The pension issue is the only major obstacle preventing the cash-strapped airline from emerging from Chapter 11 on March 31, and obtaining $1.24 billion in financing waiting for the airline on the other side of bankruptcy. Previously this month, US Bankruptcy Judge Stephen Mitchell ruled that the airline’s financial problems are severe enough that they warrant terminating the pilots’ pension plan, but he ordered the airline to resolve the dispute through the collective bargaining process, according to an Associated Press report.
Under the existing plan, the airline estimates that it will have to contribute $1.6 billion during the next seven years to keep the plan solvent, whereas the company believes it can afford to contribute only about $850 million. Thus, US Airways has proposed cancellation of the existing plan and using the $850 million to start a new, smaller plan (See US Airways: Pilot Pension May Have to Go).
The Air Line Pilots Association (ALPA), representing pilots who generally receive pensions of $50,000 to $70,000 a year, has challenged the termination of the plan. A spokesman for the pilots union, told the AP that the pilots have made a proposal asking the airline to contribute $135 million to $145 million a year to the new pension plan during the next seven years. That is 11% to 19% more than the company’s initial proposal.
The spokesman said the extra money would significantly improve the pension plan and “doesn’t adversely affect a company with $7 billion a year in projected revenue.” However, lawyers for the airline told Mitchell the union’s proposal, rejected by management, would have resulted in a 50% increase in costs from the initial proposal.