Judge Allows Northwest to Freeze Plan

Jan. 31, 2006
The New York bankruptcy judge also approved the carrier's request to negotiate lower lease and loan payments for certain aircraft.

A New York bankruptcy judge Tuesday allowed Northwest Airlines Corp. to freeze its pilot pension plan and approved the carrier's request to negotiate lower lease and loan payments for certain aircraft.

The carrier, which filed for bankruptcy protection in September, and its pilots union, the Air Line Pilots Association (ALPA), agreed to the freeze of the defined benefit plan. The creditors committee also came out in support of the freeze, effective on Feb. 1, in court.

The pilots will now get a defined contribution plan, the details of which are still being hashed out between ALPA and Northwest.

The airline is seeking $1.4 billion in annual savings from its labor unions.

Kurt Ebenhoch, spokesman for Northwest, declined to say how much the airline would save from the pension freeze. The company's salaried employees saw their pension plans frozen in August.

The airline also sought and received court approval to lower lease and loan payments for certain planes by renegotiating their terms with lenders and lessors. The carrier's spokesman also declined to comment on how much Northwest will save through the renegotiation of the leases and loan payments.

The Eagan, Minn.-based airline sought to freeze the pension plan for its roughly 5,500 pilots because it cannot afford to keep paying into it. Both sides agreed it was a way to preserve the benefits accrued, to date, in the plan.

"Although our pilots have earned and enjoyed these benefits since 1975, the freezing of our plan will preserve the benefits earned to date by our pilots," Jim Mackenzie, chairman of the Northwest Pilot Retirement and Insurance Committee, told The Associated Press after the judge's approval of the freeze.

Northwest declared bankruptcy because of rising fuel costs and competition from low cost carriers. The airline has said it needs to cut costs to help it emerge from bankruptcy.

With the defined contribution plan, the onus is on employees to manage how their regular contribution is invested and they bear the risk of any change in its value. With the pension plan, an employee was assured of a fixed amount irrespective of financial market moves, a situation that could be costly at times for the carrier.

Judge Allan Gropper, who is overseeing the case praised the agreement between the pilots and Northwest management.

"I think it is very impressive (both) parties have been able to reach this agreement," he said.

Gropper added that he hopes this leads to a broader agreement between the carrier, its pilots and its flight attendants. All three are squaring off in court over collective bargaining agreements that Northwest wants to toss out.

Hearings on the collective bargaining agreements are expected to resume on Wednesday.

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