BUSINESS WRITER

SAN MATEO — Elliott Byland likes wrenching bolts on huge airplane engines and making them safe for passengers, and that's one reason he became a United Airlines mechanic 14 years ago.

He also liked the security of United's traditional pension plan and the promise of a guaranteed, monthly retirement check. But that hope took a nosedive this month.

The 46-year-old Redwood City man was shocked March 11 when the federal agency that backs corporate pensions said it was taking over the retirement plan of 36,000 United Airline workers. That could cut hundreds of dollars a month off what Byland planned to receive in retirement.

"It's a huge blow when your retirement is attacked," said Byland. "I'll have to work two or three more years longer now."

The Pension Benefit Guaranty Corp. is assuming control of bankrupt United's pension for mechanics, baggage handlers and other ground workers.

The agency guarantees pensions when companies can't fulfill their contribution obligations, but only up to limits set by Congress. The corporation said United's pension plan was only 30 percent funded, with just $1.2 billion in assets to cover $4.1 billion in promised benefits.

The group said it would guarantee $2.1 billion of the $2.9 billion shortfall. Workers reacted angrily to the agency's action and are bracing for 20 to 50 percent pension cuts.

Like most other workers at United — the biggest employer in San Mateo County, with nearly 10,000 employees — Byland is accustomed to disappointments. In the past two years, he and other workers were slammed with dual pay cuts totaling 20 percent of their salaries. That's a $400 a month "hit" for Byland.

He and his wife are more frugal now.

"My wife and I used to go out to dinner and the movies, but not anymore," said Byland, who's salary fell from about $31 per hour to $24. "We don't have cash to buy extra stuff for the kids, and I was going to buy a new car, but not now."

In addition, United is farming out some maintenance work traditionally performed at San Francisco International Airport, just like local technology firms farm out work to India and China. This so-called outsourcing, coupled with pension and wage cuts, is stressing out United workers and dragging down the local economy.

United workers have seen layoffs (United used to employ 18,000 in the Bay Area), constant turnover and co-workers retiring. The morale is not good, said United mechanic Dzung Ha, who lives in Hayward and works at SFO.

"The airline's management is always blaming labor for the problems," said Ha, a 38-year-old mechanic with a wife and two small children. "We're down to bare bones, and it's time to think of a different way." Now, he fears he's next on the layoff chopping block with just 15 years of service. The pension cuts make the future even darker, he said.

United has missed $363 million in pension contributions and repeatedly has said it intends to terminate the program. The Chicago-based airline no longer makes pension contributions to the mechanics.

United spokeswoman Jean Medina said the airline needs to "take thedifficult step" of terminating the pension plan to help it "emerge from bankruptcy as a sustainable and viable company."

"We spent the first two years of bankruptcy trying to avoid this, but unfortunately the industry hasn't recovered," she said. "Fuel costs are at record highs, and fares are at 10-year lows, and we don't see an alternative."

Medina said the company needs to save an additional

$2 billion to get out of bankruptcy, and a third of that would come from eliminating the pension plan.

The Pension Benefit Guaranty Corp. takeover means United's pension liability stops, and workers accrue no more years of service under the plan. An employee with 15 years of service, who expects to work another 10 years, would not accrue that last 10 years in pension payments. So a 20 percent pension cut could mean much more. Some workers with little service could lose half of their retirement checks.

"We initiated a takeover to minimize our long-term losses," spokesman Jeffrey Speicher said. "We believe it's inevitable that United will come to us to be the trustee of the pension plan."

The group took over United's pension plan for pilots in December. It is now trustee for the pensions of Bethlehem Steel, U.S. Airways and LTV Steel. The group has only so much money. Individual pension cuts would be determined later, Speicher said. There's a court hearing in May in which the takeover issue is expected to be addressed.

"These (pension) plans are on the ropes, and it's very unlikely any plan terminated in any way will be revived," said James Klein, president of the American Benefits Council, a trade association representing major companies with pensions. "(The plans) are clearly on the decline."

In the past decade, half of these so-called "defined benefit" plans promising a fixed pension have been terminated, Klein said. They plunged nationwide from 57,000 plans in 1994 to 29,000 last year.

The best hope for United workers is that the company comes out of bankruptcy and creates a "more robust" 401k plan, with yearly contributions from workers and some matching from the company, Klein said. Employees own such plans and can take risks or be conservative with their investments.

Jeremy Bulow, professor of economics at Stanford Business School, understands why United employees are angry. They were promised set pensions and likely won't get them. Bulow, who testified for the government when U.S. Airways went bankrupt and terminated its pilots pension plan, said United had the misfortune of seeing its business deteriorate after the Sept. 11, 2001, terrorist attacks.

But he said that United made the same mistake U.S. Airways and others companies have made. It invested its pension funds in the stock market and took a risk on the money. When times were good on Wall Street, United pocketed the gains and didn't put enough money in to beef up the pension funds, Bulow said.

"When the market went down, they said, 'We're unbelievably behind and can't make it up,"' Bulow said. He added that United and others also took advantage of accounting rules that allowed them to put in less pension money than they should have to ensure the plan's solvency.

"Strong companies with lots of assets don't have to worry so much about this happening," Bulow said. "But it creates a big problem to less-strong companies."

Airlines and steel companies are leading the way in pension defaults, but Bulow warned that auto companies could be next. A number of "old-line" car makers have the potential for problems, he said. As for United's cutbacks causing long-term damage to the airline's employee performance, Bulow said, "If you fly United, you don't get the feeling this is an incredibly happy group of employees."

United filed for bankruptcy in December 2002. After Sept. 11, 2001, the company was stung by terrorism, war, a sluggish economy, high fuel costs and the SARS epidemic. Now, low-cost airlines such as JetBlue and Southwest are attracting an increasing number of cost-conscious travelers from the likes of United and other large carriers.

United, which lost $1.6 billion in 2004, has tried to cut its costs, but employees say they are tired of it being at their expense.

"This is not a pretty picture," said Joe Prisco, president of the Aircraft Mechanics Fraternal Association Local 9 in Burlingame, which represents 3,600 mechanics mostly working at SFO. "We want to get top dollar (on the pensions) and not sit by and watch it melt into the sunset."

Prisco called United's pension "grossly underfunded." The union is working to save the pension plan but probably won't be able to stop its termination.

C.D. Sheppard, 55, a United mechanic who resides in Oakland, sees the pension cuts hacking $600 to $800 from the $2,500 a month he hoped to receive.

"Living on retirement is hard enough," said Sheppard, a 20-year veteran at United. "This means you've got to move out of state. You can't maintain this lifestyle."

Sheppard is part of the old guard who chose to forego wage increases from 1994 to 2000 for a piece of the company. That was billed as the employee stock ownership plan. But the stock he received in those years is worthless, so he's already out more than $100,000. Many United workers lost that much or more as the stock plummeted in the late 1990s after reaching $90 per share, and tanked when United went bankrupt two years ago.

"That was going to be my nest egg," Sheppard said.

United flight attendants aren't part of the pension for ground workers but are fighting with United to maintain their own plan.

"It's wrong and unethical to threaten our pension plans," said Bronagh Maugg, a flight attendant who flies for United out of SFO and lives in Santa Rosa. "Nothing else gives us the security of our pension when we've dedicated our whole working lives to this company."

A widow with two young sons, Maugg has seen her child-care bill soar because she has to work more days to keep up with the 20 percent pay cut. She owns a house, but "it's getting pretty tight" to pay the mortgage," she said.

"Something's very wrong with a system that allows companies to terminate and dump pensions," Maugg added.

The nation's major airlines have slashed 30 percent of their work force, or about 136,000 jobs in the past four years, grappling with the slow economic recovery and high fuel costs. Today, any hiring rebound is led by low-cost carriers offering lower-paying jobs. United has long pushed to replace its "defined benefit" pension plan that guarantees monthly checks to retirees. It wants a so-called "defined contribution" plan that is funded mostly by workers and doesn't guarantee benefits from companies, including the 401k plans.

The airline and AMFA haven't been able to agree on the change, and now the guaranty corporation has stepped in so that its liability would not grow higher. The question is, how much will taxpayersbe hit to pay for United's pensions, and how much will union employees be hit with cutbacks?

Meanwhile, the agency that guarantees pensions is facing growing deficits because it has taken over the pension obligations of troubled airlines and steel companies. There are fears that the agency's financial woes, which include a $23.5 billion deficit, could bring about a multibillion-dollar taxpayer bailout.

United maintains that it needs the group's help to get out of bankruptcy and become a viable company again.

Tim Simmers can be reached at (650) 348-4361.

or tsimmers@sanmateocountytimes.com