Pension rescue up in the air

THE Trades Union Congress is right to focus its attention on the building crisis in pensions. A glance across the Atlantic provides a graphic illustration of how even the biggest of enterprises seek to abrogate pension responsibilities.

US Airways, which has filed for bankruptcy for the second time, has sought permission from the court to suspend $110m in pension payments due this week. It also wants to terminate pension plans for mechanics and flight attendants. Much the same has been going on at United Airlines. Now it appears that Delta is also on the brink.

The latest bankruptcy of US Airways follows a previous bail-out by the federal government post 9/11. Recovery has stalled because of the surge in oil prices, which has added $300m to fuel costs, and lowered revenues by $450m more than predicted. The challenge from no-frills carriers has simply proved too fierce.

If US Airways is successful in abandoning its pension responsibilities, the burden will fall on America's Pensions Benefit Guarantee Corporation. This is the quasi-government agency set up to insure pension benefits for 44m working Americans and retirees. At present the fund is $11.2bn in deficit and estimated to have $85bn of exposure to companies with 'junk bond' ratings.

This paper has been appalled by the plight of workers at the steel firm ASW and more recently at Turner & Newall. Many have saved over a lifetime only to find their pension rights threatened. As a result we have supported the British Pensions Protection Fund, currently making a stately passage through the Lords.

The American example gives serious cause for concern. The British bill requires 'healthy' pension schemes to take on much of the burden when a weaker plan goes into wind-up. But some of the big schemes, such as that at British Airways, are also in heavy deficit and not really capable of absorbing a big shock to the system. The PPF seemed like a good idea whose time has come.

But the message from US Airways is that the guarantee schemes simply transfer liability from one pot to another. The Work & Pensions Secretary Alan Johnson needs to come to grips with this reality fast.

Global victory

SIR Martin Sorrell is the antithesis of the traditional image of the advertising executive. Instead of oozing creative flair he has the air of a backroom clerk with his sober suits, deliberate speaking manner and liking for number crunching.

Yet slowly and carefully he has brought his firm, Wire & Plastic Products, back from the brink of insolvency in the early Nineties to the top of the global advertising tree.

Indeed, WPP joins a select bunch of British companies including GlaxoSmithKline, Vodafone, BP and HSBC, which are world-class players. The purchase of Grey Global lifts WPP above its main international rivals Omincom, Interpublic and Publicis to become a global leader.

Sorrell's unassuming group includes some of the greatest names in advertising including J Walter Thompson (where I once worked), Y&R, Ogilvy and Mather and Cordiant (the old Saatchis).

The addition of Grey does not come without problems. It means taking into the tent 77-year-old Ed Meyer, a legendary figure on Madison Avenue, whose personal contacts turned Grey into the world's seventh-largest agency. He will hang on until at least 2006. This places him in the Alan Greenspan class of American veterans.

A potential business problem is that WPP works for Unilever and Grey for Proctor & Gamble. Whether the two largest consumer products groups in the world can sit under the same umbrella for long is questionable.

The market believes that Sorrell can pull it off. WPP stock climbed despite the issue of 82million new shares to partly finance the deal.

Thin pickings

WHAT a fickle world the pharmaceutical giants live in. AstraZeneca has long been the fund managers' favourite out of the big UK pharmas. It was seen as having the better immediate pipeline and less contentious governance.

The rejection by the Food & Drug Administration in the US of its blood-thinning drug Exanta, a possible challenger to warfarin, is a serious blow which saw investors switching to GlaxoSmithKline. The failure of Exanta to pass muster means it could be out of the fastest-growing markets for two years while it conducts new clinical trials.

Its main hope in the interim will be to persuade the European authorities that it does not pose a danger. No one wants another Baycol - Bayer's deeply-flawed anti-cholesterol drug - on their conscience.