Northwest Reveals Possible $700 Million Pension Charge

November 6, 2002 (PLANSPONSOR.com) - Following in the footsteps of a host of other major US corporations, Northwest Airlines will have to take a pension-related fourth-quarter non-cash charge to stockholder's equity that could total more than $700 million.

In a US Securities and Exchange Commission filing, the company blamed having to take the charge on a variety of factors including interest rates, declining asset returns, and benefits changes, according to a Dow Jones news story.

The exact size of the charge will depend on the level of plan assets and the discount rates at the end of the year, the company said. Northwest said the charge wouldn’t affect the company’s current earnings or the financial covenants in its credit agreements.

The company also estimates that its pension expenses in 2003 are expected to exceed the 2002 expense of $280 million by about $100 million, Dow Jones reported.

In a variety of other pension moves, Northwest said it has applied to the Internal Revenue Service for authorization to reschedule its 2003 pension contributions for its contract and salaried employees, Dow Jones reported.

The proposal would let the airline pay its 2003 contributions over a five-year period, from 2004 to 2008, rather than over the 18-month period that would otherwise be required.

The airline also applied to the Department of Labor for clearance to contribute common stock of its unit Pinnacle Airlines Inc. to the pension plans to satisfy contribution requirements in calendar years 2003 and 2004, Dow Jones said.

Others in the troubled airline industry  and elsewhere in the economy have had to do much the same as Northwest.

In October, UAL Corp. said that if interest rates fall and the market value of the assets held in its defined benefit pension plans continue to decline, the parent company of United Airlines would be required to record a pension liability likely  to exceed $1.5 billion before tax, as of December 31.

American Airlines parent AMR Corp. also said in October that if investment returns and interest rates remain unchanged through the rest of the year, it would be required to record a significant minimum pension liability, likely exceeding $1 billion before tax.

In late September, Delta Air Lines said it expected a noncash charge of $700 million to $800 million in the fourth quarter, related to its benefit pension plans. Continental Airlines has also announced that its pension plan is underfunded.

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