As United eyes pension default, unions threaten strikes

United, the nation's second largest airline, faces a make-or-break set of challenges this week that will determine if it can emerge from bankruptcy.

Key to its success, the company claims, will be jettisoning its pension obligations, a move that could also spark damaging strikes by some of United's unions. They charge that management has failed to look at other alternatives and is simply misusing the bankruptcy court to balance its books on the backs of employees.

The airline's pensions are currently underfunded to the tune of $9.8 billion dollars. If the company succeeds in winning approval this week to turn them over to a government insurer, it will amount to the biggest pension default in US history. And analysts worry that other major carriers, also struggling in this new, low-fare economy, will be quick to follow.

But while the challenges United confronts may seem extraordinary, from threatened strike votes to the uncertainties of a bankruptcy trial that starts Wednesday, the tests that the company is facing reflect what in many ways is a new American economy. From the airlines to department stores, Americans have made it clear that low prices are king. Unions call it the "Wal-Martization of America," while conservatives say it's the market working in the consumers' interest. However the trend is viewed, it's clearly reverberating across the landscape, transforming everything from the US trade deficit to the quality of products that consumers are able to buy.

The low prices Americans demand ultimately end up affecting the salaries they're able to earn. And nowhere is that more evident than in the airline industry. This once-glamorous haven for skilled, high-paid employees, from pilots to mechanics, is now facing an entirely new set of economic imperatives that requires them to accept lower wages and fewer benefits, or risk driving their companies under.

It's not a choice that makes anyone happy. And with unions now threatening strikes at United, the question is which path the employees will ultimately take.

"Whether it's GM or Ford or United, the price the consumers are willing to pay won't support current operations, let alone past obligations like pensions, and healthcare and other retiree benefits," says David Stempler of the Air Travelers Association in Washington. "There is either enough money to pay for current operations or past obligations, but not both."

In a filing for a hearing Tuesday on its pension obligations, United defended its proposal to turn its remaining pension plans over to the Pension Benefit Guarantee Corp. as necessary and as a "landmark achievement" in its restructuring. The move would save the ailing airline $4.4 billion over six years, which would make it easier to gain financing to exit bankruptcy.

"It will allow the company to move forward as a sustainable, competitive enterprise for the long term - ultimately United's most important goal," the company said in a statement.

The affected employees - flight attendants, ground workers, and mechanics - would lose about a quarter of their pensions. They've argued before the judge that the pension default is unnecessary, and they accuse the airline of refusing to negotiate with them in good faith on the issue. They've called for United's management to be replaced.

"If management would work with us cooperatively and fairly, much of this could be avoided," says Ellie Larson of the Association of Flight Attendants (AFA). "We've shown them several plans that would allow them to keep our pensions intact, but they aren't willing to entertain any ideas or creative solutions to these problems other than their own firm belief that these pensions need to be terminated."

Ms. Larson points out that other so-called legacy carriers, like American Airlines and Northwest, have avoided bankruptcy court and managed to preserve their employees' pensions.

If the court approves the pension default Tuesday, the AFA says it could start intermittent work outages known as "chaos strikes" as soon as Tuesday evening.

In addition, the Aircraft Mechanics Fraternal Association, which represents United's mechanics, voted last January to strike if its contract is abrogated. And Wednesday, the results of a strike vote by the International Association of Machinists and Aerospace Works will be in.

In its filing, United made it clear that it believes any strike would be illegal under the Railway Labor Act, but the unions counter that it's not applicable if a contract has been terminated.

Any service disruptions right now, on the eve of the peak summer travel season, could be a "huge problem" for United, says Clint Oster, a transportation economist at Indiana University in Bloomington.

"You can certainly understand why there's a lot of anger. These are people who went to work and thought they were going to have a certain kind of pension and wage package throughout their careers, and then suddenly they find out that the world has changed and it's not going to happen," he says. "But I don't see what there is to gain [by striking.] You either decide to work in that industry and accept it, or go work somewhere else."

Other analysts are harsher in their assessment of the impact of a strike. "I never cease to be amazed by the shortsightedness of airline employees," says Mr. Stempler of the Air Travelers Association. "What they'd rather do is destroy the whole airline, throw a Molotov cocktail over their shoulders as they walk away, rather than simply walking away from a unsatisfactory job."

But from the flight attendants' perspective, their goal is not to destroy anything, but to preserve the quality of jobs at the airline as well as the gains made since the first flight attendant took to the skies 75 years ago.

"The association has a mandate, and that's to protect the jobs, the wages, and the working conditions of our members," says Ms. Larson. "We'll do whatever it takes to try to do that."