United's Could Be First

Aviation and economic experts are fast becoming worried that the federal savings and loan bailout of the 1980s could soon be overshadowed by another, even bigger financial scandal. America's pension plans are in trouble and it could cost We the People billions to bail them out. Chief among them are the pension plans run by major airlines.

"The similarities are incredible," said George Benston, an Emory University finance professor in Atlanta. He's written quite a bit about the regulatory failures that led to the costly savings and loan bailout. His comments came in an interview with the New York Times.

Pension plans are often insured in the same way as our bank accounts -- by a federal agency. The savings and loan industry, plagued by unprofitable loans and sloppy federal regulation, ended up costing taxpayers as much as $200 billion in bailouts.

Now comes United Airlines, which, as ANN has reported, is bankrupt and no longer contributing to union pension plans as mandated by its contracts. Already, the Machinists Union is suing United, accusing the airline of breaching those contracts.

The airline idustry's financial woes have prompted an unusual number of pilots to retire in hopes of locking in their pensions. While some 30 pilots normally hand in their wings every month at Delta, more than 300 reportedly became pensioners in June alone.

Pensions like those at United are backed by the Pension Benefit Guaranty Corporation, a government organization that has bailed out more than 3,200 penion plans in its 30-year existence. Already in debt, the corporation now faces a $5 billion bailout if United indeed defaults on its pension obligations.

United employees aren't the only ones watching their life financial goals whither away.

"These are very scary times right now for someone in my position," said Andrew Dean, who walked away from his job at 58 , just as he was reaching his peak earning potential, according to the Times. His pension was smaller than it would have been at 60, since Dean decided to retire early. But it seems to have been a pretty smart move in retrospect. Delta pilots are now being asked to fork over a 35-percent pay concession and take smaller pensions.

For United now and perhaps Delta in the near future, those big pension plans are standing in the way of white knights -- financial suitors who could save the airlines through merger. But when those potential benefactors get one look at the huge pension plan debts incurred by major airlines, they usually head for the exit. Blowing away the companies' pension obligations may be seen as the only way they can survive.

"Things start to set a precedent," Dean, the retired Delta pilot, said. "If a bankruptcy court allows a company to terminate its pensions, then that becomes a very tempting business tool."

FMI: www.pbgc.gov