Back in 2005, United Airlines -- later reincarnated as UAL (NASDAQ:UAUA) -- terminated its employee pension plans, creating the single largest corporate pension default in U.S. history.

The belief was that it simply had more liabilities than assets and was under bankruptcy protection already. If it was going to emerge from bankruptcy (which it did in February of 2006), it would need to reduce costs further. Putting the federal taxpayer on the hook for the $6.6 billion in pension plan costs through the federal Pension Benefit Guaranty Corporation, or PBGC, was an easy out.

It seems, though, that the unions, shareholders, creditors, government -- and,  most importantly, the retirees -- got hoodwinked. United had an asset on its books that could have paid for the entire cost of the pension obligations -- and then some -- but according to the financial statements at the time, it was a negative asset, a cost.

Only now that United is considering profiting handsomely from those assets, maybe someone should go back and take a look at what was going on -- and make the airline responsible once again for its retirees' benefits.

Getting mileage from miles programs
Like a number of airlines these days, United is looking to spin off its customer loyalty program to raise money, because these programs are about the only thing making money for the major carriers. Although it's not a stand-alone company reporting results, the Mileage Plus program is estimated to have generated $600 million last year for United, and a Bear Stearns (NYSE:BSC) analyst figures it could be worth more than $7 billion if it's spun off.

American Airlines parent AMR (NYSE:AMR) may also spin off its AAdvantage program, as one large investor wants, as a way to better value the two businesses. AAdvantage is the industry's largest loyalty program, followed by Mileage Plus.

The airlines sell the mileages to merchants, who in turn use them as rewards for their customers. American Express (NYSE:AXP), Citigroup (NYSE:C), MasterCard (NYSE:MA), and Visa all use mileage programs as inducements for consumers to use their cards. They're so profitable because the airlines sell the miles for pennies, getting revenue up-front, and then the fliers later redeem the points at prices higher than what they probably would have paid for the tickets. It can also take years before they're redeemed, if at all.

Ever since Air Canada spun off its Aeroplan loyalty program, the programs have become a hot commodity for the airlines, and a potential quick fix of cash.

No accounting for United's plan
Yet one has to wonder why United didn't consider the loyalty program back in 2005 when it was putting the onus for paying its retirees onto the government.

Look through its annual report for 2004, and you won't find the loyalty program listed as a richly valued asset. In fact, it's not mentioned anywhere at all under assets. United does say it recorded an $840 million liability to account for miles being redeemed in the future, so you'd think that the Mileage Plus program was costing United money. You would, of course, be wrong.

In 2005, when Air Canada sold off a 12.5% stake in its Aeroplan loyalty plan for a price that valued the entire frequent flier program at about $2 billion Canadian, United's management must have had a pretty good idea that it, too, was sitting on valuable asset.

Putting the toothpaste back into the tube
Now United wants to profit from this richly valued asset. I have a better idea: Let's give the pensions back to the airlines, rather than letting them benefit at taxpayers' expense.

Executives were granted millions of dollars in stock awards upon the company's emergence from bankruptcy. CEO Glenn Tilton alone received more than half a million shares valued at more than $20 million -- and selling the loyalty program would certainly enhance the stock's value for him and other top executives.

Can the PBGC give the pensions back? Sure it can!

Under Section 4047 of the Employee Retirement Income Security Act of 1974 (ERISA), the PBGC can order a company to restore its pension obligations when the company's financial health has improved. In fact, it did that with steelmaker LTV back in 1990.

It's hard for me to believe that in the year and a half that United has been out of bankruptcy, its loyalty program has skyrocketed in value so much. Instead, this has been a dormant asset that's only now being brought to light, because of the value it can return to current shareholders. Of course, pre-bankruptcy shareholders will realize nothing.

Yet if the PBGC is to ensure that current shareholders don't unduly profit at taxpayers' expense, it'll have to move quickly, before the loyalty program is spun off. If the PBGC blithely allows a spinoff to go forward, I'd consider it in default on its obligations -- a situation at least as bad as United's own role in this.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.