CHICAGO (AP) – A federal bankruptcy judge has given United Airlines a 30-day “test period” to show it can cooperate with its unions on a restructuring plan, rejecting union calls to open the process up to rival proposals immediately because United has not tried hard enough to preserve employee pensions.

The hearing came a day after the release of court papers in which United warned it “likely” will have to terminate those pension funds in order to secure the loans it needs to emerge from Chapter 11 bankruptcy. Such a default by the nation’s second largest airline would impact about 119,000 employees and retirees and be the largest ever by a U.S. company.

U.S. Bankruptcy Judge Eugene Wedoff also approved United’s amended financing plan, which would give the airline an additional $500 million in interim financing, saying the deal improves United’s chances of getting out of bankruptcy. He made no ruling on whether or not it would be legal for United to terminate its pension funds.

United now has until Sept. 30 before losing its exclusivity, which allows it alone to file a reorganization plan without risk of a rival plan submitted by outside investors. Wedoff said he won’t grant another extension unless the airline shows it is cooperating with unions and other stakeholders.

“If the parties are still at loggerheads … then opening the process up to the best individual efforts at reorganization may be unavoidable,” Wedoff said.

Attorneys for United’s unions argued earlier Friday that United should lose its exclusivity because it was too quick to resort to skipping its pension payments.

Sharon Levine, an attorney for the International Association of Machinists and Aerospace Workers, urged Wedoff to open up the restructuring process to outside parties “to get somebody in here who will look closely at less drastic alternatives.”

United deferred a required quarterly pension fund payment of $72 million in July, saying it planned no further payments while in bankruptcy. The IAM, representing more than 20,000 ramp workers and customer-service agents at United, and the Association of Flight Attendants filed court objections to United’s financing plan and its decision to stop pension fund payments.

The unions claimed the amended deal with creditors stipulated that United halt its pension contributions. But United attorney James Sprayregen assured Wedoff on Friday that the deal allows the company to make payments to the plans if the money is available.

United Chief Financial Officer Jake Brace said Friday that the company had no timeline for deciding whether it would terminate the pension funds or for when it might emerge from bankruptcy.

Wedoff also granted United an injunction preventing the IAM from suing the airline’s top three executives in U.S. District Court, saying the issue belongs in bankruptcy court instead. The union accused them of a breech of fiduciary duty over United’s handling of the pension funds.

Machinists union spokesman Joseph Tiberi said he hopes United officials are sincere in their promise to cooperate with the unions on its restructuring plan. “Now we need to work together to find a less drastic answer to the pension problem,” he said.

Elk Grove Village-based United faces half a billion dollars in pension contributions in the next two months and $4.1 billion by the end of 2008. The government recently rejected its bid for a $1.6 billion loan guarantee, and rising jet fuel prices are expected to cost it $1 billion more this year than expected.

Dozens of United retirees sat in the courtroom Friday, many wearing T-shirts reading: “Pensions are promises that cannot be broken.”


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