American Airlines and Continental Airlines should explain how they will benefit from pension legislation inserted into an Iraq war spending measure last month, two U.S. senators said Wednesday.
“We will review in the light of day exactly what deal they got,” said Sen. Max Baucus of Montana, who joined Sen. Charles Grassley of Iowa in requesting information in letters to the two carriers.
Airlines including Fort Worth, Texas-based American and Houston-based Continental might be able to cut employee pension contributions by $2 billion over 10 years under language inserted into the Iraq measure, White House spokesman Tony Fratto said May 24.
The White House tried unsuccessfully to remove that provision from the bill, he said then.
Baucus, a Democrat, is the chairman of the Senate Finance Committee, which oversees pension issues. Grassley is the panel’s leading Republican. The provision, inserted in the bill late during negotiations, wasn’t approved by the Finance Committee, according to the statement.
The pension amendments “create a more level playing field,” Continental spokesman Dave Messing said in an e-mail. The carrier will respond to the senators “with appropriate information,” he said.
A spokesman for American didn’t immediately return a telephone call to comment.
Bush signed the Iraq legislation into law May 25, a day after the House and Senate approved it. The law lets the airlines assume an 8.25 percent annual discount rate to calculate their pension obligations, rather than the 6 percent they use now.
Each 1-point increase in the discount rate reduces the airlines’ calculated pension liability by 10 percent to 15 percent, said Douglas Elliott, president of the Center on Federal Financial Institutions, in a report in August.
The senators asked AMR chief executive Gerard Arpey and Continental CEO Larry Kellner to tell them by June 15 the amount of pension contributions that would be required without aid in the Iraq law. They also asked for minimum contributions required using the provision in the Iraq law.
AMR, American’s parent company, and Continental aren’t named in the Iraq law. The proposal cites carriers with pension plans that haven’t been frozen. American and Continental didn’t freeze all their defined- benefit pension plans from accruing future liability, so they didn’t qualify for an 8.85 percent rate extended by Congress last year to carriers such as Delta Air Lines Inc. and Northwest Airlines Corp. that froze all plans.
