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Although United Air Lines Inc. has scored a major victory in its bid to reorganize by winning court approval to terminate its pension plans, the airline still must secure billions of dollars in financing and calm irate labor groups before completing the company’s long stay in Chapter 11. Judge Eugene Wedoff of the U.S. Bankruptcy Court for the Northern District of Illinois late Tuesday, May 10, approved a deal under which United will transfer four underfunded pension plans to the Pension Benefit Guaranty Corp. The plans, which cover more than 120,000 pilots, flight attendants, mechanics and other airline employees, are underfunded by $9.8 billion. Terms of the deal require United parent UAL Corp. to issue as much as $1.5 billion in notes and stock to the PBGC upon the Elk Grove Township, Ill.-based company’s emergence from bankruptcy protection. In a statement, the airline called the transfer “a crucial step forward,” adding that the savings strengthens its financial performance and should help it attract the necessary financing to exit bankruptcy. Although the ruling may advance UAL’s business interests, the loss of retirement benefits is a tough pill for retirees and employees to swallow. United has already cut labor expenses by more than $2 billion since entering Chapter 11 in December 2002, and it now seeks about $725 million in new cuts. The carrier went before Wedoff on Wednesday to request that the court terminate the company’s labor deals with its mechanics and ground workers. Each concession has further angered United’s labor groups. Association of Flight Attendants master executive council president Greg Davidowitch in a statement called the pension decision “an enormous disappointment,” and he warned a strike is possible if company management is not replaced. “This management team has failed at every turn during United’s 29 months of bankruptcy, and they still fail to have a viable business plan,” Davidowitch said. “Now they have failed at labor relations. Either they go, or we go.” United ground workers Wednesday voted to authorize a strike should Wedoff grant the airline’s request to terminate its contract. International Association of Machinists and Aerospace Workers District 141 president Randy Canale said the union understands the risk of a strike but sees few other options. “United used the bankruptcy court to point a gun at their employees,” Canale said. “They can only blame themselves if it backfires.” Despite such rhetoric, few expect any union group to declare an outright strike, an act that would likely face a legal challenge and, at worst, force the company to liquidate. Flight attendants and other groups, however, have warned they are also considering more subtle moves, such as “sickouts” aimed at disrupting United’s operations. In the past, such actions among other airlines have caused staffing shortages that resulted in flight cancellations. Should that happen at United, the airline risks alienating customers and losing cash flow necessary to sustain operations. With the pension issue resolved, United’s tallest financial hurdle is to raise capital to emerge from Chapter 11. Industry sources say the airline has been in contact with a number of creditors, private equity firms and even some foreign airline partners in a bid to drum up the estimated $2 billion to $2.5 billion the company will need to complete its reorganization. United said in court documents filed in February that it has received four preliminary proposals for exit financing, with the company hoping to complete its reorganization by fall. But sources have warned that the deadline could be extended should oil prices remain at their current highs. The prospect of other airlines ending up in bankruptcy could persuade United to linger under court protection long enough to determine what level of cost cuts those airlines are able to achieve. United also said Wednesday it lost $1.07 billion during the first quarter, including charges related to the company’s restructuring. Copyright �2005 TDD, LLC. All rights reserved.

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