Delta Air Lines Inc. said Monday it reached a tentative agreement with the federal Pension Benefit Guarantee Corp. to drop the pension plan covering its pilots, a move that takes it a step closer to emerging from bankruptcy.
Delta, which sought Chapter 11 protection from creditors in September 2005, has long made clear that shedding pension commitments to about 6,000 pilots was essential to getting back on its feet financially. Delta aims to emerge from bankruptcy by mid-2007.
At the same time, Delta said in a statement it remains committed to maintaining the pension plan covering its flight attendants and ground employees.
Under the terms of the deal, the PBGC would receive an unsecured $2.2 billion claim against the airline and $225 million in senior unsecured notes when Delta exits bankruptcy. The termination date for the plan would be retroactively set to Sept. 2, 2006.
Delta said its committee of unsecured creditors backs its accord with the PBGC, the federal agency that oversees insurance of the nation's employer-defined pension plans.
The PBGC, based on the recommendations of its staff, must still formally decide whether Delta's request passes the "financial distress" criteria. The proposal must also be approved by the U.S. Bankruptcy Court in New York, which is seen as likely since the court has already declared Delta's reorganization hinges on shedding the pension plan.
UAL Corp. (UAUA) , parent of United Airlines, struck a similar deal with the PBCG in 2005, dumping its underfunded pension plans on the agency as a key part of its strategy to emerge from bankruptcy -- a move it finally accomplished this past February.
Pension plans in the labor-intensive airline industry have been widely blamed for the financial failure of several of the nation's biggest airlines, which also face mounting pressure from higher fuel costs and stiff competition from discount carries such as Southwest Airlines Co. and JetBlue Airways Corp.
While slashing costs and making headway on its reorganization plan, Delta now faces an unwelcome takeover bid from US Airways Group Inc. (LCC) , which is willing to pay at least $8 billion for Delta in a plan that would forge the nation's biggest airline.
Delta has given the offer a chilly reception, stating that while it will review the offer, it also intends to push ahead with plans to return to solvency as in independent carrier.
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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.
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