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."