Airlines Seek Pension Equity

Lawmakers from Texas are vowing to win equal treatment this fall for American Airlines Inc. and Continental Airlines Inc. after Congress approved changes to pension laws over their strong objections.

The legislation, which the Senate approved late Thursday, gives special treatment to airlines that are struggling under pension obligations.

President Bush said Friday he would sign the bill, which the House passed last week.

The two Texas-based carriers spent weeks fighting to alter provisions that gave Delta Air Lines and Northwest Airlines - both under bankruptcy protection - better terms because they've frozen their pension plans.

Late Friday, Delta filed a formal request with the bankruptcy court to terminate its pilots' pension plan.

Sen. Kay Bailey Hutchison, R-Texas, said after the vote that key senators had agreed to "make a level playing field for all four airlines" by tacking a measure onto a spending bill after the August recess.

"There was never meant to be an advantage out of Congress," she said. "And so we're going to make sure that there isn't anything that's better for one airline or another."

Sen. John Cornyn, R-Texas, was among just five senators to vote against the legislation.

Mr. Cornyn said the bill provides relief "unevenly and undercuts the ability of Continental Airlines and American Airlines to compete in a global economy."

Congress sought the pension overhaul to prevent distressed companies from foisting underfunded plans onto the federal government's insurer, which has warned that it could face insolvency.

Simply put, the bill gives competitors of American and Continental more time and better interest rates in meeting their pension obligations.

The legislation would force most companies to fully fund their plans over seven years. Airlines that have frozen their pension plans would have an additional 10 years, using an interest rate of 8.85 percent to calculate the value of their investment returns.

Other carriers would get three more years, or 10 total, plus the same interest rate as other companies. That amount, tied to bond yields, is now roughly 6 percent.

Fort Worth-based American Airlines praised the overall legislation because it does get more time to meet its obligations. But it also wants changes that would put it on equal footing with competitors.

Most House members from Texas voted against the bill because they said the different terms put American and Houston-based Continental at a competitive disadvantage to the tune of hundreds of millions of dollars.

"The two airlines that are not threatening the retirement security of their employees, American and Continental, are being punished for having gotten wage and benefit concessions from their employees during very hard-fought, but successful, negotiations," Rep. Sam Johnson, R-Plano, told his colleagues before last week's vote.

Merrill Lynch analysts said in a research note that "the ball is now in the courts" of American and Continental to determine whether freezing any of their plans made sense to receive the better terms that Delta and Northwest won.

Ms. Hutchison said she had the support of key senators, including Majority Leader Bill Frist, R-Tenn., to pursue changes in the fall.

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