Struggle to Save Benefits a Huge Task for Delta Retirees

Sept. 11, 2006
Delta retirees say that the company is now a tough, pragmatic adversary, unlike the paternalistic airline that hired them decades ago.

It wasn't long after Cathy Cone and Jim Gray retired from Delta Air Lines that they got what may be the toughest --- and at times most frustrating --- jobs of their lives.

As the heads of organizations that represent Delta retirees in the airline's Chapter 11 case, Cone and Gray have labored untold and unpaid hours fighting uphill battles to save pensions and other benefits for thousands of their former colleagues.

Both say Delta is now a tough, pragmatic adversary, unlike the paternalistic airline that hired them decades ago. Like most companies restructuring in Chapter 11, the airline wants to emerge with a lighter load of retiree liabilities.

Key battles over pensions are winding down, with mixed results. Another issue, preserving medical benefits, is just heating up.

"I would like to see an end, but I think the end is in the distant future," said Cone, who said she has often worked 60-hour weeks on retiree issues over the past three years. "I mean, when does Delta stop being fragile?"

A bankruptcy judge last week agreed that Delta should be allowed to terminate its pilot pension plan, a move that will mean reduced benefits as a quasi-federal agency takes over payouts. But Gray's group, the Delta Pilot Pension Preservation organization, or DP3, didn't oppose termination because it had reached a financial settlement with Delta.

Meanwhile, Cone's group helped Delta successfully lobby Congress for legislation that the airline says should enable it to keep its traditional pension plans for flight attendants and ground workers. A new pension-relief law gives Delta 17 years to fully fund the plan --- more than double the time other companies have.

Cone isn't shy about the role of her 10,000-member group, Delta Air Lines Retirement Committee, or DALRC.

"The reality was I carried voters to Washington," said Cone, who also chairs a court-appointed committee representing nonpilot retirees.

Cone, a grandmother of five who has lived all her nearly 60 years in Houston, at first glance might seem an unlikely person to be taking on the nation's third-largest airline and its platoon of big-league lawyers.

She joined Delta in 1966, taking what she thought was a summer job as a reservations clerk in Houston between terms at Texas Tech in Lubbock. But she stayed on as a flight attendant.

"That decision lasted 36 summers," she said with a laugh.

Cone began to emerge from the rank and file in 1990, when Delta created a flight attendants group to advise management. She said it was an antidote to rising union sentiment among the ranks.

That grew into a post representing flight attendants on an employee council that sat in on the airline's board of directors meetings. She held that post until 2000.

"I learned a lot in that four years, traveling around and answering questions," said Cone. The job put her in contact with a wide swath of Delta employees, explaining what Delta's management was up to and answering questions about benefits and other issues.

A year after she left the council, the 9/11 terrorist attacks turned an industry downturn into a nose dive, especially for older carriers such as Delta. Cone joined thousands of Delta employees who took early retirement packages in 2002.

But her old employer's troubles gnawed at her. By 2003, Delta's cumulative losses were in the billions of dollars.

Employees and retirees were livid over disclosures that top executives got bonuses and protected pension trusts while other workers lost jobs and the red ink deepened. Pilots were balking at contract concessions.

Cone said she realized a Chapter 11 filing was a growing possibility --- and suspected the assurances she'd once given employees about the safety of their pensions might be proved wrong.

"I felt responsible," she said. "I said, you know what, I am going to make sure people understand what they have and what they don't, and we need to make sure we protect it as best as we can, and we need to start now."

Pilots offer guidance

One place Cone looked to for guidance in mid-2003 was a newly formed group of retired Delta pilots that had decided to band together after seeing US Airways terminate its pilots' pension plan while in Chapter 11 proceedings in early 2003.

Ex-Delta fliers wanted their own organization "to litigate, if that became necessary," said Gray, who was elected the group's chairman the following year.

Gray had retired at 60, the mandatory retirement age for pilots, after a career capped by flying as an L-1011 captain between the United States and Japan and Europe. But like Cone he didn't disconnect from company issues and soon became involved in DP3.

He'd been active for much of his career in the pilots union, the Air Line Pilots Association. He was the first editor of the Widget, a union magazine for Atlanta-based pilots, and a leader on the Atlanta executive council.

But he says that activism didn't prepare him for being chairman of DP3 since Delta filed for Chapter 11 protection nearly a year ago.

"It is more than a full-time job. It is all-consuming," said Gray, now 63. He says he has frequently worked 40-60 hours a week in the unpaid position and has lost count of how many court hearings he's attended.

DP3's 2,800 members contributed up to $1,000 each over three years. Gray said the group's top budget item is legal expenses. He is also reimbursed for much of his travel expenses.

DP3 has suffered its share of setbacks in the case.

Over DP3's objections, soon after Delta filed for Chapter 11, the airline got court clearance to stop paying part of the retired pilots' pensions. Delta also fought DP3's request for a court-appointed creditor committee to represent retired pilots in negotiations over changes in medical and other benefits. The court eventually appointed such a committee, but DP3 got only a minority of the seats.

Finally, in a blow to retired pilots' hopes of keeping their pension plan, Delta cut a deal in which ALPA agreed not to fight termination of the plan in exchange for a $650 million IOU and claims on future stock. The proceeds are expected to be distributed to active pilots.

DP3 concluded it wouldn't be able to block Delta from terminating their pension plan, and settled last month for $9 million in cash plus an unsecured claim for $68 million. Delta will eventually divide the settlement among about 3,600 retired pilots who had been receiving certain monthly pension benefits that Delta halted when it filed for bankruptcy.

"By definition, a bankruptcy court is so predisposed toward what a debtor says that it needs," said Gray. "It's a real uphill battle."

It's not unusual that the group has had a tough time, agreed Atlanta bankruptcy attorney Darryl Laddin, who was involved in Eastern Airlines' bankruptcy.

"As a practical matter, in bankruptcy court, it's tough to win a battle when the dispute goes to the core issue of the survival of the company," said Laddin. Delta's pension liabilities "were key issues affecting its ability to reorganize."

Changing outlooks

Gray says he no longer sees either Delta or ALPA the same way.

"I love the company that hired me and that I worked for for 30 years," he said. "It's a very different Delta Air Lines that we deal with today," he added, one in which "retirees are a liability."

The union's decision not to fight pension termination was "a huge, huge disappointment," he said. "ALPA has abandoned retirees for 30 pieces of silver."

Cone's views also have evolved. Where Cone once talked with Delta CEO Gerald Grinstein "frequently," she says they no longer talk at all.

They stopped speaking after Delta and the retirees fought in bankruptcy court earlier this year over the fate of a benefits fund for disabled former employees and deceased retirees' spouses.

The court sided with Delta in a narrow legal decision that allowed the airline to use the fund to pay other employee-related expenses, but not before DALRC ran a full-page "open letter" in The Atlanta Journal-Constitution accusing Delta of questionable diversions of money from the trust.

Grinstein "basically does not choose to talk to me," said Cone, surmising it might be on lawyers' advice. In their last conversation months ago, she recalled, "He said he was going to have to do what he had to do, and I was going to have to do what I had to do."

Cone said she admires Delta for trying to preserve nonpilot pensions --- something neither US Airways nor United Airlines did in their bankruptcy cases. But she at times felt the company didn't do enough to support her group's lobbying efforts on the crucial federal legislation. She felt Delta snubbed the group when no retirees were invited to the bill-signing ceremony.

"A retiree ... should have been there," she said.

Now, Cone and Gray will move on to negotiations with the company over retiree health benefits. Delta has said it wants to raise premiums, which now are as low as zero, depending on when a worker retired and which package they took. Cone said Delta also wants to remove most retirees over age 65 from its self-insured medical plan, instead offering coverage by an outside firm at retiree expense.

That issue could well go to court later this year or early next. Changes in health benefits aren't unusual in bankruptcy restructurings, but that doesn't make them easier to take for Cone and Gray.

Delta "is being guided by lawyers that are used to reading contracts," Cone said. "And I think what we had with Delta was a social contract, and I think that it's not worth a dime in bankruptcy court."

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