Delta Owes Owes $3.15 Billion To Pension Fund

[TheDonger]

Delta Puts Figures to Its Pension Bill
Airline Owes $3.15 Billion
From 2006 Through 2008;
Cash Is Sufficient, for Now
By EVAN PEREZ
Staff Reporter of THE WALL STREET JOURNAL
May 5, 2005

Delta Air Lines, shedding light on its escalating pension troubles, said it must pay $3.15 billion to fund its employee-retirement plans over the next three years.

The third-largest U.S. airline in terms of traffic said in a Securities and Exchange Commission filing yesterday that in addition to the $450 million it will spend this year to meet its minimum funding obligations, it now estimates its funding obligations to retired workers will grow to $600 million in 2006, $950 million in 2007 and $1.6 billion in 2008. Delta hasn't disclosed its funding obligations previously, though the carrier has warned in the past that its growing obligations posed a threat to its efforts to restructure and avoid a bankruptcy-court filing.

The disclosure comes as Delta struggles with high fuel costs and weak ticket prices brought on by competition. Delta recently reported a first-quarter loss of $1.07 billion. The airline narrowly avoided a bankruptcy-court filing last autumn, but it is likely to again face cash concerns later this year if it can't raise more financing through asset sales or the equity market.

The company said it had $1.8 billion in unrestricted cash at the end of March. But with the busy summer travel season approaching, Delta isn't likely to face an immediate cash crunch.

Of the $3.15 billion, about $2.6 billion stems from its defined-benefit pension plans, which are the subject of pension-relief legislation pending in the Congress. Delta, Northwest Airlines and several other airlines are pushing the legislation, which would allow the loss-plagued airlines to stretch out the time they have to fund their obligations to 25 years and switch some employees to cheaper retirement-benefit plans. In its SEC filing, Delta said if the pension-relief legislation becomes law, its funding obligations would be significantly lower, but it didn't say by how much.

The airlines and their supporters in Congress have said that the legislation would help the airlines avoid having to possibly seek a taxpayer-funded bailout by government insurer Pension Benefit Guaranty Corp. Rival carriers UAL Corp. and US Airways Group Inc. both have moved to dump their pensions on the PBGC. Critics of the legislation, including discount airlines, call the legislation an unfair bailout of the big airlines.

Delta's pension plans are underfunded by about $5.3 billion, meaning that even with the estimated required payments Delta's pensions would still be short of their full obligations. Airline pensions are underfunded by about $31 billion and have added to worries that the PBGC may be unable to guarantee benefits promised to workers.

Separately, Skyway Airlines, a unit of Midwest Airlines, said it ended discussions with Delta to operate a fleet of regional jets. Delta announced it was signing on Mesa Air Group Inc. to operate regional jets on connecting flights.

Write to Evan Perez at [email protected]

 

[ultrarunner]

Checks in the mail, right?

What a joke.

 

[NuGuy]

No problem. All they have to do is make $1 billion in profits for each year, then take the rest out of petty cash....


Nu

 

[ThisistheDream]

And this is a news story that Delta Airlines the one airline says they are strong in customer service yet they cant even provide a retirement for thier employees?

 

[StaySeated]

Notice that they are talking about pension obligations for retired employees. They have already re-structured the pension for current employees. If the old DB plan lasts more than a year I would be shocked. To steal a promised payment from a retired employee is actually a federal crime, but somehow the airlines are getting away with it and we are stuck with the bill as taxpayers in the form of the PGBC. Fack me.

 

[General Lee]

Hey now, there is pending legislation to help this problem---for the Govt (PBGC) and retirees. If Delta has to dump these pensions, it will be bad for both. That is why Sen. Isaccson from GA and Sen Rockafeller (Sp?) from WV sponsered this bill, to help airlines and other industries also (car manufacturing for example) to EXTEND the payments---not stop them. This way, everyone wins---the retirees still get paid, Delta and others get time to pay, and the PBGC doesn't get even more underwater. Will it pass? Anyone who doesn't vote for it (Senate, House) will have TV commercials against them in the next election stating that they voted away pensions for senior citizens. What great ammo for their competitors... Even Grinstein said it best----this could be a "Govt bailout" because this will create an even larger burden for the PBGC if it doesn't pass.


Bye Bye--General Lee

 

[English]

Hey General, are you eligible for early retirement?

I wonder if all the vice-presidents' pensions are fully funded.

 

[General Lee]

Hey General, are you eligible for early retirement?

I wonder if all the vice-presidents' pensions are fully funded.

Nah, I am only 40 and you have to be 50. We had 160 or so Captains leave on May 1st, and total we have had 1200 leave since last May. I have moved up on the list and can hold ATL INTL 767 easily as an FO, and almost at 777 or 764 FO. Not bad. As far as the VPs---most of those dirt bags have left, and now we really do have a team left that WANTS to be here. They had better---they have A LOT OF WORK TO DO. No doubt there. This is an uphill battle, and our current team seems like they are up to the challenge----we can only HOPE they are doing what is best and creating a good strategy to get out of this hole. "You gotta have faith, a faith, a faith, you gotta have FAITH...." (Or smoke the Chronic, which I do NOT)


Bye Bye--General Lee

 

[seefive]

hope you plan on not having your portion of the DB pension because they have been underfunding that thing for longer than the last four years. No way it survives. They could have 100 years and they wouldn't be able to repay the 3 billion plus debt. Your management team is biding time and making sure they get theirs..................yeah, they look like they are working to restructure the company but it's unfortunate and impossible to repair the hole in the side of that sinking ship.

 

[General Lee]

hope you plan on not having your portion of the DB pension because they have been underfunding that thing for longer than the last four years. No way it survives. They could have 100 years and they wouldn't be able to repay the 3 billion plus debt. Your management team is biding time and making sure they get theirs..................yeah, they look like they are working to restructure the company but it's unfortunate and impossible to repair the hole in the side of that sinking ship.

Thanks Seefive, your insight is wonderful. You really don't know what you are talking about. Stretching out payments until the uptick in the cycle will help the situation. And, we don't have a DB program anymore for any current employees, we have a DC program in our own names.


Bye Bye--General Lee

 

[michael707767]

Thanks Seefive, your insight is wonderful. You really don't know what you are talking about. Stretching out payments until the uptick in the cycle will help the situation. And, we don't have a DB program anymore for any current employees, we have a DC program in our own names.

The DC retirement and my 401k are all I am counting on. I am 41 and will never see a penny of the DB plan. Gen, I have to agree with others here. The DB will have to go for Delta to survive. And go it will. I bet we loose it within a year.

 

[skykid]

The DB will have to go for Delta to survive. And go it will. I bet we loose it within a year.

There is someone who is in touch with reality. It means nothing if the legislation passes to extend the payments - absolutley nothing. The LCC competition doesn't pay a dime to defined pensions - soon you wont either.

 

[NuGuy]

Heyas all,

The General right. 'A' fund contributions/funding are complex and depend on a lot of factors.

The "funding" level is actually an actuarial "estimate" of a plans liabilites and not a real measure of the fund's immediate soundness. Unfortunately, it is this estimate that drives the deficit funding requirements.

Most 'A' funds were extremely sound (NWA's was funded almost to the %110 level), right up until the post 9-11 events where two things happened. The stock market tanked abruptly and interest rates took a nose dive to unprecedented levels. Now normally in a recessions, both of these can occur, but they usually ramp down gradually, and not both together.

To add to this, companies were PREVENTED by law from making contributions to overfunded pensions, because this was looked at as a tax dodge (contributions to defined benefit plans carries a tax deduction).

'A' Funds are actually a VERY effective retirement tool for employers as well as employees, despite what the current talking heads say. In other than dismal years, 'A' funds cost the employer nothing, as even small growth can cover funding requirements, and even if funding is required, it's tax deductable.

'B' funds or 401(k) funds require the company to make the same contributions regardless of how the fund performs. In average to good years, a comprable DC fund costs the company MORE than an 'A' fund.

Could the current 'A' funds actually recover on their own? Possibly...the losses WERE paper losses. If the stock market / interest rates skyrocket, sure. But another problem is that funding liability is based on a 3 year rolling average, and 2 of the last 3 years, well, sucked hard. But the funding deficits from those calculations are due NOW. Some funds have recovered a return of almost %15 in the last year, BUT the dismal 2 years prior is still driving insane funding requirements.

By streching out the funding requiremets over a period of time, you allow the funds to correct themselves and all the funding calculation catch up WITHOUT terminating the funds or dumping them on the PBCG. This is NOT a handout by the governement. The taxpayers aren't paying a dime. In fact, by chaging the antiquated rules, you are REDUCING the probability that they WILL be dumped on the PBGC.

Nu

 

[skykid]

NuGuy, based on your post, I guess we can expect VirginUSA to have a healthy "A" fund then. When are Jetblue, Frontier, Airtran, and Southwest going to start their A funds up so they too can save money by paying less in a good year than with a 401K? You are correct that defined pensions are complex and depend on a lot of factors, but they are a thing of the PAST. The good ole days were an A fund AND a B fund (which is a tricked-out 401K) - those days are gone. Delta can not compete and make those pension payments. I hope we do get some reform and they can spread out the payments, but that doesn't solve the problem. If Delta is going to have a shot at getting through the next year or so without Ch11 we are going to need jet fuel to come down about 50%. I'm hoping for that, but hope isn't going to cut it, you have to make the difficult changes.

 

[General Lee]

NuGuy, based on your post, I guess we can expect VirginUSA to have a healthy "A" fund then. When are Jetblue, Frontier, Airtran, and Southwest going to start their A funds up so they too can save money by paying less in a good year than with a 401K? You are correct that defined pensions are complex and depend on a lot of factors, but they are a thing of the PAST. The good ole days were an A fund AND a B fund (which is a tricked-out 401K) - those days are gone. Delta can not compete and make those pension payments. I hope we do get some reform and they can spread out the payments, but that doesn't solve the problem. If Delta is going to have a shot at getting through the next year or so without Ch11 we are going to need jet fuel to come down about 50%. I'm hoping for that, but hope isn't going to cut it, you have to make the difficult changes.

Who said we aren't making difficult changes? I thought $1 billion a year form 7000 pilots was one of them. We are also trimming our budget by $5 billion a year by 2006, with $3 billion done by the end of this year. What we are fighting for now is TIME.


Bye Bye--General Lee

 

[skykid]

The difficult changes include the pension payments, among other things, like realizing you have to pull some domestic seats. TIME for what, U to go Ch7? That would buy some time, but doesn't solve any long term problems, not with companies like JetBlue adding huge increases in seats year after year.

With those 1 billion in cuts by the 7,000 pilots, you guys made money hand over first last qtr, right? I tried to tell you several months ago it doesn't work that way, so you might as well quit talking about all the sacrifices and how it will just take time for them to kick in. Don't get me wrong, I'm on your side! I hope Delta is here 100 years from now.