By: Steve Inskeep, Anchor; Cheryl Corley, Reporter

May 10, 2005, National Public Radio (NPR)

STEVE INSKEEP, host:

Today the parent company of United Airlines will ask a bankruptcy court to let it terminate its employee pensions. If approved, this would be the largest pension default in US history. Three of the airline's key unions have already threatened strikes. NPR's Cheryl Corley reports from Chicago.

CHERYL CORLEY reporting:

United plans to shift control of its severely underfunded pensions to the Pension Benefit Guaranty Corporation. In exchange, the federal agency, which insures pensions, will get $1.5 billion in securities and notes. The PBGC's executive director, Bradley Belt, says the agency had little alternative. Bankruptcy law allows companies to terminate their pensions, and the PBGC, also running a deficit, knew it must accept United's ever-growing pension liabilities.

Mr. BRADLEY BELT (PBGC): Everyone should understand that it would have been our strong preference to have any one and certainly all four of those pension plans maintained by the company on behalf of the participants in those plans. We concluded that that was not likely to be a scenario that we were going to find ourselves in.

CORLEY: United pensions are underfunded by nearly $10 billion. The PBGC will guarantee nearly $7 billion of that deficit. For some workers, it will mean less retirement money than promised. That prospect is clearly a breaking point for employees who've already agreed to more than $2 1/2 billion in concessions. United's flight attendants filed a formal objection last Friday. The PBGC agreed United did not need to terminate the group's pension in order to exit bankruptcy. The flight attendant spokesperson, Sara Nelson Dela Cruz, says the union has been preparing to hold intermittent work stoppages that can occur at any place and any time.

Ms. SARA NELSON DELA CRUZ (Flight Attendant Spokesperson): If it were up to us, none of this would be happening, and we will fight very hard to make sure that it doesn't. We're still going to fight vigorously in the court. If it were up to us, we would also have a competent management with integrity that could work with its employees.

CORLEY: The threat couldn't come at a worse time for United. Summer is traditionally the busiest time for air travel. Any disruptions could prove disastrous for United as it battles competition and high fuel costs like the rest of the airline industry. United has warned flight attendants in a letter that it would take action, including firing anyone who engages in strike activity. But flight attendants aren't the only ones. Mechanics say they may also walk off the job, and Robert Roach, with the International Association of Machinists, says results of a strike authorization vote taken by baggage handlers and other workers is due Wednesday.

Mr. ROBERT ROACH (International Association of Machinists): We advised United Airlines three years ago, four years ago that this problem was going to happen, and we had taken measures and investigated this problem, had our actuaries look at it, and we had offered them a proposal which would have avoided this very same problem that we're confronted with, and that's why our members are so frustrated.

CORLEY: United has argued it needs to replace its pensions with cheaper alternatives in order to attract investors to help it exit bankruptcy. Deborah Lucas, a professor of finance at Northwestern University, says it's not simply the cost of United's traditional pensions that may be scaring away investors.

Professor DEBORAH LUCAS (Northwestern University): It isn't the plans in themselves, but it's that total compensation package. It's a relatively easy thing to go after also, because the world is changing, and fewer and fewer companies are offering them.

CORLEY: If the pension deal between United and the PBGC is approved, United says federal and bankruptcy law prohibits the unions from striking. The unions say that's only true if their contracts are intact, and tomorrow United may be back in bankruptcy court seeking to nullify at least two union contracts.

Cheryl Corley, NPR News, Chicago.

INSKEEP: This is NPR News.