January 27, 2023

Shuttle’s End Leaves NASA a Pension Bill

The shuttle program accounts for a vast majority of the business of United Space Alliance, originally a joint venture of Boeing and Lockheed Martin. With the demise of the shuttle program, United Space Alliance will be left without a source of revenue to keep its pension plan afloat. So the company wants to terminate its family of pension plans, covering 11,000 workers and retirees, and continue as a smaller, nimbler concern to compete for other contracts.

Normally, a company that lost a lifeblood contract would have little choice but to declare bankruptcy and ask the federal insurer, the Pension Benefit Guaranty Corporation, to take over its pensions. But that insurer limits benefits, meaning not everyone gets as much as they had been promised. United Space Alliance’s plan also allows participants to take their pensions as a single check and includes retiree health benefits, neither of which would be permitted by the pension insurer.

United Space Alliance, however, has a rare pledge from a different government agency to pay the bill. The National Aeronautics and Space Administration says in its contract with the company that it will cover its pension costs “to the extent they are otherwise allowable, allocable and reasonable.” NASA interprets this to include the cost of terminating its pension plans outside of bankruptcy.

The pension fund now has about half the amount needed. The president’s budget proposal for the 2012 fiscal year requests $547.9 million for NASA to provide the rest. That is nearly 3 percent of the agency’s total budget and just about what the Science Mission Directorate at NASA spent last year on all grants and subsidies to study climate change, planetary systems and the origins of life in the universe.

“We know that it’s NASA’s obligation to fund this, and NASA will do so,” said a spokesman for the space agency, Michael Curie.

Other federal agencies have made promises to pay contractors’ annual pension costs — the Energy Department, for example, for companies that run nuclear sites — and some government auditors have been warning for years that investment oversight was lacking and that the potential costs had been underestimated. This appears to be the first time, though, that a company’s main contract has expired and an agency has had to bear the cost of terminating its plans.

Although NASA was reimbursing the contractor for the annual pension contributions, it had no say over how the money was invested. United Space Alliance put most of the money into stocks.

The backstop will be unusually costly because of market conditions. While United Space Alliance has made its required contributions every year, the fund lost nearly $200 million in the market turmoil of 2008 and 2009. When interest rates are very low, as they have been, the cost of the promises rises rapidly as well, creating a bigger shortfall.

The cash infusion is also being readied at a time when some members of Congress are demanding cuts in spending and threatening to block anything that could be construed as a taxpayer bailout.

“It’s unfortunate that it’s coming in this fiscal environment,” said Bill Hill, NASA assistant associate administrator for the space shuttle.

He said that he hoped Congress would appropriate the money before the fiscal year ended on Sept. 30. If not, he said, NASA will have to divert funds from space-related activities.

Already, United Space Alliance has had five rounds of layoffs and has shrunk to about 5,600 employees from a peak of 10,500. Its workers have performed a wide range of jobs for the space shuttle program, mostly in Florida.

Beth Robinson, chief financial officer of NASA, said that even if United Space Alliance declared bankruptcy at this point, the pension agency would go after NASA for some of the cost. She said the contract was issued during a stock market boom, with a clause saying that if the plans should terminate with a surplus, the extra money would go to NASA. At the time, no one expected them to terminate with a deficit.

The cost of the termination may fluctuate along with market conditions as Congress considers what to do.

Tracy E. Yates, a spokeswoman for United Space Alliance, said the company could not predict the outcome. “However, we have not seen or heard anything to date that indicates that NASA will not receive funding for this obligation,” she said.

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W.T.O. Rules U.S. Subsidies for Boeing Unfair

Washington said it was considering an appeal of the ruling, the latest in a long-running dispute between the two largest commercial plane makers.

In an 850-page report, the Geneva-based trade body accepted a claim by the European Union that research and development grants provided by United States space programs contributed substantially to the technologies used in building the 787, Boeing’s latest flagship aircraft. But it said the amount of prohibited support amounted to a fraction of the more than $19 billion dating back to the late 1980s that Brussels had originally challenged.

Ron Kirk, the United States trade representative, said Washington disagreed with the W.T.O. panel’s findings and was studying options for appeal. He stressed that roughly half of the subsidies condemned by the W.T.O. had been previously remedied by changes in American policy, noting that the panel had recommended the United States withdraw just $2.7 billion in aid to Boeing.

The European Union hailed the W.T.O’s decision as a “landmark ruling.” Karel De Gucht, the bloc’s trade commissioner, called on Washington to “take the appropriate steps that may assist to achieve a mutually agreed solution to this dispute.”

European supporters of Airbus had focused much of their complaint on research contracts that Boeing received from the National Aeronautics and Space Administration and the Pentagon since the late 1970s to develop lightweight carbon composite materials that the manufacturer subsequently used in the design of the Dreamliner. As much as 50 percent of the 787’s primary structure, including the fuselage and wings, is made of composite materials, more than any other large civil aircraft.

Mr. Kirk said $2.6 billion of the subsidies that the panel found were from NASA and that the Pentagon contributed only $110 million. 

In addition, he said, 20 of the 23 claims about Pentagon contracts were rejected, with the panel ruling that they were legitimate procurement contracts rather than research grants. 

In its report, which was submitted confidentially to American and European trade negotiators at the end of January, the W.T.O. largely agreed that, “absent the aeronautics RD subsidies, Boeing would not have been able to launch an aircraft incorporating all of the technologies that are incorporated in the 787.”

It also found that Boeing’s introduction of the 787 program in 2004 had forced Airbus to lower the price of its A330 wide-body aircraft to maintain market share. However, it rejected the claim that the 787 had an impact on the price that Airbus was able to command for its forthcoming challenger to the 787, the A350-XWB.

Several weeks ago, the United States Defense Department awarded Boeing a $35 billion contract to supply the Air Force with new aerial refueling tankers. Analysts said Boeing’s victory in that contest would probably blunt the sting of the W.T.O.’s findings for Boeing’s supporters in Washington and expressed hope that the two sides would eventually move beyond this dispute toward a negotiated settlement.

“It has not been a very edifying spectacle,” said Nick Cunningham, an aerospace analyst and managing partner at Agency Partners, a London-based consultancy. ”It’s a lot of sound and fury signifying very little.”

In a case decided last June, the W.T.O. found that Airbus had benefited from four decades of improper subsidies to vault past Boeing to become the world’s top jet builder.

That ruling, which has been appealed by both sides, concluded that Airbus had received the subsidies, including $15 billion in loans from European governments at below-market interest rates and several billion dollars in grants, to produce the A380 superjumbo and five other best-selling models. But the W.T.O. stopped short of a wholesale condemnation of government loans — known as “launch aid” — that are repaid largely through export sales.

The W.T.O. is expected to rule on the appeal of that ruling next month.

Airbus said in a statement Thursday that it was pleased with the findings of the W.T.O. report but that it expected the European Union to appeal a number of issues relating to legal interpretation.

Analysts said they hoped the publication of the report would bring an epic battle over subsidies in the aircraft industry to a close and eventually pave the way for new set of ground rules among the world’s makers of large civil aircraft — a field that has grown substantially since the United States and European governments began their dispute nearly seven years ago.

Embraer of Brazil and Bombardier of Canada, which for decades have specialized in smaller jets with fewer than 100 seats, have begun to develop larger planes with the range and capacity approaching that of the Airbus A320 and the Boeing 737 — single-aisle planes that are the bread and butter of most of the world’s airlines. Mitsubishi of Japan and United Aircraft of Russia also expect to build planes that can carry up to 200 passengers around the middle of this decade, while China’s C919 jet is projected to enter commercial service in 2016.

Last month, the Irish low-cost carrier Ryanair — which currently operates a fleet of 250 Boeing 737s — confirmed it was talking with the Chinese and Russians, as well as Boeing and Airbus, about future jet orders.

“It’s no longer a bipolar world,” said Mr. Cunningham of Agency Partners. “You can’t go down this puritanical road of no government funding for aerospace. You have five up-and-coming competitors who aren’t going to play that game.”

Single-aisle jets are expected to represent more than half of the roughly $3.6 trillion in anticipated new aircraft sales over the next 20 years, according to industry estimates.

Christopher Drew contributed reporting from New York.

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