The opening round begins today in Delta Air Lines' bid to follow in the footsteps of other big bankrupt airlines that have shed billions of dollars' worth of pension promises to their employees.
Delta wants to dump its pilots' underfunded pension plan, a move it says is essential to completing a Chapter 11 restructuring by next year. U.S. Bankruptcy Judge Adlai Hardin opens a hearing today on Delta's motion to terminate the pilot plan.
The airline has said it hopes to keep a larger plan covering flight attendants and ground workers, and recent federal legislation giving it more time to fully fund that plan boosted that prospect.
But Delta says the pilot plan has features that make it unaffordable even with the federal relief, and its pilots union agreed not to oppose termination as part of a contract deal last spring. The Pension Benefit Guaranty Corp., which will take over responsibility for limited payouts of accrued benefits if Delta terminates its plan, hasn't formally objected so far.
Hardin will still hear opposition, however.
Pilots "didn't work 30 years to walk away and have someone say, 'Nah, I don't think I'll pay your pension,' " said David M. Smith, a 57-year-old pilot who retired from Delta two years ago. Smith, of Roswell, and several other retired pilots formed a group and hired lawyers and an auditor to challenge Delta's plans.
The group's name is Delta Pilots Pension Termination Opposition, but Smith said it's battling a trend bigger than Delta.
"We're just another link in the chain of companies that are dumping their pension plans selectively and arbitrarily while executives retain their pensions and benefit packages without even looking back to see what damage they caused," he said. "We're outraged."
Hardin is scheduled to hear the arguments of Delta, Smith's group and other parties today at his court in White Plains, N.Y., with up to three more days set aside next week. Hundreds of retired Delta pilots have sent protests or letters to Hardin, though not many appear on the court docket.
Smith's group hopes to prove that Delta doesn't need to shed the pilots pension plan, which covers about 13,000 pilots, retirees and survivors. Smith said about 200 supporters have chipped in to fund the battle, with donations ranging from hundreds of dollars to $10,000.
With Delta's pilots union already agreeing to the change, however, blocking termination may be an uphill battle.
As part of the April contract deal, the Air Line Pilots Association gets a $650 million IOU and a $2.1 billion unsecured claim in Delta's bankruptcy case to offset reduced pension benefits. The unsecured claim would likely be worth a few hundred million dollars' worth of new stock or related securities when Delta emerges.
Last week, Delta won court approval for a settlement with another pilot retiree group. Delta Pilot Pension Preservation organization, with about 2,800 retired pilots, accepted $9 million in cash and an unsecured claim for about $68 million.
Still, that group wanted the court to delay today's hearing, saying it needs more time to study pension relief legislation signed into law two weeks ago that could open a way for Delta to save the pilots' pensions.
A break from Congress
Ailing companies typically move to terminate pensions because they cannot afford huge cash payments needed to bring them to full funding. Delta has said it was about $5.4 billion behind on funding for both the pilots and other workers' plans as of last year.
The recent federal legislation gives Delta 17 years to make up the shortfall --- far more than other companies get. Delta says that should be enough to save the traditional plan for flight attendants and ground workers.
But a once highly desirable benefit of the pilot pension plan makes it untenable, the airline says. Until last year, retiring Delta pilots could take half of their pension benefits as a lump sum --- typically several hundred thousand dollars --- when they left.