Delta Air Lines and Northwest Airlines must keep making pension payments while in bankruptcy protection, the head of the U.S. agency that insures the retirement plans said Thursday.
“Nothing in the bankruptcy code requires companies to skip their pension funding payments,” Bradley Belt, chief executive of the Pension Benefit Guaranty Corp., said in a statement in Washington. “They have a legal obligation to meet their funding requirements.”
Delta, the third-largest U.S. airline, and Northwest, the fourth-biggest, said they still are seeking U.S. legislation that would let them meet their pension obligations by stretching out payments, rather than terminate the plans in bankruptcy court as United Airlines and US Airways Group Inc. did.
Even so, it’s “highly likely” that Delta and Northwest will terminate the pension plans and hand over their obligations to Belt’s agency, said Douglas Elliott, head of the Washington-based Center on Federal Financial Institutions, a nonpartisan group that tracks pension issues.
“There has not been a major airline which has gone through bankruptcy without terminating its pension plans,” Elliott said Thursday. “It’s the one big obligation they have where there’s a third party they can hand it over to.”
Delta said Wednesday that it won’t make the next contribution and said Thursday the amount due is $34 million. Payments to retirees will continue, the Atlanta-based airline said.
Northwest said Tuesday that it was obligated to make a $65 million pension payment Thursday or risk a lien against its assets, unless it was under bankruptcy protection. Company spokesman Kurt Ebenhoch declined to comment beyond Tuesday’s regulatory filing that disclosed the payment.
Delta’s pension plans have $10.6 billion more in obligations than assets, and Northwest’s are underfunded by $5.7 billion, said the PBGC, which was set up by the federal government to insure workers’ fixed-benefit pension plans.
If plans at both companies are ended, the agency would be responsible for $11.2 billion, or 69 percent of the two airlines’ combined underfunding, the PBGC said. Employees would lose the remaining $5.1 billion shortfall.
The agency’s $8.4 billion cost for absorbing Delta’s plan would exceed its record $6.6 billion cost of taking on the plans of UAL Corp.’s United. The agency uses premiums paid by companies with defined-benefit pensions to make such payments.
Failure to pass pension legislation would increase the likelihood that the federal agency will need taxpayer money, said Rep. Tom Price, R-Ga. The agency had a deficit of $23.3 billion in its fiscal year that ended Sept. 30, 2004.
“If the events of the last 24 hours don’t bring focus and clarity to the need for this industry-specific legislation into play, I don’t know what will,” Price said.
He’s the House author of a bill that would give Delta and Northwest as long as 25 years to make payments in return for the carriers’ freezing their plans.
