Judge: Delta can end pilot pensions

Russell Grantham, Cox News Service

Wednesday, September 6, 2006

ATLANTA - A bankruptcy judge has approved Delta Air Lines' request to dump its pilots' pension plan, clearing another obstacle to the company's plan to emerge from Chapter 11 proceedings by next summer.

Termination of the pilots' plan is the latest step by the Atlanta-based airline to overhaul its cost and labor structure and become a leaner competitor in a turbulent industry.

The move enables Delta to avoid about $2.5 billion in payments needed to bring the pilots' plan to full funding. The airline also argued that dumping the plan would improve its ability to line up financial backers.

Delta said it still needs approval from the Pension Benefit Guaranty Corp. to make the termination final. But the quasi-federal agency did not oppose the move during a two-day court hearing in White Plains, N.Y., that ended with Judge Adlai Hardin's ruling Tuesday.

"I think it's a foregone conclusion that they will approve it," said Dean Booth, a lawyer for a retired pilots group that did not oppose termination.

The PBGC acts like an insurance agency, taking over payout of accrued benefits when a plan is terminated - though only up to certain limits. The agency caps payouts at $31,000 or less per year for people who retired at 60, the mandatory retirement age for airline pilots.

That is well below most retired Delta pilots' current benefits, and some retired pilots believe their monthly checks will be all but zeroed out under complex calculations regarding benefits.

But the blow is cushioned by a clause in their pension plan that allowed most retired Delta pilots to take half their total benefits - close to $1 million in some cases - in a lump sum when they left.

While Delta will stop sending pilots pension checks after the plan is terminated, the company says retirees' average benefit will still be $75,200 on an annualized basis. That includes the PBGC payments and money from the lump sum pilots took when they retired.

In previous major airline cases, the PBGC let United Airlines and US Airways shed their pension plans for both pilots and other workers. In exchange the agency got stock or other securities when the airlines emerged from bankruptcy.

A PBGC spokesman, Jeffrey Speicher, said the agency "will proceed with its legal and financial review of the case . . . to determine that it meets all criteria to terminate."

But the airline said it still needs to shut down the pilot plan in order to line up financial backers.

Delta pilots have taken a big hit during the Chapter 11 case. Wage rates have been cut almost in half under two contract agreements since 2004, and pilots are now in a 401(k)-style retirement plan.