Teamsters Question UAL Pension Terminations

   By: Matteo Colombi, Strategic Campaigner and Cassandra Ogren, Senior Research Analyst,

               International Brotherhood of Teamsters, Strategic Research and Campaigns Department

When UAL announced in September of 2007 that it was considering selling its Mileage Plus frequent flier program, industry analysts estimated that the program could fetch a price of up to $7.5 billion, while UAL itself valued Mileage Plus at $6.5 billion.[i] Yet, only two years before, UAL had cried poor in bankruptcy court and gained approval to terminate $6.6 billion in employee pensions.  How could UAL have sat on such a valuable asset while it slashed retirement security for its employees and saddled taxpayers with its unfunded pension liabilities? 

United Pushed for Terminations in Bankruptcy Court

• During bankruptcy, UAL slashed $7 billion in annual expenses, cut 20,000 jobs (25%)[ii] and 100 aircraft, and terminated its pension plans for its unionized workforce. [iii] Only the top executives’ retirement plans were restored following bankruptcy.[iv]

• UAL reached an agreement with the Pension Benefit Guaranty Corporation (PBGC), and received permission in bankruptcy court, to pass its unfunded pension liability of $6.6 billion to the PBGC, the government agency that insures defined benefit pensions[v] and takes on pension obligations for companies that would be “unable to otherwise emerge from bankruptcy.”[vi] The PBGC took on $6.6 billion in United’s pension liabilities, but the pension plans were underfunded by a total of $9.8 billion, so current and retired UAL employees lost a grand total of $3.2 billion in pension benefits.

United Failed to Account for Value of Mileage Plus

• UAL recognized over $800 million in revenue from Mileage Plus in 2005.  However, management also treated it as a source of a liability to the order of $923 million for 2005.[vii] In bankruptcy court, UAL only estimated the sell-off value of Mileage Plus, which it placed at a low $79.2 million.[viii]  Subsequent analyses, however, place the value of a partial or complete Mileage Plus spinoff in 2005 at between $5 billion and $20 billion.[ix]

• Frequent Flier programs have long been recognized as a profitable piece of the airline industry. In June of 2005, just months after United terminated its pension plans, Air Canada sold a 12.5% stake in its frequent flier program, raising CAD $250 million ($267.60 USD).[x]

• Through its accounting procedures during bankruptcy, United depressed the picture of its financial health, which helped demonstrate its inability to emerge from bankruptcy without terminating its pensions. 

United Owes its Employees Any Profits from a Mileage Plus Sale

• Despite the PBGC’s waiver of its right to reinstate pensions at UAL, UAL employees deserve not only an objective investigation into the UAL pension termination process, but also a stake in any profits that UAL earns from the sale of Mileage Plus.