Should United Workers Strike the Company Out of Existence?

[Dinner]

Che, hotel rooms for flight crew and cabin crew are on the airline. The airlines lease large numbers of hotel rooms long term so that crews on regular routes can crash there.

[JohnT]

Originally posted by Oerdin
United is actually one of the lower cost of the traditional style airlines. Delta is much more expensive on a per flight bases and United has benifeted from at least two bankruptcies in the last 20 years. The problem her is the company has bad management and it is being forced to compete against new low cost airlines which have no pensions to pay, use a different business model (point to point instead of hub and spoke, and yes have a lower pay scale and fewer workers per plane. One of those problems the union has contributed to and the rest really are squarely management's fault.

I don't have a problem with united going under because airlines attract lots of new start ups. I do have a problem with employees being blamed for the fallure when clearly they are the lesser problem here and I do have a problem that executives are going to make millions while retirees will lose their pensions. The management always blames their personal failures upon everything and everyone but themselves then management gives themselves a golden parachute while workers get screwed.

I've had a surprisingly interesting day today as I was reading UAL's latest 10k report, trying to see whether the accusations have any merit, seeing where this once great Airline is going wrong. 10k's (AKA "annual reports") can make for some interesting reading - it was information buried in an 8k (an amendment to a 10k) that eventually sank Enron.

This (UAL) company is ****ed, no two ways about it. Before I go into employment and compensation structure, here are some choice quotes that will drive home just how UAL is but a house of cards, waiting to be blown down:

To the extent we are unable to restructure any financings that we believe are unaffordable under our revised business plan, we may face the possibility that one or more lessors or lenders may seek to repossess aircraft...

it then goes on to talk about a group of "mostly public-market financiers" have ordered their planes repossessed, only to have "been enjoined by the Bankruptcy Court." Noting that the financiers could get possession of their planes at the whim of the court, the document concludes that their repossession may adversely materially affect future results. Not that that really matters in the long-run because...

As of December 31, 2004 all 237 of the aircraft owned by us were encumbered under debt agreements.

Since 2002, fuel costs have increased by 50%, from $1.921 billion to $2.943 billion. This $1 billion increase in fuel cost in itself accounts for the entirety of their operating loss this past year, not union or executive agreements. (Pages 7, 14)

Security from the 9-11 attacks have cost the corporations hundreds of millions - perversely, those airlines that did the most to prevent attacks prior to 2001 got punished the most:

In addition, air carriers are required to submit to the government an additional security fee equal to the amount the air carrier paid for security screening of passengers and property in 2000.

Liquidity - without it, life's a *****. Hidden at the bottom of page 21 is this little gem, courtesy of a corporation with $1.4 trillion in assets:

The Company's agreement with a bank for MasterCard and Visa processing currently does not provide the bank with the right to withhold any significant cash deposit to secure the bank's potential obligations to card holders in the event the Company does not provide the promised transportation services. This five-year agreement expires on January 16, 2006. The Company is currently negotiating the terms of a replacement agreement. In the event that the Company does not successfully negotiate a replacement agreement on similar terms to the current agreement, it is possible that the Company will be required to provide a significant cash deposit to secure future processing of MasterCard and Visa charges for the Company's ticket sales.

"A bank" is obviously Citibank, an entity you can't live without if you are interested in Visa and MasterCard sales. If Citibank decides that UAL is likely headed for a shut-down it could hasten the process by demanding a large cash deposit for future Visa transactions. UAL currently has $2.2 billion in cash (page 21.) In 2004, UAL had $16 billion of operating revenues - if $1 billion of that was through Citibank Visa/MasterCard sales, then Citibank could ask for a cash deposit equivalent to three months sales: a quarter-billion dollars.

Item 6 on page 14 is the last thing I want to bring up in this post as it has the basic financial numbers and ratios. Looking at Delta's last 10K (page 24), and comparing them to UAL's we see that Oerdin's correct - Delta is FAR more expensive per Available Seat Mile (ASM) than UAL:

Delta Operating Expense per ASM: $.1207
UAL Operating Expense per ASM: $.102
Delta Operating Revenue per ASM: $.0989
UAL Operating Revenue per ASM: $.097
Delta Passenger Load Factor: 74.7%
Delta Break-Even Passenger Load Factor: 92.62% ( )
UAL Passenger Load Factor: 79.2%
UAL Break-Even Passenger Load Factor: 86.7%

(Delta has always had the edge on fuel costs, however. But then Atlanta has always had some of the cheapest gas in the country. Not that it matters, as Delta lost $5.2 billion in 2004!)

It's also interesting to note that UAL's assets have declined every year since 2001. Losses of the sort of magnitude that the airlines have been suffering are far more than paper losses - they amount to tangible, capital losses of equipment and rights.

[Imran Siddiqui]

In a big win for United Airlines and a huge setback for its labor unions, Pension Benefit Guaranty Corp. reached a settlement with the bankrupt carrier to terminate the company's employee pension plans.

Its better than United going belly up and the pensions paid out reduced further during bankrupcy proceedings. By giving the plan to the PBGC, the employees are guarenteed 3/4th of their pension, at least. The settlement makes sure that United puts some money up before bankrupcy, so the amount isn't so much on the government and so a good deal gets paid out to the employees.

the government is trying to fight it

Um.. John? PBGC accepted the settlement... they ARE part of the government. They are a government agency created by Congress under ERISA to pay out certain defunct pension plans.

[chequita guevara]

Originally posted by Oerdin
Che, hotel rooms for flight crew and cabin crew are on the airline. The airlines lease large numbers of hotel rooms long term so that crews on regular routes can crash there.

I'm talking about folks who use their free flying benefit to flit around the country and world. The free hotels are for the crews who have to fly.

[JohnT]

Originally posted by Trip
All of the unions have been squeezing the company dry, be it pilots, flight attendants, mechanics, etc. They have directly contributed to the plight of the entire company in its most dire day. What about the other employees not in a union? If the entire company folds what happens to them?

Originally posted by Oerdin I do have a problem with employees being blamed for the fallure when clearly they are the lesser problem here and I do have a problem that executives are going to make millions while retirees will lose their pensions. The management always blames their personal failures upon everything and everyone but themselves then management gives themselves a golden parachute while workers get screwed.

I'm willing to be the middle and upper management of United is bloated with tons more people then they need and that, as usual, they get huge pay checks many times larger then any pilot much less a baggagehandler.

Both contentions are incorrect. The number of people employed by UAL is 61,000 - of which, 48,000 (80%, page 8) are represented by 1 of 7 unions. The other 13,000 people represent the "bloated middle and upper management" of the airline - note that there are more AFA (flight attendents) and IAM (machinists and aerospace) union members than there are of the "bloated" management ranks.

In 2004, UAL paid out $5 billion in compensation (page 30), of which they want to enact a plan to save $725 million more. The amount of compensation reductions of its non-represented salaried and management employees was $112 million, or $8,600/person. The flight attendents contract was being reduced as much, $8,400/person, while the pilots and the dispatchers take the biggest hits ($28,000 and $18,500 average reductions in salary, respectively).

Three of the unions have not signed on to the compensation savings plans, including the largest, the IAM. The bankruptcy court ordered an 11.5% across-the-board reduction in their salaries anyway.

The executives and other bloated "parasites" of the corporation aren't doing so well either, Oerdin. Page 14 of the 10k states:

We believe that UAL's presently outstanding equity has no value and will be canceled under any plan of reorganization we propose. For this reason, we urge that caution be exercised with respect to existing and future investments in any UAL security.

Stock options, kaput. The pension plan covering management and executive personnel was killed last February:

United has historically provided unde non-qualified plans the portion of the retirement benefits earned under the pension plan that would otherwise be subject to code limitations; however, in February 2005, the Company terminated the non-qualified pension plans for its salaried and management employees. Similarly, the Company believes that in order to obtain exit-financing, and successfully reorganize and emerge from Chapter 11 bankruptcy proceedings, it will also be necessary to terminate and replace its defined benefit pension plans.

The current Chairman/President/CEO was hired in September 2002 as essentially a bankruptcy specialist - the Board knew where the company was going, so they hired Glenn Tilton away from Texaco (which had its own bankruptcy problems back in the late-80s) for the job. He agreed to a salary of $950,000 and a bonus of $3,000,000 (just like a NFL contract, actually), however he has voluntarily agreed to reductions to $845,000 then to $712,000 then to $605,000, a reduction of 36% of his salary (quite unlike a NFL contract, actually .) He also received options to purchase 1 million shares of stock at the bargain price of $3.03/share, but as the stock is delisted, his options are now worthless and will always be worthless (page 65). And again he gets no pension from the company, not even one guaranteed by the government (it's the unions pension plans that are being taken over by the government).

As for his stock, the executives were given the right to transfer the worthless stock to a charity organization of their choice, with UAL "purchasing" the stock from the charity organization (page 64). The top five executives earned $3.7 million in total in 2004, or $740,000/person. The CEO barely cleared $1.1 million, and for a position that I guarantee you is just ****in' brutal, far more brutal on the spirit and soul than being a mere football player.

In regards to "the workers", there are no truly comparable figures (they weren't so helpful as to print a chart comparing wages between unions ) to determine their wage reductions under the bankruptcy plan, but the two recalcitrant unions have their wages reduced 11.5% and 9.8% respectively by the bankruptcy court, likely in line with the other unions (remember that non-union people had their salaries reduced by 11.2% and the CEO took a 15% pay cut, his third in three years.)

So, looking at the facts, I don't see where the outrage is. Everybody is taking a hit, everybody is losing their pensions, and most people - employees, vendors, creditors, are doing all they can to save this company.

[JohnT]

Originally posted by Imran Siddiqui

the government is trying to fight it. And United just won.

Um.. John? PBGC accepted the settlement... they ARE part of the government. They are a government agency created by Congress under ERISA to pay out certain defunct pension plans.

Let me fix that quote for ya, buddy, so that you won't be accused of selective quoting, OK?

The first sentence of the article I quoted:

The government's pension-protection agency agreed Friday to stop fighting United Airlines' plan to eliminate its defined-benefit pension plans, removing the biggest remaining obstacle to what would be the largest pension default in U.S. history.

Worse thing I'm guilty of is getting my tenses backwards, lawyer-boy, not my facts.

[Imran Siddiqui]

The CEO barely cleared $1.1 million, and for a position that I guarantee you is just ****in' brutal, far more brutal on the spirit and soul than being a mere football player.

You're going to have problems convincing the lefties on this site of this truth, John .

So, looking at the facts, I don't see where the outrage is. Everybody is taking a hit, everybody is losing their pensions, and most people - employees, vendors, creditors, are doing all they can to save this company.

It's just an f'ed up situation all around and everyone IS getting hit. As you posted, the Top Hat plans (non-qualified pension plans) for the upper management were terminated and they didn't get 'golden parachute' levels, not by a long shot.

[Imran Siddiqui]

Worse thing I'm guilty of is getting my tenses backwards

Perhaps, but I don't think PBGC ever thought that United NOT terminating their plan was an option. They knew that if they didn't accept it, the bankrupcy court probably would and were just working out the best settlement they could before the bankrupcy court said go ahead and terminate it. So it'd probably be more true to say the government was just trying to fight how much of the money they'd have to put up themselves .

[Dinner]

Originally posted by MichaeltheGreat

You mean, like to pay their debts to their suppliers, etc?

Suppliers ty[ically have a short repayment time while pensions typicaly have a 20 year pay in period. The main problem (with our nation's pension system) is the underfunding of pensions by the management over a very long period. That's what gets public entities like San Diego into trouble and that's what gets companies into trouble but both are allowed to do it then they just walk out on worker. There really should be some sort of new regulation which prevents the underfunding of the payment system so that those funds get locked in and even if the company goes bankrupt then at least the workers are assured something.

[Imran Siddiqui]

There really should be some sort of new regulation which prevents the underfunding of the payment system so that those funds get locked in and even if the company goes bankrupt then at least the workers are assured something.

Actually in 10 or so years, it won't be a problem, because defined benefit plans are all but dead except for companies with many old time union employees. The defined contribution (ie, your 401k) are becoming almost the standard. The problems with underfunding doesn't exist in 401k's... the problems which happen with DC plans is not transfering the money to the accounts in a timely manner. Bankrupcy can, of course, impact that if there have not been contributions deposited in a timely manner for a long time, but usually, employees, real quickly, realize when the money hasn't been put into their personal accounts due to the statements they get.

[Dinner]

[QUOTE] Originally posted by Imran Siddiqui

The CEO barely cleared $1.1 million, and for a position that I guarantee you is just ****in' brutal, far more brutal on the spirit and soul than being a mere football player.

You're going to have problems convincing the lefties on this site of this truth, John .
[QUOTE]

Please correct me if I'm wrong but I'm guessing that many of these "bankruptcy specialist CEOs" know the system and know they're going to have salary reductions by the court and therefor demand some what more upfront to compensate. In any event he knew exactly what he was getting into when he signed up (bankruptcy experience was the reason hee was hired) so I don't feel sorry for him. Also your figures in the salry reduction pointedly didn't look at the $3 million dollar bonus he recieved. He already got his money and once the company clears bankruptcy court he will likely recieve new stock options so I'm not going to cry over the lose of his old stock options.

Companies need to stop dumping their pension debts upon the government and they need to stop underfunding their pension systems just so that when something like this happens the public doesn't get ripped off. There needs to be some sort of regulation tieing the hands of management (both of companies and of municipalities) prevent "balloon payments" and other methods used to put off & put off the funding of pensions for retirees. Yes, this will be another burden on already burdened companies but if the pension debt is going to push a compnay over the edge then at least if it happens in one year instead of 5-10 years then the costs to the tax payer are lower.

[Dinner]

Originally posted by Imran Siddiqui
It's just an f'ed up situation all around and everyone IS getting hit. As you posted, the Top Hat plans (non-qualified pension plans) for the upper management were terminated and they didn't get 'golden parachute' levels, not by a long shot.

Just wait. It will come once the bankruptcy is final and the newly "rehabiliated" company walks back on to the stage. It happens every time an airline declares bankrupcy and UAL has done it in the past and there is no reason to believe they won't do it again.

They'll get big bonuses for "guiding the company through a difficult period" blah, blah, blah. These guys will get taken care of in the end and they have just had their compensation delayed not cancelled. This doesn't even count the $3 million he got up front nor the $1 million in already cashed options. He, and his friends in management, will get more once this is all over.

[Imran Siddiqui]

There needs to be some sort of regulation tieing the hands of management (both of companies and of municipalities) prevent "balloon payments" and other methods used to put off & put off the funding of pensions for retirees. Yes, this will be another burden on already burdened companies but if the pension debt is going to push a compnay over the edge then at least if it happens in one year instead of 5-10 years then the costs to the tax payer are lower.

The only problem with this is that companies will put out of the pension business altogether. That's the very careful line that was struck with ERISA. If you put too much regulations on them, they'll just say screw having the pension... we'll just get fully funded now and pay everyone out. ESPECIALLY if you say you can't underfund... that means if the stock market goes down, you've violated federal law... that's just silly.

After all, no one is required to keep a pension plan for its employees and a lot of small businesses don't have one.

Of course changing the funding rules overnight could utterly destroy the US economy as just about every plan is probably underfunded, due to the underperforming stock market of the early 00's.

They'll get big bonuses for "guiding the company through a difficult period" blah, blah, blah. These guys will get taken care of in the end and they have just had their compensation delayed not cancelled.

You are just talking out of your ass. Most of these guys bonuses are in stock options and Top Hat plans are where a good deal of their pensions are in. Coming back from a bankrupcy, the stock will be low as dirt and the Top Hat plans will have to start over.

[Dinner]

They'll be given a gift of stock instead of options if the numbers don't add up but they will get something at the end of the day. They always do.

I doubt most proffessionals would agree to take a job which didn't have some sort of pension plan. Even if it switched from a defined benifit to a defined contribution at least the government wouldn't be stuck paying it. As long as they're going to stick to the old fashioned system then they need to make sure it stays up to date and if they offer the lower cost 401K (meaning it costs the company a fraction of traditional pensions) then the goverment should mandate stricter standards of what the company must provide (since the company is already reducing its costs).

[Imran Siddiqui]

Any proof of that statement?

And isn't a gift of stock just as bad, if the stock price is in the ****ter?