Read this sobering assesment of the future for Delta working and retired pilots, even if they survive, which is doubtful at best.
Items of Interest from the Arbitration Hearings
The recent Arbitration Hearings, held in order for both sides to present their views so the Arbitrators can settle the dispute between the Pilots and Delta, offered insight into issues we retirees may be interested in. Transcripts of the hearings, which began March 13, are posted on the DP3 web site at XXXXX Transcript pages are numbered sequentially to the end of the hearings, and source pages are noted below so that context and elaboration may be viewed.
73 – Company promissory note for $330 million is to benefit active pilots only, when they retire. Note becomes due in 15 years and is to pay "market" interest rates, to make up for Defined Benefit (DB) Plan losses. Company suggests interest rate may be 10%. ALPA is to decide on how these funds are to be distributed to active pilots.
74 – ALPA has told the company that it does not represent retired pilots.
74 – Company lawyer’s "understanding" is that currently retired pilots should receive 92% of qualified benefits, counting pension plan assets and PBGC guarantees. With $330 million Note and PBGC guarantees, active pilots should receive 78% of current DB plan benefits.
148 – ALPA states that the Pilots’ Pension Plan is "doomed", regardless of the outcome of legislation on Capitol Hill.
149 – The company is said to have stated in negotiations that the Pilots’ Pension Plan is "dead as a doornail".
151 – The company has avoided including any cost savings for pilot pension plan termination as credits to the latest pilot pay cuts.
188 – ALPA acknowledges that with the additional pilot cost cuts, Delta pilots will still not be cost competitive with Jet Blue and Air Tran pilots, only with AAL, UAL and CAL.
214 – 83% of Delta’s domestic passengers have access to LCC’s lower fares.
430 – Delta lawyers say payment of lump sums is the reason the pilot pension plan is underfunded.
432 – There are now 800 pilots eligible to retire with a lump sum of over $500,000.
436 – CFO says the pilot pension plan is "not likely to survive".
437 – CFO says without legislative relief, both pilot and non-pilot plans will not survive.
454 – Working pilots should get 78% of current plan pension with new plans, if everything goes right
461 – CFO says pilots’ pension plan will be terminated regardless of legislation. He cannot declare it dead now but must await a court process. Lump sums are to blame. No one in upper management believes the pilot pension plan can be saved.
(Of course, lump sum payments are not the reason the Plan is underfunded. The Plan was over funded in 2000. The Plan is now underfunded because it was invested largely in stocks, and the stock market went down. When a lump sum is paid, those assets are removed, but the Plan’s liability is reduced by an equal amount. For example, if the Plan has liabilities of $3 billion and assets of $2 billlion, it is $1 billion underfunded and only 66% funded. If then $1 billion is paid out in lump sums, the Plan’s liabilities become $2 billion and assets are $1 billion. It remains $1 billion underfunded, but is now only 50% funded, as I understand it. – Bill)
474 – Saving the non-pilot pension plan will cost $100 million per year.
483 – Delta expects to fly 32.8% of Available Seat Miles (ASM’s) internationally in 2007.
583 - $280 million would be eliminated as an expense in 2006 if the pilots’ pension plan is terminated.
599 – Delta had 25% of its fuel’s price hedged in February, and 10% in March.
621 – CFO says without new legislation, both pilot and non-pilot pension plans must be terminated.
906 – Start of testimony of retired Capt DJ Dolan, which includes a good war story.
947 – Start of testimony of retired Capt K Welch.
1192 – Explanation of conditions under which the pension plan can be terminated.
1200 – PBGC will probably step in and terminate the pilots’ plan before October 1, 2006, to prevent resumption of lump sum payments.
1202 – For 2006, savings from not making Non-qualified pilot pension payments is $84 million.
1205 – Savings from terminating pilot pension plan Sept 2006 is $1.3 billion over next four years.
1223 – Retired and working pilots 53 and older (in PBGC category PC-3) should receive 84% of benefits accrued as of three years prior to plan termination, from assets now in the Plan.
1225 – Pilots 52 and younger (PC-4) would receive only PBGC guarantee, paid from PBGC funds.
1226 – There about 600 active pilots 53 and older.
1231 – Outside source says active pilots should receive 68% of accrued DB plan benefits.
1232 – With Akaka Amendment (which would give airline pilots forced to retire at age 60 an additional 5 years for PBGC guarantees) , active pilots would receive 95% company says, or 82% outside source says, of accrued DB plan benefits.
1236 – Active pilots should get about 49% FAE from all plans at retirement.
1258 – ALPA lawyer reiterates that ALPA does not represent retired pilots.
1279 – Pilots’ Disability and Survivors Plan (D&S Plan) trust is self-funding, investment returns pay all expenses and benefits. Company last made contribution to this fund in 1994.
1280 – Company proposes to pay pilot sick leave from D&S trust. Obligation for pilot sick pay will shift from company to D&S trust.
1416 – ALPA employee begins theory why LCC’s are not significant Delta competition.
1438 – Pilot Cost per Available Seat Mile (CASM) in 3rd quarter 2005 was, in cents, for AAL - 1.13, NWA - 1.12, DAL - 1.03, CAL - 0.90, UAL - 0.81, SWA - 0.79, USAir - 0.70, AirTran - 0.63, JetBlue - 0.59. NWA with proposed pilot TA goes to 0.77. DAL with $305 mil pilot pay cut goes to 0.81. Pilot pay cut with pilot pension plan termination, DAL goes to 0.64. With ALPA proposal, DAL goes to 0.79.
1457 – ALPA values pilot DB pension plan termination at $118 mil annually.
1699 – Company believes pilot pension plan will be terminated.
1738 – Start of excellent, straight forward testimony by Capt Tim O’Malley.
1810 – No cost savings for pilot pension plan termination acknowledged in company’s proposal for $305 million pilot cost cuts.
1820 – ALPA proposal is for retirees to pay 35% of health insurance, company’s plan is for retirees to pay 100%.
1870 – Begin testimony by F/O having trouble coping with financial reverses.
1884 – Start of testimony by Delta MEC Chairman Capt Lee Moak.
1903 – Capt Moak finds current negotiations analogous to intercepting Russian bombers over Japan.
1990 – Company’s plan is to pay pilot sick leave from pilots’ D&S fund. When that money runs out, Delta would pay D&S obligations to pilots’ widows and disabled pilots from company treasury. There is over $1 billion in the D&S trust fund.
2084 – Company says that $330 million note plus PBGC guarantees would pay 78-95% of current active pilots’ DB benefit, the higher figure depending on passage of the Akaka amendment.
2085 – Pilots in PC-3 category (53 and older) would receive 84-92% of accrued benefits.
2088 – CFO says there is no savings to Delta from terminating the pilots’ pension plan because Delta does not now have any money to pay into it in the first place! (How’s that for logic?)
2121 – CFO says reason pension plan is in trouble is lump sum payments.
2130 – CFO says Delta plans to no longer operate if there is a pilot strike.
2132 – Closing remarks by Arbitration Panel Chairman.
By Bill Houseman
4 April 2006
4 April 2006
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