Posted on 05/12/2005 5:31:12 AM PDT by Brilliant
A bankruptcy court's decision this week to permit United Airlines to default on four underfunded pension plans is no surprise. This is what happens when Congress puts the taxpayer on the hook as the insurer of last resort. The ...questions are: Who's next? And ...how much will the taxpayers eventually be forced to ante up?
United's default means that responsibility for the pensions of 120,000 workers and retirees now falls on the federal government... The court bought United's argument that getting rid of its pension plans was necessary for the airline's survival...
But the PBGC itself is in financial hot water, with obligations that currently exceed its assets by $23.3 billion... So unless Congress can come up with a way to bolster the agency's finances, it'll be up to the taxpayers to make up the deficit. If United's default creates a domino effect...
At the close of last year, the PBGC figured its "reasonably possible exposure" at $96 billion. That's the estimated amount of underfunding in pension plans... the pension promises made by car makers and parts companies are underfunded by between $45 billion and $50 billion, the agency says...
...As United's workers are learning, defined benefit plans ultimately depend on the financial health of a single employer.
...unions are blaming United management for the pension fiasco, and not without some cause. But they have helped to put the industry into its current state by using the whip hand they are given under the Railway Labor Act to threaten strikes and force up labor costs in the good times. Now the unions are discovering that they will lose some of the pension benefits they bargained for. The same thing will eventually happen to the Social Security benefits of workers if the AFL-CIO and AARP succeed in blocking private investment accounts...
(Excerpt) Read more at online.wsj.com ...
I've always thought management compensation/stock options/bonuses should be tied to company performance.
How did it get so out of whack?
Wanna bet the executives of United walk away with at least $100 million between them?
Not unless they did it before bankruptcy. A bankruptcy judge is not likely to approve that kind of a fee, except for the lawyers.
It won't be a fee but a contractual obligation of GM to pay them. I bet the CEO takes at least $10 million.
The CEO might make $10 million, but that's a lot less than $100 million. The judge will order what he thinks he has to pay in order to get competent management. But these judges generally have a different view of what that requires than does management or Wall Street. I doubt he'd order $10 million a year. He might make it $10 million over two or 3 years.
"The CEO might make $10 million, but that's a lot less than $100 million. "
I said the execs will make out to the tune of at least $100. "Execs" is plural, meaning they, together.
"The judge will order what he thinks he has to pay in order to get competent management. "
A judges job is never to make personnel decisions, such that he does not have the ability to "get" any exec.
http://www.freerepublic.com/focus/f-news/1401589/posts
whazzup, crust? toast?
In the case of a bankruptcy judge, it's a little different. Under the Bankrupcy Code, bankruptcy judges are responsible for making decisions as to how much execs get paid in a bankruptcy. They like to think of themselves as judges, but the decisions they make are often very much like business decisions.
Yeah, I understand, but I think the lower level execs can expect to make a whole lot less than the top dog. The judge will probably give the top dog something better than a million. The rest will have to content themselves with salaries befitting someone who's working for a bankrupt.
It was management (the people with a fiduciary duty to shareholders) that signed off on the contracts. Can't blame the unions for getting as much as they can.
Let the unions pick up the shortfall. It was their greed that is banckrupting these companies pension plans and killing their profits by demanding Cadillac healthcare plans.
Dear TXBSAFH,
To your three options:
1. The business model doesn't work for that to occur anymore. The company can't sustain enough revenue to continue meeting these obligations. That's why they're in Chapter 11. Part of the purpose of Chapter 11 is to pare down liabilities in such a way that the remaining business becomes again a viable, going concern.
2. The business model doesn't cover this one either, for the same reasons as above. There are no real prospects that United can grow to the point of being able to take back those obligations, especially with interest added.
3. Under law, the pension plan's position in line is already fixed. The bankruptcy judge deciding the case actually explicitly considered liquidation, and explicitly ruled it out because: the liquidation value of the company low.
Thus, if you liquidate, the government's costs to pick up the pension fund aren't mitigated, and it costs the taxpayers just as much money.
Since, in liquidation, the government has to pick up the costs of the pension obligations anyway, all you're doing is adding insult to injury of having the pension obligations dumped anyway, but also putting a company out of business that just might be viable if it were able to dump the pension obligations through Chapter 11 reorganization.
For whatever set of reasons that brought matters to this point, the bankruptcy judge is stuck with the circumstances that actually exist, and my reading is he's trying to do what costs the taxpayers the least, while inflicting the minimum amount of harm to other stakeholders, including employees and customers.
The folks getting the biggest screwing are the shareholders, as it should be.
sitetest
New investment strategy: Divest all monies in any company that has to cow to unions.
Like I stated, IMHO the feds will not allow another depression and will prop up the economy, wherever and whenever it is necessary.
The airlines have become much like Amtrack, the NEA, and any other government program.
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