Delta Air Lines Inc., Northwest Airlines Corp. and other US-based carriers could defer pension payments to resolve shortfalls and avoid bankruptcy under the new bill, according to Bloomberg News.
The bill is aimed at helping the airlines, many of whom are trying to terminate their massive defined benefit retirement plans. Under the proposal, airlines would be allowed to spread across 25 years payments that are due within four years, according to a statement from the office of Sen. Johnny Isakson (R-Georgia).
Delta, Northwest, and United Airlines are all trying to lower pension costs as gas prices skyrocket and excess capacity hurts fare increases. United is also trying to scrap four pension plans as it emerges from Chapter 11 bankruptcy (See United Makes Formal Pension Demise Request ).
In the last five years, airline pension balances have plummeted. In 2000, they had a positive balance of $3 billion; in 2005, airlines as a whole had underfunded balances of $21.1 billion, according to a Charles River Associates report.
Not surprisingly, the airlines support the bill. According to a Northwest executive, the legislation “is a far superior alternative to the job losses, substantial reductions in pension benefits and increase in airline bankruptcies that will inevitably occur if action is not taken soon,” Bloomberg reports.
Under federal law, airlines are required to make “catch-up” contributions if their plans become underfunded by a certain amount.
This is not the first time that legislation has been put forth that would help airlines avoid pension payments. Last year, President Bush signed into law the Pension Funding Equity Act, which temporarily reset the interest rate used for valuing assets and liabilities and for figuring premiums payable to the Pension Benefit Guaranty Corporation for all single-employer defined benefit plans, such as airlines (See Whew! Bush Signs Pension Relief). Under last year’s move, steelmakers and airlines were able to cut their contributions toward deficit reduction by 80%.
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