By Keith L. Alexander
Washington Post Staff Writer
Wednesday, May 11, 2005; E01

A bankruptcy judge last night approved United Airlines' request to terminate its pension plans, clearing the way for the largest corporate pension default in history and setting the stage for a possible strike by the airline's flight attendants.

The federal Pension Benefit Guaranty Corp. will take over the airline's $645 million in pension payments and receive in exchange up to $1.5 billion in securities in the reorganized airline.

The decision relieves a financial burden but also raises some potential uncertainty for the nation's second-largest airline as it prepares for the busy summer travel season. Several of the airline's employee groups, including the flight attendants and mechanics, have voiced outrage at the pension proposal, with the flight attendants vowing to strike if the action was taken.

United executives have repeatedly said that any type of strike would be illegal and would violate the Railway Labor Act. Last week, the airline warned workers that if they strike, they could be fired.

United's parent, UAL Corp., has been in bankruptcy protection since December 2002, and United executives have said the airline would have difficulty emerging unless it was able to eliminate its employee pensions. The decision means that employees could lose between 20 and 50 percent of the value of their pensions, according to estimates by labor leaders.

United spokeswoman Jean Medina said the court's approval was "a crucial step forward for the future of United, as it strengthens the financial platform this company needs to attract exit financing and compete effectively." Medina later said the airline acknowledged that the decision was "difficult for our retirees and our employees, who have been doing extraordinary work throughout this restructuring process."

After an all-day hearing yesterday, Judge Eugene R. Wedoff of the U.S. Bankruptcy Court for the Northern District of Illinois ruled that United met the legal bankruptcy test to terminate the pensions. Wedoff also said terminating the pensions increased the chances that United would survive and preserve jobs.

United union leaders and their attorneys were busy last night reviewing the judge's decision.

Greg Davidowitch, president of United's flight attendants union, called the decision an "enormous disappointment," adding that the union is considering its legal options, "including an appeal of today's ruling and a possible suit against the PBGC over the termination of our pension plan." He said the flight attendants are not on strike at this time.

No airline labor group has ever gone on strike while its carrier was in bankruptcy. By eliminating the pensions, United has in effect nullified part of the workers' contract, but a question exists whether the law permits airline workers without a contract to go on strike while the company is reorganizing in bankruptcy.

United's pensions are underfunded by an estimated $9.8 billion. The PBGC would guarantee only about $5 billion of the total. Before the judge's action yesterday, Bethlehem Steel Corp.'s $3.6 billion pension default in 2002 was the nation's largest.

The traditional airlines have been struggling to maintain their pension plans. In January, US Airways of Arlington faced its own standoff with employees, as the airline received permission from the bankruptcy court to eliminate its pensions. Yesterday, Delta Air Lines, the nation's third-largest carrier, said it was in danger of filing for bankruptcy unless it can reduce its costs. The airline said it has about $3 billion in pension payments during the next three years.

The approval of United's pension request puts a spotlight on pension issues at other airlines. Today, flight attendants from American Airlines are scheduled to demonstrate on Capitol Hill in favor of federal pension reform.