The Brancatelli File
THE $30 BILLION QUESTION
ABOUT 'SAVING' THE BIG SIX
BY JOE BRANCATELLI
May 12, 2005 -- More than 120,000 former and current United Airlines employees effectively had their pensions cut in half this week when United dumped its plans on the federal government and the American taxpayer. That, by now, I am sure you know.
Here's something you probably don't know and that few mainstream media outlets thought newsworthy this week: One United employee was exempt from the draconian consequences of the largest pension default in U.S. history.
Who's that lucky boy? None other than United chief executive Glenn Tilton. His $4.5 million retirement plan is comfortably salted away in a trust fund that the airline created for him. The bankruptcy court rubber-stamped the deal shortly after United declared Chapter 11 in December, 2002.
Tilton is also the highest-paid Big Six airline executive. According to Forbes, Tilton earned $1.24 million last year. That's almost twice as much as American chief Gerard Arpey earned and about three times what Delta chief Gerald Grinstein received.
But this column is not about Tilton, whose first move after taking the United job in September, 2002, was to ensconce himself in a corporate apartment at the Four Seasons Chicago at a reported cost of more than $15,000 a month. His 33-month reign of error is already well-documented: The airline has been bankrupt for 29 months and has yet to produce a Plan of Reorganization. According to the Associated Press, United's losses have exceeded $5.8 billion since entering bankruptcy. And the airline's operating losses are rising, not falling. It's not for nothing that CNN anchor and aviation expert Miles O'Brien this week called Tilton and his management team "morons."
No, this column is about what all this Big Six mismanagement is costing us taxpayers. The price of letting the Big Six conduct business as usual is nothing short of staggering.
Let's start with the post-9/11 bailout of $4.5 billion. Then we gave twice-bankrupt US Airways nearly $1 billion in federally guaranteed loans. That money has been partially repaid and the rest is supposedly secured with real assets, but I wouldn't bet on seeing any more of that dough. There's also Airline Bailout II, the almost-forgotten $3.5 billion gift to the Big Six appended to the initial Iraq War appropriations bill. Add perhaps $1 billion in outstanding loans, notes and bills that United and US Airways will never pay to taxpayer-supported airports and local development agencies.
And now come the really big numbers. There's the $3 billion in pension liability assumed from US Airways earlier this year by the Pension Benefit Guarantee Corporation (PBGC). We added United's pension shortfall on Tuesday and that is estimated at $9.8 billion. If the other Big Six carriers follow the United-US Airways pensions path, that'll be $20 billion more dumped in our taxpaying laps.
That's $40 billion blown on six private companies that have a total market capitalization of $3.4 billion plus a couple of rolls of quarters for the moribund shares of United and US Airways.
That, fellow travelers and taxpayers, is madness. It is propping up six companies that have proven that they cannot or will not sell a product we want to buy at sustainable prices that we want to pay. It is allowing six companies in an endless state of corporate welfare to threaten the long-term growth of healthy airlines like JetBlue and Southwest and potentially profitable carriers such as AirTran, America West and Frontier.
So rather than continue to subsidize fools like Tilton with taxpayer money, I'd like to suggest something I first proposed almost three years ago: Nationalize, reorganize and refloat the Big Six.
This would have been a lot cheaper had we done it three years ago, of course, but it's still a better deal than continuing to throw money at Tilton and the boys. Forget about the $10 billion that we've already spent on bailouts and such. That's gone forever. Just focus on the $30 billion in Big Six pension liability that's staring us in the face.
What if we took just a fraction of that money and bought up the Big Six? Then we could take the rest of the $30 billion and put it into this new enterprise, which would reclaim the Big Six pension liability and unburden the underfunded PBGC.
What would we do with the Big Six operationally? We'd rationalize the prices, simplify the in-flight services, streamline the fleets and create fare structures that would enhance revenue, not depress it.
When they emerged from the makeover, the Big Six might only be the Big Three. But they would be strong--with managers motivated to make a profit and workers fighting to save their pensions. Then we'd take the new airlines public again and leave them free to compete like normal businesses.
Don't like my idea? Fine. Then I'll ask just one question: Are you prepared to staple $30 billion in Big Six pension liability to your tax bill and leave morons like Tilton running the show?
For that kind of money, I think we can do a lot better. Hell, for that kind of money, we can even afford to buy Glenn Tilton a first-class ticket so he can retire to Tahiti with his guaranteed pension.
This column originally appeared at JoeSentMe.com.
Copyright © 1993-2005 by Joe Brancatelli. All rights reserved.