The United Pension Default: Saving ‘Our Airline” or Saving Labor?

by Andrew Pollack / June 2005 issue of Socialist Action



On May 10 Judge Eugene Wedoff gave bankrupt United Airlines the right to terminate its pension plans.  This is the biggest pension default in U.S. history,

and the Pension Benefits Guaranty Corporation now assumes responsibility for these plans—which means a bailout for the bosses and severely slashed pensions for workers. Of course, management pensions have enjoyed special protection, often through the establishment of special funds that are protected from Chapter 11 bankruptcy proceedings.


This is just the latest in a wave of attacks on airline workers—a wave that is still gaining momentum.  US Airways pension plans had already been terminated, Delta is often named as the next likely carrier to do so, and others will no doubt tell their unions they need to end their plans in order to compete.


What’s more, the pension termination comes at a time when the bosses are attacking pensions and retiree health benefits for the entire working class, both

through attacks on union contracts and on Social Security, Medicaid, and Medicare. Unfortunately, this battle is being fought by the airline unions not as a class-wide one or even industry-wide, but rather at each carrier as a fight to save “our company.”


Since 9/11, United, the country’s second largest carrier, has laid off roughly a third of its workforce (including by outsourcing much of its mechanics’ work,

both in the U.S. and in Central America), has cut retirees' health benefits, and extracted wage and work-rule concessions several times.


Judge Wedoff is the same judge who on Jan. 31, 2005, had imposed "temporary" wage and benefit cuts on United Airlines mechanics. The pilots and flight attendants had already agreed to concessionary contracts, but threatened job actions should their pensions be cut—actions which never materialized.  After his May 10 pension-killing ruling, Wedoff moved right on to the next point on his agenda, holding hearings to terminate the mechanics’ and ground crews’ contracts if they didn’t knuckle under to management’s latest concession demands.


The mechanics, represented by the Aircraft Mechanics Fraternal Association (AMFA), and the ground crew, represented by the International Association of

Machinists (IAM), who had not yet approved new contracts, also threatened strikes should their contracts be voided. But despite making loud strike

threats in the days after the May 10 pension ruling, AMFA’s leadership caved in on May 16 and gave United the concessions they’d been asking for.


As of the writing of this article, the IAM appears headed toward reaching a similar concessionary contract. The judge halted hearings for two days to

encourage them to do so.


The United attacks ran on parallel tracks with those at US Airways. In the last year US Airways has played the bankruptcy card to slash jobs, wages, and benefits and to terminate pension plans and dump its pension obligations on the PBGC. And as at United they've counted on support from friendly bankruptcy court judges.


The same month that Judge Wedoff slashed United workers' pay, his colleague, Judge Stephen Mitchell, terminated US Airways' Machinist contract for mechanics and ground crews, and as at United the judge said his order would be moot if a new contract were agreed upon. IAM officials responded to the judge’s killing of their contract by continuing talks with management rather than striking, despite having threatened to do so two days before the judge’s



The knuckling under of US Airways unions to management and the courts came despite an apparent willingness of the ranks to fight back, as shown in the December holiday sick-outs that caused the cancellation of hundreds of flights. What’s worse, despite the fact that United and US Airways workers were going through the exact same process in the same months, there was

no talk of joint action by the airlines’ workers. In fact it’s rare these days to hear of joint action, or even discussion, among unions at a single airline.


Government agencies have also aided management's concession drive at United, US Airways, and other airlines through the Feds’ Air Transportation

Stabilization Board (ATSB). This agency, set up supposedly to tide carriers’ through the post-9/11 hard times, has been used regularly during bargaining

to extract more concessions in return for continued loans or extension on repayments (or to tell management they need no ATSB loans because they can get them from private financiers—knowing this means the latter will impose draconian cuts).  


Why the cuts?


Management and their media friends have portrayed the cuts as inevitable economy measures due, on the one-hand, to recent events such as the post 9/11 traffic downturn, the Iraq war, rising fuel prices, and the SARS scares, and, on the other hand, to the need of the “legacy carriers,” i.e. the older and

bigger ones, to mimic the low-wage and low-cost structures of those that sprung up under deregulation.


The bosses have used all these as excuses to seek cuts they'd planned long before, eliminating over 150,000 jobs and slashing wages and benefits, contracting out work, and at the same time using the 9/11 events in

particular to beg Washington to subsidize them with loans. This Congress and the White House did so willingly, setting up the ATSB and providing billions

in grants and loan guarantees—on the condition, also willingly accepted, that the money be used for management's restructuring plans and not for the

benefit of the workers in the industry.


(When asked why management didn’t use their “business interruption insurance” to cover their 9/11-related losses, they reminded Congress of the sanctity of business secrets, with US Airways spokesman David Castelveter testifying: "That's something I don't think we would publicly discuss with anyone.")


But the attacks by airline bosses long predate 9/11, taking on new heights with the start of deregulation in 1979. Of course, the airline industry was only one

of many experiencing deregulation-related attacks on labor, and deregulation was just one of many tools used by bosses throughout the economy to deal with the long economic downturn of the last three decades.


For much of the 1990s, as the airlines went through the second round of deregulation, they enjoyed the same wild and profitable times as the rest of the new high-tech, high-roller economy, and existing and new carriers overspent on planes and gates, in the process racking up massive amounts of debt. Now that the bill is coming due for the party you know who gets stuck with the tab.


The same game was played during the first round of deregulation in the 1980s, when there was a similar wild ride of over-expansion that labor was expected to pay for. And it wasn’t just older carriers that had trouble; many new, nonunion, low-cost carriers that seemed to be headed to market dominance folded or were absorbed. This should be kept in mind when confronting

management claims that cuts are inevitable if “our” airline is to be saved from low-cost competition.  When the shake-out from this round of deregulation is

over, and the economy recovers (even if only temporarily), it’s just as likely that some of the current low-cost carriers will be out of business and the older carriers will be sitting pretty on profits extracted from worker concessions—unless sufficient resistance is put up.


The other lesson that should be learned from the lost battles of the first round of deregulation is the folly of centering the fight on individual “evil” owners, such as Lorenzo and Icahn In fact, in the middle of the battle this May at United, Icahn was making news for his struggle to gain more control of Blockbuster, proving once again that "our" companies' bosses' first concern is not flying people but making profits.


The division of airlines into larger, older carriers with extensive international as well as domestic route structures, and new low-cost, primarily domestic

carriers, mirrors the restructuring of other industries. Steel, auto, telecommunications, coal, meatpacking, and others have been divided in the last couple decades into sectors with bigger unionized companies, often using older technologies, and smaller, unorganized ones using newer technologies.

But the new low-cost sector is usually not made up of just new entrants: it's just as common for older companies to set up their own low-cost, high-tech

subsidiaries or spin-offs.


That's been the case with the airlines' new regional carriers just as it was with doublebreasting in trucking, the spin-off of auto-parts companies from the Big Three, etc. In each case management, no matter the industry, has demanded concessions by pleading the supposedly unique challenges it faces from the new competition—and in almost every case union officials have bought this logic and given in.


Such concessions have included giving up pension and health-care benefits won long before. The media often sees the connections union officials don't (or won't), most recently pointing out how pension terminations at United and elsewhere in the air will likely spread to auto and other industries.


(A particularly callous example of the older airlines' own low-cost strategy is the layoff with no notice of almost 500 baggage handlers at Alaska Airlines in

mid-May, and their replacement the very next shift with workers from a subcontracted company. Needless to say, rather than mobilize workers to block replacements from taking their jobs, the IAM simply filed suit and whined about the company's not having warned them.)


Airline financiers


Another factor outside the industry that must be examined is the role of finance capital. Mainstream stories about pension defaults or contract terminations always mention creditors who demand labor costs be cut if loans are to be provided or repayment delayed. The concessions deal at US Airways was

described in the press as satisfying “terms of a new aircraft financing deal with its biggest creditor.”


The supposedly evil or bungling airline managers are almost always acting at the behest of the industry's biggest financial backers. They’re talking about the

airlines' biggest sources of capital, outfits like GE Capital, Boeing, Citigroup, JPMorganChase, BankOne, American Express—and even the Disney Corporation!  A story on US Airways cuts, for instance, told how GE agreed to defer payments, and US Airways was allowed to return planes leased from them, as part of letting the company “restructure and operate more like a

low-cost airline.”


And in the just announced deal to merge US Airways with America West, Airbus is providing a key part of the financing, in return for the merged carrier's

agreement to use the new Airbus model—and, we will no doubt hear soon, in return for more labor concessions to make sure the planes are paid for.


The head of another big holder of US Airways debt, the Retirement Systems of Alabama (the pension fund for Alabama public employees), said explicitly that

workers had no choice but to accept concessions if the fund was going to continue to back the airline.


The AMFA response to members' questions about the United tentative agreement points out, by the way, that the company's final exit plan from bankruptcy "has yet to be presented or approved by the financial

institutions" that will determine if UAL can exit bankruptcy, which means there's no guarantee even more cuts won't be demanded.


Yet there have been no pickets by airline unions at GE Capital, Citigroup, or any of the other financiers.  Given the involvement of these bankers in multiple

carriers' affairs, they present natural targets for cross-union, cross-carrier protests (protests which could also appeal to unionized Disney workers and

public employees in Alabama, among others). Nor have there been pickets to demand the Feds' ATSB stop demanding management impose concessions.


In fact, if airline workers sought allies against these financiers they might be surprised at how far afield they'd find them. In recent years mass protests

and even governmental overturns have swept Latin America, largely in reaction to austerity imposed on the continents' workers by these same banks and their



And ironically, one of the grievances of Latin American workers is that they are being expected to pay for the wild overspending on useless projects and

corporate expansion encouraged by the banks during the 1990s—an exact parallel to the same over-lending and resulting over-expansion in the U.S. airline industry in the 1990s.


(And lest this connection seem like too much of a stretch, remember that the bosses have contracted-out mechanics' work to Central America, representing the loss of tens of thousands of jobs. Why then haven't the unions made common cause in action with opponents of free-trade agreements and fighters against globalization? Where are the links with Central American unions?)


But the crisis facing airlines goes even deeper than any particular “evil” bank, for they too are only playing out the drama acted out over and over in the

capitalist system's long-term ups and downs. The roller coaster ride not just in the airline industry but in steel, coal, auto, telecommunications, and health care—and the restructuring and competitive pressures in each—may have played out in each industry differently because of their different structures, but

the common thread running through them is the long downturn of profitability in the entire system.


In that sense the attacks this year and last on pensions at United on the one hand, and Bush's attack on Social Security on the other, are just part of the

same attempt by the ruling class to restore profitability to levels of decades past. That is why trying to save jobs or benefits by saving "our" company flies in the face of economic reality, and why instead united labor action is essential.


Lack of a fightback


In this second wave of deregulation there have been many sporadic mobilizations launched separately by unions at various carriers. There have been occasional “work to rule” and no-overtime campaigns, in some

cases forcing management to back off, if only temporarily.


There have also been a handful of instances of actions organized by ad hoc groups of rank and filers demonstrating the sentiment for unified action. And

mechanics, pilots, flight attendants, and ground crews have all—at least at one carrier and sometimes more—changed leaderships or shifted union affiliation

out of dissatisfaction with concessions granted.  But in no case have there been coordinated campaigns for all unions at a carrier, much less industry-wide campaigns. And for lack of this the sporadic actions have not encouraged members to keep up a sustained fight.


Even the need to organize non-union carriers in order to stop management from playing that tier of the industry off against workers in the older tier has

been addressed only sporadically and only by individual unions. There have been a handful of striking successes in recent years in organizing both at older and newer carriers, but never an industry-wide, multi-union campaign.


This is not to say that union officials don't talk tough. The day before the tentative agreement was reached by AMFA at United the mechanics' union and the Machinists were both reporting that their members were taking home tools in case of a strike.


AMFA was also publicizing promises by unions internationally to support them (including offering rides home should they be stranded); and had posted on

the web a “Strike Resource Guide”—which actually was a how-to on finding a new career should a strike drive United under! Posing the results of a strike this way certainly wasn't designed to give members confidence in the wisdom of rejecting the bosses' latest offer.  The May 16 cave-in by AMFA leadership wasn’t surprising considering its reaction to the cuts imposed by the same judge earlier in the year.


On Jan. 31 Wedoff imposed a “temporary” 9.8 percent pay cut and reduced sick leave benefits effective Feb. 1 through May 31. The judge decreed in his order “a reduction in rates of pay by 9.8% in all pay factors for all longevity steps in all classifications; (ii) that all employees will receive 75% of the pay they would normally receive for sick days for absences of less than 16 consecutive days; and (iii) all scheduled pay increases during the period are postponed.” Thus contract language as the product of bargaining was

replaced by judicial dictate.


AMFA’s response was to demand that management “take the remaining negotiating time seriously to help resolve major differences.” Said National Director O.V. Delle-Femine: “Because the provisions of yesterday’s 1113e ruling are temporary, we do not plan to pursue a strike or other form of self-help during this period.” (Self-help is Railway Labor Act jargon for strikes and other job actions.)


Temporary or not, the smaller paychecks were very real to members, and could have been the impetus for organized protests against them. Imagine the support mechanics could have garnered by appealing to the entire labor movement, asking their fellow unionists, “do you want a judge setting your wages or benefits?”  And if the cuts were so “temporary,” then why couldn’t

members have been organized to take “temporary” extra-long breaks, “temporary” sick days, etc.?


In addition to begging off a fight because the cuts were only "temporary," AMFA leaders said they would turn their attention to preserving pensions—ignoring the obvious negative impact that not fighting the temporary cuts would have on the members' morale and their willingness to mobilize to save pensions.  In contrast, a membership in action against the judge's order would have been more able and willing to stop the pension attacks (and might have even given management pause about carrying it through).  The failure to organize any actions against the January cuts was bad enough. What’s worse is that in the ensuing four months little was done to mobilize members to ensure the “temporary” cuts didn’t become permanent—as they now have.


Is AMFA Different?


Some had expected more from AMFA. Although it’s a craft union, its supporters argue that given the bargaining structure set up by the Railway Labor Act since the industry’s founding, all unions have functioned in essence as craft unions. What had been seen as different about AMFA was its relative openness and democracy, and its stronger line against concessions—a line that now appears to have been mostly talk.


AMFA had successfully led mechanics out of the IAM at Northwest, United, and at several smaller carriers, taking advantage of particular sellouts to do so. One striking difference in AMFA’s functioning, and one counted on by many to stop similar sell-outs, is the greater amount of information about bargaining provided to members and especially the ability of rank-and-file members to attend negotiations.


Ironically, AMFA won over mechanics in 2003 at United after mechanics had rejected temporary wage cuts and other contract changes and a court had imposed them as a result. Now the exact same thing has happened, only

under AMFA leadership. And knowing what was happening in bargaining wasn't enough for members to stop even AMFA officials from making overnight decisions to go back to the table and work out new concessionary

agreements, as it did in May.


As democratic as AMFA may be, its leaders have not gone beyond the ideology shared by all airline union leaders, the belief that in the newly-competitive deregulated era unions must do all they can to save “our” carrier.


The blame on "mismanagement" and the "bankruptcy court process" shows why the AMFA leadership is no more militant than that of the other unions. "Our" company can thrive, they believe, if only we get rid of unique obstacles like a rotten CEO or judge or law. They have no conception of (or at least no willingness to act on) the industry-wide nature of the problem, or how the latter is just a symptom of the class-wide attacks we've faced for the last 30 years.


Saving “our airline”


Statements by union officials at all carriers, whether criticizing or caving in to cuts, have "our" company's interests as the same theme. The Association of Flight Attendants-Communications Workers of America (AFA-CWA or AFA) said it was giving United Airlines $131 million in concessions “as part of the cost reductions required of all Unions and management to attract bankruptcy exit financing.”


And the corollary of this theme is always the need for better, smarter management: “We [AFA] demand that current management develop an exit strategy from bankruptcy that does not destroy the hard-earned pensions promised to us ... that would be one sacrifice too many.”


The AFA reaction to the termination of their pension plan was to declare, in the words of Greg Davidowitch, head of the AFA-CWA United section: “Flight attendants at United Airlines have put management on notice: ‘either they go or we go.’" And: "This management has failed at every turn during United's 29 months of bankruptcy and they still fail to have a viable business plan. Management must understand that it cannot run a service industry business while waging war on its employees," he declared.


Davidowitch complained that "the bankruptcy court's decision allowing United to dump its pension plans and its obligations to employees was an enormous

disappointment to flight attendants who have made life-altering sacrifices to help their airline." (Note the “their airline.”)


Randy Canale, president of IAM District 141, had also complained that management’s turnaround plan relied solely on wage and benefit cuts: "[The] decision will be a financial hammer blow for many of the 10,000 [union] retirees whose monthly checks will be cut to satisfy a business plan that to date includes little more than harvesting employees' wages and benefits."

Management must “look beyond labor costs.”


Union leaders have also tried to reconcile members to cuts by promoting proudly the fact that they had voted for them, the AFA saying, for instance, "you have determined today that these concessions will be implemented with our input and influence.”


The AFA's "one sacrifice too many" line quoted above is another constant refrain from union officials at all airlines: “this is the last sacrifice, we’ve given

our share, now it’s management’s turn to save ‘our’ airline.” In January, for instance, the IAM's General VP Robert Roach said, “US Airways management must utilize the advantage our members have provided, not squander it as they have done in the past. The company has everything it needs from labor to succeed. The pressure is now on management to deliver.”


Another official said, “Let their decision end the debate about our members’ commitment to US Airways.”  But why should management believe any particular sacrifice is the last one? And why should they care how much members have sacrificed?


What's more, by demanding that management at each carrier develop its own strategy to regain profitability, union officials are implicitly hoping for success at "our" carrier against that of other carriers—regardless of the consequences for workers there. In an oligopolistic industry in a dog-eat-dog economic system only a handful of companies can survive; and pleading with your own boss to be one of the "smart" ones who survives (or looking for a new, "smarter" boss) doesn't do much for the workers at either your airline or those elsewhere.


AMFA, which supporters tout as being uniquely anti-concessions, buys right into this dog-eat-dog mentality. In answer to members' questions about the

tentative agreement, they tell members their jobs depend on full participation in the "Lean" program. This is a lean production, labor-management cooperation set-up used by United Services, a United subsidiary that is a subcontractor for 100 other airlines.


Says AMFA, "If Lean fails, the maintenance division of UAL fails." So saving United mechanics' jobs means working harder and cheaper than other airline workers. So much for the union that inspired some radicals within it to argue all militant workers should follow its path and form unions outside the AFL-CIO!


Of course, it's not just "bad" managers who are blamed. AMFA officials are justifying their caving-in by blaming "bad judges" and "bad laws." Delle-Femine said, "This is a sad day for our membership at United, and it was perpetrated because of mismanagement," and said the agreement was accepted for fear the judge would impose worse terms.


Another AMFA official, Terry O'Rourke, said, "It's not something to celebrate. We are under the coercion of the bankruptcy court process, and we made the best of bad choices." 


What's the alternative?


Considering that pensions are at the heart of the current crisis, it's ironic that an industry-wide solution available since the industry's founding has never been widely considered. Despite being governed by the same body of labor law, airline unions have never demanded the creation of an industry-wide

pension system to parallel the Railroad Retirement Board, which covers all railroad workers.


The IAM at United is right now demanding that rather than terminating their pensions the company agree to transfer them to the unions' own multi-employer pension plan; this certainly provides an opening for a discussion of broader, industry-wide or economy-wide pension solutions.


Clearly, unions need an industry-wide forum for discussing industry-wide problems. Unfortunately, to date the only proposal for cross-carrier discussion on the crisis was on exactly the wrong track: in January the IAM's Roach called for the U.S. Transportation Department to “convene a summit meeting of management, labor and consumer groups to find ways to help the struggling industry.”


Roach called on management, labor, and government to “work toward the common goal of rebuilding the transportation industry for our mutual benefit.”

What's needed instead is a meeting of all airline unions to develop a strategy to resolve the crisis on workers’ terms: no terminated contracts by judges; no

cuts to jobs, health care, or pensions; development of a plan to organize the entire industry; and nationalization of airlines under workers' control.


Even a single union putting its foot down at one carrier would have a chance to appeal to brothers and sisters throughout the industry about shared problems—and certainly airport-wide solidarity committees set up on its behalf would be a natural venue for discussion of the issues raised above.


That's not to say it would happen automatically; during the widely-supported Eastern Airlines strike of 1989 the unions were never shaken from their belief

that if only Lorenzo was replaced with a "better boss"—even one demanding more concessions!—"our" airline could be saved. But at least the discussion

could begin, and not just about why concessions don't pay, but also about broader demands fit for the whole industry.


Workers already know on some levels that management's claims are lies. For instance, a mechanic who sat in on US Airways negotiations told the Associated Press in January, “They have made the bogey man out to be

fuel prices and weak revenue, so we offered them a loan to bridge the current financial crisis. As soon as revenues increase or fuel costs go down, we’d see

some payback.” And management’s refusal to consider alternative strategies often leads to concessions contracts being rejected.


It's not at all uncommon for unionists to attempt to be reasonable by offering concessions to management now in return for payback later. Of course, when posed this way the payback never comes. But this argument could just as easily be turned on its head: pointing to the flaws in management's economic rationale for concessions, labor could demand to see the books of the carriers—not just one, but all of them.


In joint meetings of all unions throughout the industry workers could discuss the entire industry's costs and revenue, and figure out how to reorganize the industry for their benefit and that of consumers, rather than for the owners' profits.


This could be coupled with raising the demand for nationalization of the airlines under workers' control. Given the repeated defeats suffered recently,

raising this demand may seem unrealistic. But it could be a natural part of a broader educational campaign on the real source of the troubles at every carrier, which would have to get into the roots of the crisis in the industry as well as the problems in the broader economy.


And the already semi-public nature of the industry is easy to explain, not just because airlines are inevitably a concentrated industry, but even more

directly because of the billions in government loans, tax breaks, public subsidies, and publicly-financed airport infrastructure—and now the use of taxpayer money for pensions—from which management has benefited

since the industry's founding. 


The stakes for all workers


Even if union officials haven't made the connection, the media has made clear in countless feature stories the link between pension cuts at the airlines and

similar cuts in other industries as well as cuts in health care, both corporate-provided and government-provided. They've quoted many corporate sources praising the trend in every industry away from defined-benefit plans (which guarantee a specific amount in weekly checks) to defined contribution plans

(also called 401Ks, in which the company pays into a savings account that can go bust and leave you with less than you expected after retirement—or even



And they've coupled this praise with an endorsement of Bush’s “ownership society” ideology, of shifting responsibility for old age and sickness to the

individual. "People like to think of employers as social welfare organizations, but they're not," a member of President Bush's 2001 Social Security Commission told The New York Times. "In an increasingly competitive world, they don't have room to do much else but focus on the competition."


The American Benefits Council, chief lobbyist for large corporations on benefit issues in Washington, has demanded that workers rather than bosses become primarily responsible for their own retirement and health care: “Individuals ... should assume primary responsibility ... for their own financial security."


This is the ideology behind pension cuts in both private industry and the public sector, which has led to massive and militant mobilizations by public sector

workers in California, New Jersey, and elsewhere.


It’s estimated that half the employers in the country offer no retirement plan of any kind. And, of course, a similar trend is happening in health care, where

private savings accounts, an exact parallel to defined contribution plans, are being pushed. Even in traditional plans higher copays, premiums, and

deductibles are more and more common. The latter have in fact been the main issue in most strikes for the last few years.


The AFA is now fighting for Congressional legislation mandating a six-month moratorium on pension-plan terminations and requiring companies seeking to end their pension obligations to fully disclose executive compensation plans. This union had earlier threatened CHAOS actions (Create Havoc Around Our System), that is, job actions at unannounced times and places—threats never carried out.


The proposed legislation would benefit all airline workers; why then not have cross-union strategizing to launch CHAOS actions on behalf of this legislation as well as for restoration of all pensions, jobs, wages, and benefits cut?


And given the economy-wide attacks on pensions and health care just discussed, why not appeal to other unions to join in these actions and to meet to develop broader legislation protecting all workers' pensions and health benefits?


Why not call a national labor march on Washington on behalf of all workers' pensions, Social Security and right to health care?


It's still possible that AMFA members will reject the proposed United contract and that the IAM won't reach an agreement or that if it does its members will turn it down. AMFA has already pledged to respect other unions' picket lines.


It's still possible that the fightback will begin during this round of concessions—a round that is not going to end any time soon. If it does airline workers and their allies will need to discuss the issues raised here to avoid another heroic but doomed struggle like those of the past two decades.


*Andrew Pollack was a reservations agent at Pan Am and member of the Teamsters' Airline Division. He edited a rank-and-file airline workers' newsletter, The Plane Truth, in the early 1990s.

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