Against the Current, No. 112, September/October 2004
The War and the Vote
— The Editors
The U.S. Military Under Stress
— Todd Ensign
Untying the Knots
— Jill Shenker
A Selective History of Marriage in the United States
— Jill Shenker
The Pension Crisis
— Malik Miah
Free the Cuban Five!
— Michael Steven Smith
Why Cuba Is Different?
— David Finkel
Nicaragua Twenty-five Years Later
— Dianne Feeley
The Caribbean Left's Legacy
— Sara Abraham interviews Eusi Kwayana
German Social Democracy in Crisis
— Bill Smaldone
Review Essay: Reutherism Redux
— Steve Early
- More Dialogue on the Elections
A Mystery in the 2004 Elections
— Peter Camejo
Green Party Convention: A Party Divided
— Ann Menasche
Democracy Is the Key
— Ann Menasche interviews Peter Camejo
Elections & the Democrats
— Joel Jordan & Robert Brenner
— Alan Wald
Black and White on the Inside
— Christopher Phelps
- In Memoriam
Remembering Dave Dellinger
— David McReynolds
Farouk Abdel-Muhti, 1947-2004
— John Leslie
FIRST, WAGES. THEN health care. Now pension benefits.
What made organized U.S. labor — the trade unions — the symbol for social progress was its success in winning the best wages, health care and pension benefits. That’s now all crumbling as the employers, backed by the federal government, chop away at these holy grails of labor.
The latest crisis for labor is in the airline industry, following the crisis of the steel industry a few years earlier. United Airlines, the world’s second largest carrier, is on the verge of dumping its defined-benefit plans onto the Pension Benefit Guaranty Corporation (PBGC), a federal agency that insures the pensions of 44 million people.
United Airlines’ Defaults
If UAL, the parent of United Airlines, does so, it is anticipated that all the other major “legacy” carriers will do the same. It would mean a $31 billion takeover by an agency that is currently underfunded.
Workers at United are upset and angry by these developments. There are 63,000 active and some 58,000 retirees and affected family members at UAL. It would be the largest “distressed termination” in the 30-year history of the PBGC, which oversees some 3,200 failed pensions.
But the unions are limited in their options because United Airlines is in Chapter 11 bankruptcy (filed December 2002). Although the airline’s default in July to keep its pensions within legal funding limits (80% or higher) would normally lead to a backlash from the Internal Revenue Service, bankruptcy laws prevent that.
The bankruptcy judge rules on one question: Does dumping the pensions onto the PBGC make it more possible for the airline to escape bankruptcy?
All the unions at United are fighting mad about these developments but see the complications of the crisis. The Machinists have filed legal suit against the top executives for failing to carry out their judiciary responsibilities. The mechanics union leaders in the Aircraft Mechanics Fraternal Association (AMFA) are planning informational pickets at the airports.
O.V. Delle-Femine, AMFA National Director, stated in a July 29 letter to all members working at United Airlines:
“The Company’s shameful, vicious act on our pensions shows us that mismanagement prevails and they have no innovative ideas. They can only attack the employees’ wages and benefits. This is one reason why we must be proactive and delve into this and have meetings with investment experts that will give us new ideas and a nationwide movement to save our pensions.”
Role of New Carriers
The biggest problem the unions face is the changed environment from even five years ago. The so-called “low cost carriers” now dominate the ticket price structure in the domestic market. They are over 25% of the domestic market; this is expected to rise to nearly 50% in six years. (The international markets are still regulated and dominated by the majors.)
The new airframe and engine technologies allow efficiencies unheard of a decade ago. The major carriers (those with domestic and international markets) carry the obligations of pensions and other expenses the new airlines don’t yet face, creating a major cost differential.
The airline bosses see cutting wages, health care costs and getting rid of defined- benefit plans as a quick solution to the profit squeeze. The move in general is toward “defined-contribution” pensions such as 401(k)s, which move away from the lifetime annuities guaranteed under “defined-benefit” plans.
According to an article in the June 19 issue of BusinessWeek, the majority of pension plans are defined-contributions. No new defined-benefit plans such as those common at the “legacy” airlines (American, United, Delta, Northwest, Continental and US Airways) and at the major automakers have been started in a decade.
The most profitable companies, including Microsoft and Southwest Airlines, don’t offer defined benefit plans.
That’s why U.S. multinational corporations are using bankruptcy laws, which supersede pension laws, to dump pensions as the airlines are contemplating and as the Big Steel industry did in 2002 and 2003. After LTV steel “terminated” its plan in 2002 while in Chapter 11 bankruptcy, the other Big Steel companies followed.
Editorials Raise Concern
The Wall Street-backed shift from promised pensions to more shaky “individual” pensions — “you’re on your own” — is what’s behind the current pension crisis. It is a goal of the most conservative wing of the Republican and Democratic Parties.
The editors of the New York Times in its August 8 editorial, “Pension Tension,” explained this shift against defined-benefit pension plans, “First, it was the steel companies. Now it’s the airlines. Is the auto industry next?”
The editors of the San Francisco Chronicle, in the city where United Airlines has its only maintenance center, wrote the same day under the headline “United flies away from pension plan:” “United represents the latest and biggest example of the troubled pension world.”
Their solution? They urge Congress to take some action. But what kind? To date Congress has acted to extend more financial maneuvering room to the airline bosses without shoring up the weakened pensions.
The winners are the top executives and big shareholders, not rank-and-file employees. The only pressure on the politicians are the tens of thousands of voters receiving checks from these “distressed terminated” pension plans. That’s why taxpayers will have to bail out the PBGC and its obligations, as they did in the 1980s when the Savings and Loan industry collapsed.
The employees of the airlines will be hit twice — losing a chunk of their hard- earned pensions since the PBGC only guarantees a portion of their plans, and by paying a higher government debt to cover the shortfalls of the PBGC.
What should labor’s strategy be? In the long run, the unions must build a national movement that guarantees all workers a pension that can’t be terminated by bankrupt companies. The social security system was supposed to do that, but it hasn’t.
This requires a movement that takes up the three issues most dear to workers: living wages, health benefits and pensions.
No company or union is able to be an “island” in the current hostile anti-labor environment. At best, workers can hold the line for a bit, but in the end, what happened at Big Steel would be the likely outcome at the airlines and probably auto.
Declining pension protections can’t be stopped short of a national campaign organized by democratic unions and backed by community groups.
This strategy means fighting the local battles as best we can while explaining the broader goals to defend pensions and other social wages workers once took for granted at unionized work places.
At United Airlines, the Aircraft Mechanics Fraternal Association seeks such a course with the other unions and employee groups. It is essential that representational disputes be subordinated to forge such united front efforts. Otherwise, the employers and the anti-labor forces win.
ATC 112, September-October 2004