US Airways Pulls Plug on Pilot Pension

February 3, 2003 ( - Unsuccessful so far in its efforts to get help in meeting its pension obligations, US Airways is now asking permission to terminate its pilots' pension plan as of March 31.

The company said in a statement that it had no other option than seeking the OK of a US bankruptcy judge and the Pension Benefit Guaranty Corporation (PBGC) of its plan to shut down the pilots’ defined benefit plan and replace it with a defined contribution plan. The new retirement savings plan will commit the company to invest $850 million in pilot pension contributions for more than 3,700 pilots over the next seven years, US Airways said.

After getting turned down by both the PBGC (See  PBGC: US Airways Pension Break Unfair to Competitors) and Congress in a bid to get more time to meet its $3.1 billion in pension costs, (See  US Airways: Pilot Pension May Have to Go  ) David Siegel, US Airways president and chief executive officer claimed the company’s distress termination was now “the only remaining option.”

US Airways had lost its bid to get more time to pay the pension costs from the current seven years to 30 years   Given the threat to the pilots’ pensions, Senator Rick Santorum (R-Pennsylvania) and Senator Arlen Specter (R-Pennsylvania), tried unsuccessfully to push through the Senate a measure to grant the airline more time. US Airways has major hubs in both Pittsburgh and Philadelphia. (See  Senator Would Give US Airways More Time for Pension Payments)

“We are communicating directly with our pilots on the reasons for this action, as well as to underscore our commitment to fund a replacement defined contribution plan under the guidelines of an agreement that was made with (pilots’ union) in December, should a plan termination be required,” Siegel said in the statement. “While our preference was to find a way to prevent plan termination of the existing defined benefit plan – and we will continue to seek a legislative solution should Congress address pension funding issues this year – we believe we have constructed a replacement defined contribution plan that provides our pilots with a competitive pension that targets the equivalent of a $1 million pension package for a captain retiring after 30 years of service.”

Post Bankruptcy Actions

According to the air carrier, the formal plan termination request kicks off a 60-day process that would result in the pilot’s plan termination if approved by the PBGC and the bankruptcy court. The termination should take place on March 31 along with the company’s departure from Chapter 11 bankruptcy protection if US Airways still can’t get legislative help by then.

Once out of bankruptcy, the company is counting on final approval from the Air Transportation Stabilization Board (ATSB) on its application for a $900 million federal guarantee of a $1 billion loan. Loan proceeds, as well as a $240 million investment from the Retirement Systems of Alabama (RSA), would provide the airline with new capital.(See  US Airways Reaches Tentative Agreements with Unions, RSAMaverick )

The Air Line Pilots Association (ALPA) is at odds with the company over plans to pull the plug on the pilots’ pension. Roy Freundlich, spokesman for the US Airways unit of the ALPA, told Washington-based legal publisher BNA that the group would continue battling the plan.

“The letter [to pilots] in general contains a battery of inaccuracies, part of a continued attempt by US Airways to trick our pilots into believing they’re taking care of them,” Freundlich told the BNA. “In fact, they are ripping away already earned pension benefits, which is inequitable and intolerable.”

Employees at many companies where the PBGC has assumed responsibility for pension payments – or where the PBGC has requested such a takeover – have fought such a move. They have complained about the fact PBGC-paid pension are frequently significantly less than those that would have been paid by a private plan. (See  PBGC Releases 2003 Maximum Guaranteed Benefits ).

Also, in recent months, analysts have cautioned that US Airways is far from the only airline in pension trouble (See  Fitch: Airlines’ Pension Picture ‘Most Dire’ ).