Delta Puts Figures to Its Pension Bill
Airline Owes $3.15 Billion
From 2006 Through 2008;
Cash Is Sufficient, for Now
By EVAN PEREZ
Staff Reporter of THE WALL STREET JOURNAL
May 5, 2005
Delta Air Lines, shedding light on its escalating pension troubles, said it must pay $3.15 billion to fund its employee-retirement plans over the next three years.
The third-largest U.S. airline in terms of traffic said in a Securities and Exchange Commission filing yesterday that in addition to the $450 million it will spend this year to meet its minimum funding obligations, it now estimates its funding obligations to retired workers will grow to $600 million in 2006, $950 million in 2007 and $1.6 billion in 2008. Delta hasn't disclosed its funding obligations previously, though the carrier has warned in the past that its growing obligations posed a threat to its efforts to restructure and avoid a bankruptcy-court filing.
The disclosure comes as Delta struggles with high fuel costs and weak ticket prices brought on by competition. Delta recently reported a first-quarter loss of $1.07 billion. The airline narrowly avoided a bankruptcy-court filing last autumn, but it is likely to again face cash concerns later this year if it can't raise more financing through asset sales or the equity market.
The company said it had $1.8 billion in unrestricted cash at the end of March. But with the busy summer travel season approaching, Delta isn't likely to face an immediate cash crunch.
Of the $3.15 billion, about $2.6 billion stems from its defined-benefit pension plans, which are the subject of pension-relief legislation pending in the Congress. Delta, Northwest Airlines and several other airlines are pushing the legislation, which would allow the loss-plagued airlines to stretch out the time they have to fund their obligations to 25 years and switch some employees to cheaper retirement-benefit plans. In its SEC filing, Delta said if the pension-relief legislation becomes law, its funding obligations would be significantly lower, but it didn't say by how much.
The airlines and their supporters in Congress have said that the legislation would help the airlines avoid having to possibly seek a taxpayer-funded bailout by government insurer Pension Benefit Guaranty Corp. Rival carriers UAL Corp. and US Airways Group Inc. both have moved to dump their pensions on the PBGC. Critics of the legislation, including discount airlines, call the legislation an unfair bailout of the big airlines.
Delta's pension plans are underfunded by about $5.3 billion, meaning that even with the estimated required payments Delta's pensions would still be short of their full obligations. Airline pensions are underfunded by about $31 billion and have added to worries that the PBGC may be unable to guarantee benefits promised to workers.
Separately, Skyway Airlines, a unit of Midwest Airlines, said it ended discussions with Delta to operate a fleet of regional jets. Delta announced it was signing on Mesa Air Group Inc. to operate regional jets on connecting flights.
Write to Evan Perez at [email protected]
Airline Owes $3.15 Billion
From 2006 Through 2008;
Cash Is Sufficient, for Now
By EVAN PEREZ
Staff Reporter of THE WALL STREET JOURNAL
May 5, 2005
Delta Air Lines, shedding light on its escalating pension troubles, said it must pay $3.15 billion to fund its employee-retirement plans over the next three years.
The third-largest U.S. airline in terms of traffic said in a Securities and Exchange Commission filing yesterday that in addition to the $450 million it will spend this year to meet its minimum funding obligations, it now estimates its funding obligations to retired workers will grow to $600 million in 2006, $950 million in 2007 and $1.6 billion in 2008. Delta hasn't disclosed its funding obligations previously, though the carrier has warned in the past that its growing obligations posed a threat to its efforts to restructure and avoid a bankruptcy-court filing.
The disclosure comes as Delta struggles with high fuel costs and weak ticket prices brought on by competition. Delta recently reported a first-quarter loss of $1.07 billion. The airline narrowly avoided a bankruptcy-court filing last autumn, but it is likely to again face cash concerns later this year if it can't raise more financing through asset sales or the equity market.
The company said it had $1.8 billion in unrestricted cash at the end of March. But with the busy summer travel season approaching, Delta isn't likely to face an immediate cash crunch.
Of the $3.15 billion, about $2.6 billion stems from its defined-benefit pension plans, which are the subject of pension-relief legislation pending in the Congress. Delta, Northwest Airlines and several other airlines are pushing the legislation, which would allow the loss-plagued airlines to stretch out the time they have to fund their obligations to 25 years and switch some employees to cheaper retirement-benefit plans. In its SEC filing, Delta said if the pension-relief legislation becomes law, its funding obligations would be significantly lower, but it didn't say by how much.
The airlines and their supporters in Congress have said that the legislation would help the airlines avoid having to possibly seek a taxpayer-funded bailout by government insurer Pension Benefit Guaranty Corp. Rival carriers UAL Corp. and US Airways Group Inc. both have moved to dump their pensions on the PBGC. Critics of the legislation, including discount airlines, call the legislation an unfair bailout of the big airlines.
Delta's pension plans are underfunded by about $5.3 billion, meaning that even with the estimated required payments Delta's pensions would still be short of their full obligations. Airline pensions are underfunded by about $31 billion and have added to worries that the PBGC may be unable to guarantee benefits promised to workers.
Separately, Skyway Airlines, a unit of Midwest Airlines, said it ended discussions with Delta to operate a fleet of regional jets. Delta announced it was signing on Mesa Air Group Inc. to operate regional jets on connecting flights.
Write to Evan Perez at [email protected]
