Bankruptcy law eases pain
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It is tempting to blame bankruptcy law for seemingly allowing United Airlines to walk away from its pension promises. It is even more tempting to blame United’s management for apparently choosing to place the burden of bankruptcy on its employees. Paradoxically, it is the federal bankruptcy code that provides employees and retirees with their most important protections. A bankruptcy judge must still decide whether United’s actions are blameworthy or necessary to preserve employees’ jobs. Bankruptcy is a process of negotiation and adjudication about who should bear the burden of a company’s misfortunes. That process is under way and should not be prejudged. United’s management says that to stay in business, it needs a “distress termination” of its pension plans; the alternative is to shut down. Businesses in bankruptcy always walk this line between liquidation and reorganization, and United is trying desperately to keep flying. To do so, its management has to find a way to be profitable. The employees would like to see this happen, too, but disagree as to who should bear the burden. What are the alternatives? United could further renegotiate employee wages but leave the pension plans in place. It could reduce payments to banks, stop paying its suppliers, shed routes and partially liquidate (at the expense of many jobs). When one factors in the fact that employee pension plans are largely insured by the Pension Benefit Guaranty Corporation (PBGC), United’s choice seems sensible. In the end, United’s management cannot act unilaterally. Under both bankruptcy and pension law, a collective-bargaining agreement cannot be modified, and a “distress termination” is not available unless the bankruptcy court concludes it is “essential” to continued operations. PBGC and the unions will have the opportunity to challenge management’s claim of “distress.” Thanks to the bankruptcy code, the game isn’t over, and I, for one, trust that the bankruptcy judge will ensure that neither PBGC, the company nor the employees will bear more than their fair share of the burden of keeping United flying. Edward Janger is a professor at Brooklyn Law School and a resident scholar at the American Bankruptcy Institute. |