Delta Takes Steps to Avert Mass Retirement of Pilots
By MARY WILLIAMS WALSH and JEFF BAILEY
Published: June 17, 2006
New York Times
… The pilots' pension plan, meanwhile, could have caused "a true operational catastrophe," one company lawyer said in bankruptcy court. "Hundreds of thousands of passengers would be stranded all over the world, many for an extended period," the lawyer for Delta, Marshall S. Huebner, said last May in United States Bankruptcy Court for the Southern District of New York.
The pension plan could do this, Mr. Huebner said, because it gave pilots the right to take half of their total lifetime benefit in a lump sum.
Lump sums have become popular in recent years, but they can pose a grave danger to a pension plan at a company that is in financial trouble. In such cases, retirement-age employees start to worry that if their plan fails, they will lose benefits. So to protect themselves, they tend to start retiring en masse. It is like a bank run.
Such a run occurred at Delta last year, when more than 1,100 pilots took early retirement in just a few months. They stripped $873 million out of the plan.
By law, a plan may not pay lump sums unless it has liquid assets worth at least three times the previous year's payouts. When the rush of retiring pilots took Delta's plan below that level, it went into a liquidity shortfall and the lump sum payments stopped, much to the anguish of pilots who did not get a chance to take theirs.
After the hemorrhaging stopped, the investments in the pilots' plan began to recover. Mr. Huebner, the lawyer, said in his bankruptcy court appearance that the plan might be out of the liquidity shortfall when Delta's actuary measured it on July 1. If that happened, he said, Delta would have no choice but to open the floodgates to lump sum payments again.
"If the pilot plan actually comes out of liquidity shortfall, Delta will likely be devastated," Mr. Huebner said. The airline has calculated that 800 to 1,000 of its most senior pilots would immediately retire. More than 900 have earned lump sums of more than $500,000, and some have earned more than $1 million.
That would suck another $560 million out of the pension plan. But the blow to Delta would be even worse, Mr. Huebner said. Its pilots over age 50 have the right to retire with only a few moments' notice.
If hundreds of pilots retired on July 1, Mr. Huebner said, 46 of Delta's 51 biggest aircraft would be grounded and up to 60 percent of its international operations would have to shut down. "The negative financial impact to Delta of this occurrence would be in the billions of dollars," in addition to the pension plan's losses, Mr. Huebner said.
By MARY WILLIAMS WALSH and JEFF BAILEY
Published: June 17, 2006
New York Times
… The pilots' pension plan, meanwhile, could have caused "a true operational catastrophe," one company lawyer said in bankruptcy court. "Hundreds of thousands of passengers would be stranded all over the world, many for an extended period," the lawyer for Delta, Marshall S. Huebner, said last May in United States Bankruptcy Court for the Southern District of New York.
The pension plan could do this, Mr. Huebner said, because it gave pilots the right to take half of their total lifetime benefit in a lump sum.
Lump sums have become popular in recent years, but they can pose a grave danger to a pension plan at a company that is in financial trouble. In such cases, retirement-age employees start to worry that if their plan fails, they will lose benefits. So to protect themselves, they tend to start retiring en masse. It is like a bank run.
Such a run occurred at Delta last year, when more than 1,100 pilots took early retirement in just a few months. They stripped $873 million out of the plan.
By law, a plan may not pay lump sums unless it has liquid assets worth at least three times the previous year's payouts. When the rush of retiring pilots took Delta's plan below that level, it went into a liquidity shortfall and the lump sum payments stopped, much to the anguish of pilots who did not get a chance to take theirs.
After the hemorrhaging stopped, the investments in the pilots' plan began to recover. Mr. Huebner, the lawyer, said in his bankruptcy court appearance that the plan might be out of the liquidity shortfall when Delta's actuary measured it on July 1. If that happened, he said, Delta would have no choice but to open the floodgates to lump sum payments again.
"If the pilot plan actually comes out of liquidity shortfall, Delta will likely be devastated," Mr. Huebner said. The airline has calculated that 800 to 1,000 of its most senior pilots would immediately retire. More than 900 have earned lump sums of more than $500,000, and some have earned more than $1 million.
That would suck another $560 million out of the pension plan. But the blow to Delta would be even worse, Mr. Huebner said. Its pilots over age 50 have the right to retire with only a few moments' notice.
If hundreds of pilots retired on July 1, Mr. Huebner said, 46 of Delta's 51 biggest aircraft would be grounded and up to 60 percent of its international operations would have to shut down. "The negative financial impact to Delta of this occurrence would be in the billions of dollars," in addition to the pension plan's losses, Mr. Huebner said.
