By Albert B. Crenshaw and Keith L. Alexander
Washington Post Staff Writers
Saturday, December 18, 2004; Page E01

United Airlines parent UAL Corp. and leaders of its pilots union have agreed on a deal under which the pilots will not oppose termination of their pension plan but will receive a $550 million note convertible into company stock when the airline emerges from bankruptcy protection.

The deal, which still must be approved by the pilots themselves, would clear a significant obstacle to UAL's reorganization.

However, the head of the government's Pension Benefit Guaranty Corp., which would become responsible for pilots' pensions if the plan is terminated, called the deal a "dangerous precedent."

"The company is making generous new pension promises even as it is refusing to honor its old pension promises," PBGC Executive Director Bradley D. Belt said in a statement yesterday.

The pensions promised by the pilots' plan are much larger than the amounts guaranteed by the PBGC, meaning that the pilots face a significant reduction in their benefits if their plan is terminated. Ordinarily the pilots' interests would be aligned with those of the PBGC, which has a large deficit already and would stand to inherit some $6.4 billion in additional liabilities from the pension plans of the pilots and other unionized United workers.

The note would offset that reduction to some extent but would do nothing to reduce the PBGC's burden. Not only that, Belt said, the pilots are demanding that the other unions' plans be terminated as well.

"The company and the pilots union have no authority to force other workers and the PBGC to accept the termination of those plans. We will be scrutinizing this agreement very closely and will take all appropriate steps to protect the financial interests of the pension insurance program," he said.

The Air Line Pilots Association can't estimate how much the 15-year note would offset the loss of pension benefits, Stephen Presser, a financial adviser for the union, told Bloomberg News. The deal is included in a new contract negotiated to help United cut costs.

United has said it intends to terminate its unions' pension plans. It also said last month that it would ask the U.S. Bankruptcy Court to void employee contracts if unions don't agree to concessions that would help save $1.36 billion annually. The carrier and unions representing mechanics, flight attendants and others have not reached agreement.

Meanwhile, a judge yesterday gave the majority of US Airways Group Inc.'s labor unions less than three weeks to ratify new cost-cutting contracts that the airline says it needs to survive. Otherwise they face the possibility of having their existing contracts nullified and replaced with lower-paying ones.

Judge Stephen S. Mitchell of the U.S. Bankruptcy Court for the Eastern District of Virginia in Alexandria said he plans to rule Jan. 6 on US Airways' motion to void the current labor contracts if the unions have not agreed to voluntary concessions by then.

The Arlington-based airline said it needs to save about $1 billion a year through pay and benefit cuts and work rule changes to avoid liquidation by mid-January.

Only two of the airline's five major labor unions have agreed to the new contracts. The pilots ratified a five-year contract in October that saves the airline $300 million a year. And the union that represents the airline's flight simulator engineers and dispatchers ratified an agreement in September that calls for an annual reduction of $4.5 million in pay and benefits.

The airline's flight attendants reached a tentative agreement Thursday and expect to complete voting by Jan. 5. That agreement calls for a 9 percent cut in pay and benefits, which will save the carrier about $94 million a year. The union that represents customer service and reservation agents completes voting on its agreement Dec. 23. The contract calls for reducing pay and benefits by $137 million, or 40 percent.

Reservation agent Vonda Hardy of Winston-Salem, N.C., who attended the hearing yesterday, said she voted against the proposed agreement. "This is just horrible. We can't survive on a 40 percent pay cut. It's just a lose-lose situation," she said.

US Airways still has not reached an agreement with its machinists union. The union, which represents mechanics and baggage handlers, has adamantly opposed the airline's demand for $225 million in concessions, which amounts to a cut in pay and benefits of up to 23 percent. US Airways attorney Brian P. Leitch said the airline is "running out of time" and that it needs the reductions to meet its financial obligations for the first quarter. "All of our chips are on the table," he said. "We will find out if we're a winner at the end of the day, or if the game is over. It won't be long."