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The fast-escalating controversy over United Airlines’ employee pension funds spilled into federal court Thursday when one of its labor unions sued company executives for halting contributions to the programs while United remains in bankruptcy. The International Association of Machinists and Aerospace Workers, representing over 20,000 ramp workers and customer-service agents, accused the top three United officials of a breach of fiduciary duty in connection with the pension decision announced last week. The lawsuit came on the same day United parent company UAL Corp. reported a $247 million net loss for the second quarter — its 16th straight quarter in the red — although it did eke out a $7 million operating profit excluding restructuring and other items. The lawsuit in U.S. District Court comes amid speculation among unions and the industry that bankrupt United may ultimately terminate its four employee pension funds — a drastic move that would dump billions of dollars in future pension obligations onto the government’s already-strapped pension insurance program. That would represent the largest default ever by an airline. United, which is forgoing some $600 million in pension payments in 2004 alone, says no such long-term decision has been made. But it acknowledges the pensions are under review. Its cutoff of required pension payments drew a warning letter from the Pension Benefit Guaranty Corp., which takes over failed plans and pays benefits to retirees that sometimes are reduced substantially. Officials of the government program met with United representatives Thursday morning in Washington, although both sides declined to discuss the session publicly. The IAM suit names United CEO Glenn Tilton along with chief financial officer Jake Brace and chief operating officer Pete McDonald and the airline’s pensions and welfare plans committee. It seeks the amount United owes the pension plans plus a court order that they carry out the funding obligation. “United Airlines must get the message that they cannot abandon employee benefits at will,” said Randy Canale, president of IAM District 141 and a UAL director who boycotted Thursday’s regular board meeting because of the pension feud. “They will not be allowed to continue their slash-and-burn approach to restructuring without realizing serious consequences.” United spokeswoman Jean Medina said the airline believes the claims are baseless. “It’s unfortunate that the IAM has decided to personalize this by naming these officers individually when it was a corporate decision made to preserve our liquidity and flexibility as we work to secure exit financing,” Medina said. “We believe there’s a process and place in the bankruptcy court to address these issues, and it’s regrettable that the IAM is trying to short-circuit the process.” UAL’s loss for the April-through-June quarter amounted to $2.25 per share, compared with a loss of $623 million, or $6.26 per share, for the same period in 2003. Revenues were $4.04 billion, up 30 percent from $3.11 billion a year earlier. The company said the slight operating gain is evidence of its restructuring progress during 19 months in bankruptcy, and it noted that United planes were a record 86 percent full in June. But Brace called the overall financial performance “unacceptable,”in part because of jet fuel price increases that will cost United a projected $900 million more this year than it anticipated spending. “Even though we are experiencing strong traffic,” Brace said, “the pricing environment prohibits us from recouping these high costs.” Tilton reiterated that United “must generate the cash flow and liquidity that the financial markets are willing to support.” William Warlick, an airline industry analyst for Fitch Ratings in Chicago said the results show United remains under financial pressure and must further cut operating costs which remain higher than those of rival American Airlines. “It’s a disappointing result, clearly in a seasonally strong quarter for this company when you would expect to see much better than a break-even performance on the operating side,” Warlick said. “But it results from what’s going on with fuel costs and a weak domestic revenue environment.” United had a net loss of $706 million for the first half. UAL shares rose 9 cents to close at $1.30 on the OTC Bulletin Board. Copyright 2004 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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