The government's pension insurer gave its final approval Wednesday for a plan to terminate the pensions of Delta Air Lines pilots, a key step for the carrier to resolve a multibillion-dollar issue in its bankruptcy case.
Approval of the plan means the Pension Benefit Guaranty Corp. would take over the pensions and pay pilots a portion of the benefits they had expected to receive from the company.
In return, the plan gives the pension agency an unsecured claim of $2.2 billion against the nation's third biggest carrier. Holders of unsecured claims usually receive a fraction of their total claim.
"This may be the single most important settlement in the entire case," said Marshall Huebner, attorney for Delta Air Lines Inc. The PBGC estimated the pilot pensions were underfunded by about $3 billion, according to a court filing.
U.S. Bankruptcy Judge Adlai Hardin also approved the final settlement. He said it was "a vital stepping stone" on the path to a successful reorganization.
The plan had one objector, a retired pilot, but received support from the major stakeholders in the case, including the creditors committee, a group of retired pilots and the union that represents working pilots. Hardin said those parties saw that "it is not only a good settlement, it is an absolutely essential settlement for the company to move forward and for the benefit of the pilots."
The Atlanta-based airline has said it needs to end the pilot pension plan in order to successfully restructure and emerge from bankruptcy court protection as a stand-alone company in the spring of next year. The airline filed its reorganization plan Tuesday, officially rejecting an $8.5 billion hostile takeover bid by US Airways Group Inc.
A PBGC attorney, Michael Mora, said the settlement was a major factor in allowing Delta to file its reorganization plan this week. "Probably there was no feasible plan of reorganization that could have been proposed without the pensions settlement," he said.
Hardin had approved the termination in early September, but Delta needed to get final consent from the pension insurer. It gave its approval Friday and reiterated its support in court Wednesday.
The pension termination plan also calls for the PBGC to get $225 million in senior unsecured notes, which could be convertible to cash once the airline exits bankruptcy.
The agreement between Delta and the pension agency is effective retroactive to Sept. 2 and affects about 13,000 current and former pilots and their beneficiaries.
Huebner said more than 97 percent of retired pilots with qualified pension plans will receive at least 86 percent of their total estimated payout, and 2,300 of the 6,300 retired pilots will be paid in full. He said the 3,200 retired pilots who hold unqualified plans would have a pre-petition claim of $810 million, but that is not likely to be fully paid.
Once Delta exits bankruptcy, the PBGC will no longer have the right to revoke its adoption of the pensions. And Delta will have given up the right to establish any new tax-qualified defined benefit pension plan for pilots until five years after the exit date.
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