United Airlines, Inc., pilots might fly the friendly skies, but a federal bankruptcy judge has ordered them not to steer the airline's Chapter 11 negotiations. On January 7 Judge Eugene Wedoff rejected the airline's agreement with its pilots union, saying that it gave the pilots unfair leverage over the bankruptcy process. Most strikingly, the discredited plan allowed the airline to end pension payments to the pilots only if it stopped paying pension benefits to members of all its other unions. United Airlines needs another $8.3 billion to pay its pension obligations, including $2.9 billion for pilots. In addition to terminating its employee pension plans, the company says funders will not give it enough money to exit bankruptcy unless it shaves another $725 million from labor expenses. The airline has been in Chapter 11 since December 2002.
Bankruptcy judges rarely enter an agreement that a union has already ratified, say lawyers involved. The pilots' arrangement had drawn heated opposition from United labor groups, the unsecured creditors committee, and others. Wedoff agreed with these parties that the pension provision in the pilots' agreement would unfairly restrict the other unions' ability to cut their own deals with United. He also objected to provisions that would end the pact if current management was replaced by a trustee or another party, among other features.
Following Judge Wedoff's decisions, United negotiated a new deal with the pilots. The union pledged to end the pilots' pension plan only if the other unions gave up a total $1 billion of their own wages and benefits. The new terms satisfied one-half of the opposition, including the creditors committee and unions for flight attendants and mechanics. But an association of retired pilots, who are pensioners without bargaining power, continued to object to the deal's termination of their pension. The Pension Benefit Guaranty Corporation, the government's pension insurer, also objects. If United ends up not paying pensioners, the PBGC could pay up to $6.4 billion of those obligations.
On January 21 Judge Wedoff said that the revised agreement addressed his concerns but held off on formal approval until after the pilots union ratified it.
For Debtor UAL Corporation (Elk Grove Township, IL)
In-house: General counsel Paul Lovejoy, deputy general counsel Marian Durkin, senior counsel Jennifer Coyne, and counsel Theresa Shea.
Kirkland & Ellis (Chicago): Alexander Dimitrief, John Hagan, Jr., Andrew Kassof, Marc Kieselstein, David Seligman, Sallie Smylie, James Sprayregen, of counsel Jeffrey Gettleman, and associates Erik Chalut, Chad Husnick, and James Mazza, Jr. The company has retained Kirkland on previous litigation matters.
For Creditor Air Line Pilots Association, International (Washington, D.C.)
- In-house: Chief counsel and director of legal department Jonathan Cohen, senior attorney Robert Nichols, and senior benefits attorney Russell Woody. (Nichols and Woody are in its Chicago office.)
- Cohen, Weiss and Simon (New York): Babette Ceccotti and Bruce Simon. The firm has represented the union for 20 years.
For Creditor Association of Flight Attendants-CFW (Washington, D.C.)
- In-house: General counsel David Borer.
- Guerrieri, Edmond & Clayman (Washington, D.C.): Robert Clayman, John Edmond, and associates Matthew Babcock and Carmen Parcelli. The firm has represented the union for the past ten years.
For Creditor The International Association of Machinists and Aerospace Workers (Upper Marlboro, Maryland)
- In-house: Associate general counsel David Neigus.
- Lowenstein Sandler (Roseland, New Jersey): Sharon Levine, Thomas Redburn, Jr., and associates M. Kaitlin Carroll and S. Jason Teele. Lowenstein has worked with the union for several years.
- Sachnoff & Weaver (Chicago): Arlene Gelman and Charles Schulman. Sachnoff and Lowestein often work together.
For Creditor Pension Benefit Guaranty Corporation (Washington, D.C.)
- In-house: Chief counsel Jeffrey Cohen, associated chief counsel Charles Finke and Nancy Heermans, assistant chief counsel Paula Connelly, Karen Morris, and John Menke, and attorneys Jacquelyn Gray, Shannon Novey, Stephanie Thomas, and Andrea Wong.
- Kelley Drye & Warren (New York): Mark Bane, Joseph Boyle, Mark Somerstein, Merrill Stone, special counsel Christopher Sheean, and associates Jay Heinrich, Erin Lum, and Debra Yang. [Boyle is the managing partner of the Parsippany, New Jersey, office; and Sheean is in Chicago.] Kelley Drye has represented the federal agency for more than a decade on airline matters.
For Creditor United Retired Pilots Benefit Protection Association (Chicago)
- Meckler Bulger & Tilson (Chicago): Jack Carriglio and associates James Argionis and Eric Newman. The firm was retained in 2002 to advise on bankruptcy disputes.
For The Official Committee Of Unsecured Creditors (Chicago)
- Sonnenschein Nath & Rosenthal (Chicago): Roger Brice, Deborah Devaney, Victoria Gilbert, Linda Chaplik Harris, David Jacobson, Fruman Jacobson, Leslie Klein, Carole Neville, Roger Siske, Lori Ward, and associates Mina Amir-Mokri, Michael Carney, Mark Fink, Patrick Maxcy, and Tobias Schlueter. [Gilbert is in Los Angeles; Neville, Carney, and Fink are in New York.] Sonnenschein attorneys have worked with committee members in other bankruptcy cases.
REPRINTED WITH PERMISSION FROM THE MARCH 2005 EDITION OF THE AMERICAN LAWYER © 2005 ALM PROPERTIES, INC. ALL RIGHTS RESERVED. FURTHER DUPLICATION WITHOUT PERMISSION IS PROHIBITED