Under the settlement deal approved by Judge Stephen Mitchell of the US Bankruptcy Court for the Eastern District of Virginia, US Airways would pay $13.5 million in cash and give the PBGC a $10 million note and 70% of unsecured creditors stock, according to the motion filed in court, Reuters reported.
The settlement gives the pension agency an ownership stake in the airline and helps clear the way for US Airways to emerge from bankruptcy as well as complete its merger with America West Airlines this fall (See USAir, PBGC Unveil Deal for Pension Claims ).
The government estimates that the plans were 40% funded with $1.7 billion in assets to cover $4.2 billion in benefits promised by the airline.
“Obviously we’ve reached the conclusion that it’s in the best interest of the agency,” Jeffrey Cohen, the PBGC’s lawyer, told Mitchell. “Debtors believe that achieving certainty now with respect to the amount and priority of the PBGC claims is critical to their prompt and successful reorganization,” US Airways said in its motion.
US Airways had plans covering its flight attendants, mechanics, and certain non-union employees that were underfunded by $2.5 billion. The PBGC became trustee of those plans February 1 and will guarantee $2.3 billion of that liability. Earlier this year Mitchell approved US Airways’ proposal to terminate the latest plans, a move the airline hopes will save $100 million annually.