 2008.
If the court agrees, what's to prevent the other major carriers from engaging in a similar ploy? American, Continental, Delta and Northwest are all struggling and would no doubt love to dump their underfunded pension plans too. This is precisely what happened in the steel industry a few years ago; one terminated plan encouraged other steel companies to get out from under their own pension obligations.
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And Daschle's wife's role is....?
Price controls to raise ticket prices somewhat to ensure a modest profit would be a lot better than a bailout.
The unions would rather see this company fail than give up one benefit or goodie. Then, when the whole thing comes crashing down, the unions will run to the government to make good...
The company has already failed. Allowing it to come out of Bankruptcy will propagate its disease through the rest of the industry. The company should be liquidated completely so there 's less competition for the other carriers that have survived so far.
There is a role for the feds here. If they stepped in and forced the liquidation of United and had the other airlines assume the pension debt (with a little help from the feds) you could save the pensions for those close to retirement. You would also help the health of the other airlines.
This would be similar to what Greenspan brokered in the Financial world when that hedge fund (the name slips my mind) went belly up on a trillion dollars worth of positions.
Many of us rightly criticized the Bush administration for the Medicare prescription drug plan last year, but the reality is that it was aimed precisely at staving off bankruptcy for many of these older companies with hordes of retirees on the company's pension and medical insurance plans.
There's simply no way an old corporate giant can remain viable in the face of newer competition that doesn't offer the kinds of perks that used to be common in these industries.
United's outlived its usefulness. Other airlines should be allowed to take up the slack.
A good point. The next question is: should government step in and save these dinosaurs?
Just another liability that we have been LIED TO about...Just wait for Fannie and Freddie .....
Nope. We've spent more than enough on them already. If they don't have a viable business, they should die.
Yup. However, not even most Republicans see things this way.
It's a difficult question. I don't think the government should bail any companies out, no matter how large they are. But in a case like this where a corporate bankruptcy would result in a "government bail-out" of the company's pension obligations anyway, the issue gets a bit murky.
I agree but United has made commitments to people for pensions . Do we just let the people who are owed the pension go bankrupt as well or do you broker a deal with the other airlines and get the pensioners 75 cents on the dollar? Maybe with 25 cents of that coming from the feds. It may save a few pensioners from going on welfare which will just coming out of our pockets anyway.
Sell the airplanes to fund the pensions.
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