Delta Air Lines Inc. and its pilots are about to battle in court over a key issue in the carrier's bankruptcy case - pensions.
The pilots want the nation's third-largest carrier to continue making minimum contributions to their pension plan and certain payments to higher-paid retirees, while the Atlanta-based company vows it won't do either unless a judge forces its hand.
Lawyers for both sides will argue the issue at a bankruptcy court hearing in New York on Monday in a dispute that comes as many observers wonder whether Delta will terminate its pension plan altogether if it doesn't get relief from Congress.
"Anybody that is not worried would have to be a very cold-blooded person," said Dean Booth, a lawyer for the pilots.
The pilots argue their contract with Delta requires the airline to continue making the pension payments in question until it applies for and gets permission from the bankruptcy court to void the contract, which it has not done.
The company argues that the payments are unsecured, pre-petition claims against the airline and, therefore, Delta does not have to make the payments a priority during its reorganization.
"Accordingly, in its first-day wages motion, Delta did not seek authority to make these payments and does not intend to make these payments," the airline says in court papers.
The two sides were saying little in advance of the hearing. One of Delta's chief bankruptcy lawyers, Marshall Huebner, did not return a call seeking comment. Company spokeswoman Chris Kelly declined to comment on Delta's long-term intention for the pilot pension plan, but she said the airline believes the recent decisions about pension contributions were necessary to help Delta recover.
"We are fighting hard together to save this company, and many painful sacrifices will be required from a wide range of stakeholders in order to accomplish that goal," Kelly said.
She added, "Any impact on this select group of high-income Delta people is a regrettable but necessary component of a comprehensive restructuring plan built on well-established law and the principle of shared sacrifice."
Delta wants to be able to spread its pension payments over 25 years. But some plans in Congress would require the payments be spread over 14 years, something Delta said it would not be able to afford.
Delta pilots with enough years of service can elect to retire at age 50 and receive half their pension benefit in a lump sum and the rest in an annuity later. Many elected to do so in the months leading up to Delta's Sept. 14 bankruptcy filing, putting a strain on the $1.89 billion in assets in the plan, which is known as a qualified plan.
A qualified pension plan is one in which a retired employee receives a specific amount based on salary history and years of service. In Delta's case, prior to bankruptcy, it made contributions to fund the qualified pension plan, which then would distribute payments. Delta's non-qualified pension plan involves separate payments to certain higher-paid employees, but the company doesn't set aside any assets to guarantee those payments.
According to court papers stipulated to by both sides that were filed in preparation for Monday's hearing, the pilot pension plan has paid out roughly $970 million in lump sums to 1,190 pilots in the last 12 months. The average lump sum was $760,000.
To date, in 2005 Delta has contributed about $237 million to the pilots' qualified pension plan. About 5,000 retired pilots receive qualified pension payments. Roughly 3,485 of those retired pilots receive monthly non-qualified pension benefits from Delta.
A motion seeking to compel Delta to continue making minimum funding contributions to the pilots' qualified pension plan and nonqualified payments to retired pilots was filed by the Delta Pilots' Pension Preservation Organization. The group represents more than 2,300 retired pilots, survivors and dependents who receive pilot pension and retiree medical benefits from Delta.
Delta said its unsecured creditors committee agreed to a retired pilot claim of $719 million, bringing the total to around $800 million.
The group argued that it needs more time to study pension relief legislation signed into law last week that could open a way for Delta to save the pilots' pensions.
The 6,000 pilots, as part of a $280 million concessions agreement with the company first reached in April, have agreed not to oppose the pension termination request, though other groups may oppose...