Responsibility Falls To PBGC
In a move unlikely to
surprise anyone, Delta Air Lines has informed a senator working to
maintain the airline's pension plans that the carrier intends to
terminate those plans, effective September 2.
Senator Johnny Isakson, R-GA, had been working on legislation --
with Delta's blessing -- to help the carrier keep those plans
operating -- but Delta CEO Gerald Grinstein (file photo, below
right) said that in the end, the cost to the bankrupt airline was
simply too great.
"I want to be sure you are aware of a necessary but difficult
step Delta must take, why that step is essential to the long-term
survival of our company," said Grinstein's letter to Isakson,
obtained by CNNMoney.
The move likely means
that Delta's pensions with be turned over to the Pension Benefit
Guaranty Corp... and the government agency would be stuck with the
unenviable task of making good on the airline's current pension
obligations.
Neither the PBGC, nor the Air Line Pilots Association -- which
represents some 6,000 pilots at Delta -- had an immediate comment
on Delta's announcement.
As Aero-News reported, the
PBGC had asked US Bankruptcy Court judge Adlai Hardin to toss out
the new pilot contract approved last month between Delta and its
pilots. The judge rejected the group's petition, clearing the way
for the contract to take hold and for Delta to save $280 million
annually over the next three years in pilot pay and benefits.
If Delta is successful in terminating its pensions, Delta's
losses would be the PBGC's... even greater losses, with an
estimated $10.6 billion shortage in promised benefits falling on
the government agency. If that amount holds (the estimate was
performed last September), it would make Delta the largest hit the
agency has ever had to cover -- surmounting even the $10.2 billion
the PBGC absorbed when the agency took over pension plans from
United Airlines.
In the past, pilots at Delta could chose to take half their
pension benefits as a lump sum when they left the company, and then
receive the balance of their accrued benefits in monthly payments.
That option disappeared when Delta filed for bankruptcy last
September 14. The option was to become available shortly,
however... and both the ALPA and Delta agreed the fund could not
cover those obligations.
"Given both Delta's and the Air Line Pilots Association's public
statements that the defined benefit pension plan for pilots likely
could not be saved, the decision is not unexpected," said
Grinstein's letter. "Delta and ALPA recognized in recent
negotiations the potential impact on pilots."
The PBGC is expected to ask for a $650 million interest bearing
note promised to pilots as part of their concession contract, to be
paid to the agency instead. The agency will likely face an uphill
battle, however, as the note was a crucial part of winning approval
from the pilots for the new pay deal.
The new pilots' contract, approved May 31, was ratified by 61
percent of Delta's voting pilots.