Delta Tells Judge Pension Plan Must End
Friday September 1, 2:57 pm ET
By Barbara Ortutay, AP Business Writer Delta Tells Bankruptcy Judge It Has No Choice but to Eliminate Pilots' Pension Plan if It Is to Come Out From Bankruptcy
WHITE PLAINS, N.Y. (AP) -- Delta Air Lines Inc. told a bankruptcy judge Friday it has no choice but to eliminate its pilots' pension plan if it is to come out from bankruptcy and remain afloat.
The nation's third biggest air carrier had asked to end its pension plan for pilots effective on Saturday, saying that keeping it in place would mean a "crippling" operational and financial crisis that would prevent it from emerging from Chapter 11 protection as it hopes to do by mid-2007.
The hearing was set to continue on Tuesday and Wednesday after Labor Day.
While Delta's active pilots have said they would not object to the termination as part of a broader concessions deal, a number of individual retired pilots as well as a group known as DP2 representing more than 100 of them have filed objections to Delta's request over the past few weeks.
A larger group, known as DP3, which represents 2,850 retired pilots, more than half of Delta's retired pilots, has asked to delay the hearing but has not come out against the Delta's request to terminate its pilots' pension plan.
Timothy Coleman of the Blackstone Group, Delta's financial adviser, testified during the hearing that if the plan stays in place, the carrier won't be able submit a restructuring plan and exit lenders will likely be unwilling to take the risk of financing it.
Delta's pension plan had allowed pilots to retire at the age of 50 and take out half their entitlements in a lump sum, receiving the rest in annuity. The company estimated that 800 to 1,000 pilots would retire early if they were able to take the lump sum payment. They have not been able to take the lump sum since Oct. 1, 2005 due to a liquidity shortfall in the pension fund. The plan's termination would mean the end of the lump sum payouts.
Currently, 1,820 pilots are eligible for early retirement, said Marshall Huebner, a lawyer for Delta, during the hearing. By July 2010, that number would nearly double.
"If the lump sum door opens, the plan will be drained by pilots retiring early," he said.
But Sherwin Kaplan, a lawyer for DP2, the splinter group representing retired pilots who oppose the plan's termination, said pilots would not retire early and take the lump sum payments at the levels Delta estimates. DP2 also disagrees with Delta's assertion that a large number of its senior pilots would retire early with little or no notice if the option becomes available, leaving the carrier with fewer experienced pilots to fly planes and leading to thousands of canceled flights.
The carrier says it does not have enough money to cover the pilot pensions. As of July 1, the pilot pension plan was projected to have assets of 39 percent of its current liability -- $1.6 billion of assets versus $4.1 billion in liabilities -- according to a Delta court filing from Aug 4.
Huebner likened DP2's opposition to playing "Russian roulette" with Delta.
The court's approval of the pension's termination would mean the federal government's pension insurer, the Pension Benefit Guaranty Corp., would take over the plan and pay active pilots reduced pension benefits -- based on factors such as their retirement date. The retirees who don't want the plan eliminated oppose it for this reason. PBGC, Kaplan said, acts "like every other insurance company," and will try to lower its payouts.
But Huebner said even if the plan is eliminated, pilots will receive 85 percent to 90 percent of their pension benefits, including the lump sum.
Delta says currently retired pilots will receive, on average, about $75,000 a year even if the plan is terminated.
Atlanta-based Delta has said it hopes to keep the pension plan for its ground workers and flight attendants.
UAL Corp.'s United Airlines, the second-largest carrier in the country, terminated its pilots' pension plan in 2004, while it was under bankruptcy protection. A federal judge upheld that termination in June. AP Business Writer Harry R. Weber contributed to this story.
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Can someone please tell me how the PBGC will payout $75k a year to a Delta pilot? Where do they come up with this crap? I am sure the United and US Air guys could shed some light on this.
Friday September 1, 2:57 pm ET
By Barbara Ortutay, AP Business Writer Delta Tells Bankruptcy Judge It Has No Choice but to Eliminate Pilots' Pension Plan if It Is to Come Out From Bankruptcy
WHITE PLAINS, N.Y. (AP) -- Delta Air Lines Inc. told a bankruptcy judge Friday it has no choice but to eliminate its pilots' pension plan if it is to come out from bankruptcy and remain afloat.
The nation's third biggest air carrier had asked to end its pension plan for pilots effective on Saturday, saying that keeping it in place would mean a "crippling" operational and financial crisis that would prevent it from emerging from Chapter 11 protection as it hopes to do by mid-2007.
The hearing was set to continue on Tuesday and Wednesday after Labor Day.
While Delta's active pilots have said they would not object to the termination as part of a broader concessions deal, a number of individual retired pilots as well as a group known as DP2 representing more than 100 of them have filed objections to Delta's request over the past few weeks.
A larger group, known as DP3, which represents 2,850 retired pilots, more than half of Delta's retired pilots, has asked to delay the hearing but has not come out against the Delta's request to terminate its pilots' pension plan.
Timothy Coleman of the Blackstone Group, Delta's financial adviser, testified during the hearing that if the plan stays in place, the carrier won't be able submit a restructuring plan and exit lenders will likely be unwilling to take the risk of financing it.
Delta's pension plan had allowed pilots to retire at the age of 50 and take out half their entitlements in a lump sum, receiving the rest in annuity. The company estimated that 800 to 1,000 pilots would retire early if they were able to take the lump sum payment. They have not been able to take the lump sum since Oct. 1, 2005 due to a liquidity shortfall in the pension fund. The plan's termination would mean the end of the lump sum payouts.
Currently, 1,820 pilots are eligible for early retirement, said Marshall Huebner, a lawyer for Delta, during the hearing. By July 2010, that number would nearly double.
"If the lump sum door opens, the plan will be drained by pilots retiring early," he said.
But Sherwin Kaplan, a lawyer for DP2, the splinter group representing retired pilots who oppose the plan's termination, said pilots would not retire early and take the lump sum payments at the levels Delta estimates. DP2 also disagrees with Delta's assertion that a large number of its senior pilots would retire early with little or no notice if the option becomes available, leaving the carrier with fewer experienced pilots to fly planes and leading to thousands of canceled flights.
The carrier says it does not have enough money to cover the pilot pensions. As of July 1, the pilot pension plan was projected to have assets of 39 percent of its current liability -- $1.6 billion of assets versus $4.1 billion in liabilities -- according to a Delta court filing from Aug 4.
Huebner likened DP2's opposition to playing "Russian roulette" with Delta.
The court's approval of the pension's termination would mean the federal government's pension insurer, the Pension Benefit Guaranty Corp., would take over the plan and pay active pilots reduced pension benefits -- based on factors such as their retirement date. The retirees who don't want the plan eliminated oppose it for this reason. PBGC, Kaplan said, acts "like every other insurance company," and will try to lower its payouts.
But Huebner said even if the plan is eliminated, pilots will receive 85 percent to 90 percent of their pension benefits, including the lump sum.
Delta says currently retired pilots will receive, on average, about $75,000 a year even if the plan is terminated.
Atlanta-based Delta has said it hopes to keep the pension plan for its ground workers and flight attendants.
UAL Corp.'s United Airlines, the second-largest carrier in the country, terminated its pilots' pension plan in 2004, while it was under bankruptcy protection. A federal judge upheld that termination in June. AP Business Writer Harry R. Weber contributed to this story.
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Can someone please tell me how the PBGC will payout $75k a year to a Delta pilot? Where do they come up with this crap? I am sure the United and US Air guys could shed some light on this.
