United Airlines Early Out Offer

By July 28, 2020Videos

Probably everybody at the airline knows now that there’s a letter of agreement for voluntary pilot separation leave. It’s a pretty interesting deal. Is this something that you should take? A couple of pointers about this offer. I mean, I’m not going to go through the whole thing. We’ll put a link to it (see below), but the briefings that ALPA’s sent out are pretty darn good, but there are some relevant salient points. One, the pain effect, is when you bid for the package. Why is that salient? The next year it’s going to be ugly. Pay cuts may actually happen, or maybe a reduction in the guarantee. And if there’s a reduction in the guarantee, for example, then that brings the guarantee down to maybe 60, 61 hours if it’s a 15% reduction. That kind of reduction, that’s only a 10-hour spread for working versus not working.

Also, all you need to do to qualify this, as you know, is be age 62 with 10 years of service. This is a leave, not an early out. Your actual retirement age is the time you turn 65. So the pension stays as-is in addition, as you know, to the B plan contributions. This means that while you’re on this leave, you need to be on pension watch just as if you weren’t on leave. It’s still what we would recommend. Not taking an early out at this point, but taking one of the two options, unless you’re really close to retirement and the risk to your pension is your number one concern.

So let’s talk about that pension guarantee. With the PBGC ferociously opposed to terminating these plans under any circumstances, other than literally the liquidation of the airline is the alternative, which is very unlikely in this case – that plan is unlikely to be shut down in anything short of a very, very severe bankruptcy. What is the severe bankruptcy? Well, there are bankruptcies and there are bankruptcies. A very severe bankruptcy is one where there’s a serious discussion about liquidating the airline or parting it out. That’s not likely. Also the pension may see a slight risk at this point, and an increasing risk over time, to the lump sum payout. It’s very hard to gauge that in real time. We’re not predicting it in the short term. It’s not a reason to take an early out, even if it is an issue. And simply put the reason is present value of the annuity is what the lump sum is. It’s of equal value.

So if this is something that’s very important to you and you are very close to retirement, again, this is something that would cause you to pull the rip cord and just take an early retirement. Really the point of all of this is this is a qualitative choice, more than a quantitative choice. The spread between working and not working, especially if there is a future pay cut or guarantee cut is not that great, but it is irrevocable. So if you’re concerned with COVID-19 and exposure in the work environment, as some are, maybe there’s an underlying health condition or some other personal reason why you should be more concerned than most, or if you’re just tired of the flying experience…of security, the checkrides, all these things…then maybe you should take this.

However, especially if you’re closer to 62, keep in mind, this will pass. I mean, these things seem like they’ll go on forever. Flying will recover. Most of you who are eligible for this are rather senior and will have much better options to bid lines, to pick up trips, do things like that as flying recovers. In fact, some of our most senior clients, they’re flying their tail off right now. So the ability to manage your schedule and to manage your pay and to enjoy the flying experience, if that’s something you enjoy, will proceed. If you would like a more detailed analysis, a spreadsheeting of the options with various risks applied, then give us a call (281-528-1200) or email us ([email protected]). Elizabeth, Sarah, and Ashley have all been spending a lot of time working these spreadsheets, working through these questions with clients. I’m sure we can be of great value. We wish you the best of success. Thank you.

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