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Airline will terminate pension plan unless Congress acts

Friday, January 17, 2003

By Frank Reeves, Post-Gazette Staff Writer

US Airways Chief Executive Officer David Siegel said yesterday the bankrupt company will seek to terminate its pilots' pension plan unless Congress quickly approves legislation allowing the airline to stretch out payments to the plan over 30 years.

	US Airways CEO David Siegel said the airline's pension expenses must be reduced before US Airways can submit a reorganization plan to the airline's creditors. (Kurt Weber, Post-Gazette Archives) Related story: US Airways cutbacks cut passenger traffic at airport

Siegel said yesterday in a letter to the pilots that finding a way to reduce the airline's pension expenses over the next few years was a central element of the company's plan to emerge from bankruptcy.

He said the issue must be resolved before the airline's reorganization plan can be submitted to the airline's creditors, who must approve it before the carrier can emerge from bankruptcy protection in March as hoped.

If the Arlington, Va.-based carrier follows through on its warning, the 5,800 pilots and retirees covered by the plan could lose 75 percent of their benefits, the pilots union said.

Ron Freundlich, spokesman for US Airways' unionized pilots, called Siegel's statement an "outrage" and a "betrayal." He said it undercut the efforts of the company and the Air Line Pilots Association to persuade Congress to approve legislation allowing the airline to stretch out its pension payments.

"It tells the government and Congress that it doesn't have to act," he said.

He said the pilots had already agreed to $565 million in annual wage and benefit cuts and pension plan reductions that would save the company about $575 million over seven years. Freundlich said the union would not agree to additional concessions.

The Pension Benefit Guaranty Corp., a federal agency that insures the benefits of about 44 million American workers and retirees, would have to approve US Airways' decision to drop the plan.

If it does, it would be one of the largest pension terminations approved by the agency. In December, the agency proposed termination of Bethlehem Steel's pension plan, which covered 95,000 workers and retirees and had a shortfall of $4.3 billion.

By comparison, the pilots' plan is underfunded by $2.1 billion to $2.2 billion, accounting for most of US Airways' $3.1 billion in pension expenses.

The company is required to make up any shortfalls in its employee pension plans, which for the pilots alone could balloon from about $57 million this year to $1 billion in 2004 before dropping to $800 million in 2005, according to union officials.

Siegel reiterated Wednesday that failure to reduce the airline's pension expenses could jeopardize its ability to obtain $900 million in federal loan guarantees and secure financial backing from an Alabama state pension fund.

The Retirement Systems of Alabama, which is providing much of the interim financing while the airline is in Chapter 11, has promised to invest up to $240 million for a 37.5 percent stake in the company once it emerges from bankruptcy. But it said the loan guarantees must be in place first.

The Air Transportation Stabilization Board, which oversees the government's $10 billion loan guarantee program for the nation's airlines, has indicated it will not give final approval to US Airways' loan guarantee application unless the carrier can reduce its pension expenses.

During testimony before a U.S. Senate panel earlier this week, Siegel said that for the moment, the pension plans of US Airways' other employees were not in jeopardy of being terminated. He said he believed the airline could craft a way to reduce its cash payments to cover the shortfalls of those plans without terminating them.

If the airline terminates the pilots' plan, it likely would be taken over the Pension Benefit Guaranty Corp. However, the airline would have to prove to the agency that it is financially unable to support the plan.

The Pension Benefit Guaranty Corp. would become trustee of any assets left in the plan and would be required to pay out benefits up to the legal limit.

Under guidelines issued for this year, the agency may not pay more than $43,977 annually, or about $3,664 per month, to an individual in a pension plan.

Since the airline filed for bankruptcy protection in August, US Airways and the pilots union have tried to persuade the Pension Benefit Guaranty Corp. to allow the airline to stretch out its pension payments. The airline feared that ballooning cash contributions to its pension plans would sink its efforts to make a profit in a few years.

But last month, the PBGC said it lacked authority to permit US Airways to stretch out its pension payments.

At the request of the company and the pilots union, Pennsylvania's two U.S. senators -- Republicans Arlen Specter and Rick Santorum -- introduced legislation that would give the agency the authority it said it lacked.

But that legislation is still in committee. And on Tuesday, Siegel told lawmakers that "any protracted legislative process" would be too late to help US Airways emerge from Chapter 11 by March.

Staff writers Jim McKay and Len Boselovic contributed to this article.

Frank Reeves can be reached at freeves@post-gazette.com or 412-263-1565.