Atlanta – Delta Air Lines said Monday it has reached a settlement with the Pension Benefit Guaranty Corp., clearing the way for the carrier to dump its pilots’ pension plan.
The agreement, which also clears a major obstacle in Delta’s plans to emerge from bankruptcy next spring, will make the PBGC one of Delta’s largest creditors and potential kingmakers at a time when Delta is trying to fend off a hostile takeover bid by US Airways.
As part of the agreement, Delta put in writing for the first time that it will maintain its far larger pension plan for its flight attendants and ground employees, including chipping in at least $50 million in funding before it exits Chapter 11.
Delta said after pension relief was signed into law earlier this year that it expected to keep the nonpilots’ plan in force but that it couldn’t afford about $2.5 billion in payments needed to bring the pilots’ plan to full funding.
Under the proposed agreement with the PBGC, the quasi-federal agency will receive a $2.2 billion unsecured claim and, once Delta emerges from bankruptcy, a $225 million unsecured IOU from the airline.
The agency insures employees’ pension benefits up to certain limits, taking over the assets as well as the obligation to keep paying retirees’ pensions when a pension plan is terminated.
Many retired pilots’ pension benefits shrank significantly as a result of the planned termination because their accrued benefits exceed the PBGC’s guarantees.
The PBGC had filed claims for almost $3 billion related to Delta’s planned termination of the underfunded pension plan.
The airline said in a court filing that without the settlement, its efforts to file a plan of reorganization would be delayed.
Delta, which has been in bankruptcy almost 15 months, said the pension-plan termination will become effective Sept. 2 if the agreement is approved by its bankruptcy judge. A hearing is set for Dec. 20 in the federal bankruptcy court in New York.
Judge Adlai Hardin ruled in September that the pension termination was necessary to Delta’s survival.
