UAL seeks to scrap pension payments

BANKRUPT United Airlines will today try to convince US regulators to allow it to suspend pension fund contributions for thousands of employees, including up to 600 in Britain, despite claims the move could be illegal.

UAL Corp, parent of United Airlines, is due to meet with officials from the governmentsponsored insurance scheme, the Pension Benefit Guaranty Corporation (PBGC), in Washington today. But the meeting is clouded in controversy, with staff and unions threatening legal action against the carrier.

Randy Canale, who holds one of two union spots on the UAL board, slammed the move as illegal and said he would boycott the meeting.

'United is breaking a promise to employees to make another promise to lenders,' Canale said in a statement. 'I will not be party to their illegal efforts.'

Other union groups also condemned the pension funding cut-off, which the airline claims is necessary to preserve cash and attract the financing it needs to get out of bankruptcy.

The PBGC expressed alarm this week when United said it would stop contributing to its pension plans while under bankruptcy protection, raising the spectre of default.

United failed to make a scheduled $72m (£39.4m) pension contribution two weeks ago, and announced it also will not make a further $496m (£272m) in contributions due by mid-October.

Over the next five years, United is supposed to contribute more than $4bn (£2.2bn) to four separate pension plans covering 58,000 ex-employees and their dependents, as well as future retirees.

If the UAL pension scheme defaults, it will be the largest ever by a US employer and will widen the deficit at the PBGC - already at $9.7bn (£5.3bn) - by about 50%.

United Airlines spokeswoman Jean Medina claimed the company was acting within appropriate bounds on its decision to withhold further pension payments.

UAL believes that covenants in an amended debtor-in-possession financing package arranged last week prevent the airline from making any additional pension payments.

'We believe that bankruptcy law allows us not to make payments while we study our options,' the spokeswoman said.

United's chief executive Glenn Tilton said: 'Any possible changes will be discussed thoroughly and openly with our union leadership and all of our other stakeholders, and those meetings are now being arranged.'

But recent actions suggest the airline could dump its hugely expensive pension woes onto the government as early as today.