Pensions Are Already Underfunded by $14.1 billion

[WorldTraveler]

It has nothing to do with far right... It has to do with the reality that alot of the social promises that were made decades cannot be kept by countries that now have 15% or higher employment with birth rates that are well below what is necessary to bring in new workers to fund those who are retiring. The exact same problem that affects many of the developed world economics is happening to US companies because they are not growing revenue fast enough including bringing in new workers fast enough to support their pension plans.
The difference is that countries can print money; companies cannot. Problem is that when the EU was created, some of those countries didn't realize that they individually cannot print money because their economies are now tied to others who aren't living so high on the hog and who aren't willing to subsidize the mistakes of their neighbors who won't make the tough decisions to cut their budgets.
Polls show that the majority of Greeks and Spaniards don't want to leave the Euro and try to make their economies work outside of the Euro; the Irish are making the tough decisions to cut their budgets and rein in their own spending in order to remain in the Euro - which does have financial standards regarding individual country performance.
One need only look at Japan to find a country that still has enormous social promises, an aging population that isn't growing but yet still manages to keep its economy afloat. There are major differences between the way Europe and Japan are dealing with their financial problems and alot has to deal with decisions regarding austerity and savings.
The United States has long managed to avoid some of the problems the Europeans face and it is precisely because there are alot of people who see what Europe is going thru that the US will make the tough choices to avoid the financial meltdown facing Europe.
That is not right talking points; that is economic reality and it is also why the US has the strongest economy on the planet.
There is very much a realization that corporate pensions will have to be restructured. Which means the majority of private sector employees ALREADY do have less secure retirement plans than public sector employees. And the political discussion is most definitely focusing on whether the majority of Americans are willing to provide pension programs to public sector employees who have better retirement than the people who are paying for those pensions.
We can talk about the WI election in a few days but there are plenty of examples where local governments, even the USPS, recognize they cannot continue to provide the pension benefits that were once promised. The only government in the US that can print money is the Federal government and taxpayers will not support allowing Federal employees to have benefits which the USPS and state and local government employees cannot sustain.


Back to corporate pensions, GM also has said they want to make further changes to their pension plans starting first with their salaried workers in order to reduce the drain on their balance sheet.

What was missing in the article cited was that DL has the ability to pay for its debt and it is using strategies to run its business that incur the least amount of additional debt.
There is no doubt that DL's assumption on returns is high - but the reason why S&P is talking about an upgrade of DL's credit rating and why DL is the most valuable airline stock in the US is because they are responsibly managing the business to generate the best financial returns and they are keeping the promises which they made in BK.

There is no evidence yet that any other US network airline is able to sustain the same level of debt or generate financial returns on par with what DL is generating.

 

[Kev3188]

We can talk about the WI election in a few days

Why wait? You brought it up...

but there are plenty of examples where local governments, even the USPS, recognize they cannot continue to provide the pension benefits that were once promised.

You mean the same USPS that was forced by Congress in '06 to prefund it's retiree medical for the next 75 years at a cost of 5.5B annually over 10 years? The same one that were that not the case would have netted close to 1B over the same time frame? Is DL subject to the same onerous conditions? Of course not, so why compare apples to oranges?

 

[WorldTraveler]

.... what more would you like to say about the WI elections? I have read several polls that say that Walker has a high single digit lead - but not large enough to assure a win yet. Since the election WILL go on, we can discuss the implications for labor at that point. I'm well aware that pensions aren't the whole issue but ultimately the question is whether WI can rebalance its budget and avoid the financial problems which states like CA are facing. The vast majority of Americans DO learn from others' problems which is why the notion that the US will go down the same road as other countries.

Yeah, the USPS was forced to do things that their competitors didn't have to do... but it doesn't change the fact that their post-retirement benefits even without the medical pre-funding is unsustainable for the same reason as other US corporations... the USPS is shrinking, competition is stronger than ever, and the USPS workforce is aging and bloated by inefficiencies. That's in part why they are trying to get tens of thousands of workers to leave.

BTW, here is a comparison of the size of taxes and gov't revenue as a percentage of the economy... and note the US is near the bottom 10% of all nations.... Europe and Japan all spend 1/3 or more of their budget via the government compared with the US which is 15%
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2221rank.html?countryName=Japan&countryCode=ja&regionCode=eas&rank=71#ja

Despite having one of the most indebted economies in the world, Japan still has unemployment that is 1/2 of the US and 1/3 or better of many of the financially troubled European economies.
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html?countryName=Japan&countryCode=ja&regionCode=eas&rank=2#ja

Lest you or others decide to mention military spending, the US still spends 4% of its economy on the military which is less than China and even some countries in Europe.
Of course Japan benefits from the US' provision of military services.
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2034rank.html?countryName=Japan&countryCode=ja&regionCode=eas&rank=149#ja

Corporate executive pensions are not the reason for underfunding. I'm not justifying the size relative to other employees, but the simple reality is that the cost of pensions is related to frontline workers... and it is noteworthy that many pilots make as much or more than all but a few top level execs. The new pilot agreement boosts DL's DC funding for its pilots, which combined with their already network carrier leading wages, will make DL's pilot pension costs some of the most costly in the US airline industry.

 

[700UW]

Last time I checked 100 new 737-900s are more than 80 or so 717s.

WT are you using that fuzzy math? lol

 

[Kev3188]

.... what more would you like to say about the WI elections?

Since "accountability" is a new theme of yours (and Spectator's, I assume), how 'bout we talk about Walker dodging it with regards to the John Doe investigation?

As for pensions, how 'bout we discuss that WI public employees not only acknowledge(d), but agreed to both pension & health care reform, only for him to refuse to cooperate, showing that his true agenda was destroying worker rights, with a further endgame of weakening the ability of the the left to campaign?

The list goes on and on, but hey; you brought him up, you pick.

 

[WorldTraveler]

The 717s are not the only used planes DL is buying... DL started with a fleet of 16 M90s a couple years ago and is up to, what, 60 or 70 in operation, on property waiting to be modded, or signed for but not delivered.

The combined M90 and 717 fleet - (I believe there are actually 88 717s part of the deal) are more than the 100 900ERs... but even if DL only bought 10 used aircraft, it still says that DL is exploring low capital cost alternatives to gain comparable operational costs as new aircraft.

When you operate a fleet of 700 plus aircraft, looking at alternatives for EVERY aircraft that must be retired or every new growth prospect is necessary.

As for WI, the importance of all those other factors will be apparent in a couple days. Walker is a politician; no one should believe he or any of his type, regardless of party will act the way you or I expect each other to act - because you couldn't get anything done in politics if you did. When did you ever hear of a politican that was held accountable for his actions, regardless of party?
Yes, I know that there were negotiations... again it remains to be seen whether WI voters believe the proposed cuts were large enough (remember that AA's labor unions have offered alternate plans which the cmopany also rejected) or whether Walker's agenda to bust labor resonated with enough people to force his recall.
I also read reports that union membership is down significantly in WI since Walker's actions took effect which could indicate that a lot of people who were covered by unions no longer see the value in continuing to pay for that representation.

I mentioned WI because it is relevant to the discussion about pension costs... I'm happy to continue the discussion until the votes are known or we can wait and discuss the implications based on the vote - or not.
I'm game either way.

 

[signals]

Everyone is obviously buying into the media's smoke screen propaganda going on in WI. The media is only hyping a story because the governor is a Republican. Sure, prove me wrong, and tell me why in NY, governor Andy, a Democrat, messed with the public employee retirement system and it went unnoticed?

You are not seeing what is really going on. In a nut shell-the protestors aren't worried about their retirement, they are worried about the future hirees retirement. Public employees are locked into their "stage" of retirement when they are hired. Talk of their retirement being cut isn't happening, but numbers can sort of lie.

Meet my retirement system
http://www.osc.state.ny.us/retire/

I am a Tier 4 on the retirement system, and anyone hired after April 1, 2012 is a Tier 6. What does this mean? Last year I was bombarded by calls and mail telling me how we have to stop Gov. Cuomo from passing legislature to make a Tier 6. The calls came from NY's powerful public unions. Our retirement would get cut and blah, blah, blah. They obviously thought that I was their retarded brother!

I'll give you the basics to my retirement and although police, fire and teachers retirements are different, they are adjusting for new hirees.

Here's how my system works:

Tier1/2-Employees hired in the 70s may fall in these tiers. They never contributed to the retirement system. They can retire at 55 years of age with a minimal of 10 years of service. Reach full retirement benefits with 33 years of service.

Tier3/4-Employees hired in the 80s and 90s. They contributed a percentage of their salaries into the system for ten

 

[signals]

years. They can retire at 55 with at least 10 years of sevice.

Last year we got a Tier 5, and now we are on a Tier 6!
...I am obviously having problems with my mobile device...

These 2 tiers cannot retire before 62 from the system with at least 10 years of sevice and must contribute into the system for their entire employment. That is why my system seems to have been cut. But my tier is my tier and once I'm locked in, I am not effected from my retirement payment.

 

[Kev3188]

Everyone is obviously buying into the media's smoke screen propaganda going on in WI. The media is only hyping a story because the governor is a Republican.

I don't think they're "hyping" the story because he's Republican. It's being "hyped" because the uprising there is a news story- it's one of the largest sustained peaceful demonstrations we've seen in modern American history.

As for smokescreens, I believe the Walker administration has the market cornered there. They took minor budget challenge, made it into a manufactured crisis as a way to completely undercut democratic principles. I'm not talking merely about pensions & health care for public sector workers, and the divide-and-conquer strategy he employed.

No, those were merely the diversions used to take attention away from a much more diabolical plan. I mean things like representative democracy/the right to redress grievances, the right to peaceably assemble, and more. IOW, he and his monied puppet masters are waging a steady attack on very basic liberties and fundamentals of self governance. THAT, imo, is what 6/5 should be all about.

P.S. He also wants to rewrite recall laws, making it a much more difficult process. Imagine that...

 

[WorldTraveler]

Congrats, Kev, on your efforts in framing of the events that will culminate with the recall vote this week.

I always have believed you have what it takes to make in politics - or at least political strategy - intelligence, articulation, and passion.

The voters of WI will have to decide if they agree with you or if there is really just a need for some tough budget cuts.

What doesn't change is that costly employee benefit packages continue to come under attack and the battle will probably be focused most on the public sector if for no other reason because there are a higher percentage of public sector than private sector unionized employees; most private sector employers can no impose cost cuts.
As Sigs notes, though, many governments are making unilateral changes, at least to new hire employees in the public sector.

 

[737823]

Kev, there are definitively changes that need to be made regarding public sector workers benefits and compensation. Many of these people pay little or nothing for health care, receive extensive holidays and paid time off, and do little work while on duty. A visit to city hall or the state house will reveal people sitting at their desks shopping online, reading forums like this, etc.

Public sector unions really go against the interests of the general public to obtain equitable contracts that provide appropriate compensation to workers. We (tax payers) really have no representation during the negotiations since the elected officials sold themselves out to organized labor. What's different here than in private sector is that politicians don't have to create and agreement they are able to maintain. A business owner knows what his/her costs should be and negotiates accordingly as they have an incentive to keep labor costs down, public sector unions and politicians not as much.

Sure there have been attacks (or in friendlier terms "reforms") on public sector workers but the truth is since Obama took office the number of public sector workers has only risen. Many public workers are out of touch and expect everyone else to work and pay for their benefits and restrictive work rules.

People often say lawyers or bankers but I substitute that with:
10,000 government workers in the bottom of the sea=a good start.

Josh

 

[eolesen]

When DL can no longer generate cash at rates far in excess of what other carriers in the industry are doing NOW or they go on a spending spree, then their pension underfunding is a problem.

You claim DL is being responsible by limiting spending, yet they just agreed to 29% pay raises for the pilots. If they're being responsible, you'd think they have done more on variable compensation instead of fixed compensation.

 

[WorldTraveler]

You claim DL is being responsible by limiting spending, yet they just agreed to 29% pay raises for the pilots. If they're being responsible, you'd think they have done more on variable compensation instead of fixed compensation.

The pilots asked for less variable and more fixed compensation. The pilots are generally not happy with the relatively small size of the increase but expectations are the TA will pass.
DL has long had a compensation policy of paying average or better salaries to its employees in order to obtain labor peace. Given the labor issues at AA and UA, there are alot of DL pilots who believe that taking what DL is giving, even if it isn't as much as desired, is better than arguing to a mediator that they should get more under a process that could be drawn out for years.

Apparently, DL considers giving pay raises to its people, even if it isn't as large as many would like, a priority over buying new airplanes, settling for a bunch of used ones instead.

There are varying figures used to value the TA anyway. Some sources say it is cost neutral while others say that it might be several hundred million per year.
Given that the biggest incentive for this contract for DL appears to be to refleet and accelerate the retirement of obviously money-losing 50 seaters, the chances are that the DL pilots are getting savings that are generated from lower RJ costs. There are also reports that much of the RJ fleet either has to be retired or undergo extensive overhauls if they remain in service; thus the incentive to refleet is even stronger in the short term.

Note that DL's fleet expenditures, even considering the new 737-900ERs will amount to around $1B per year, as much as 1/3 of what other carriers are spending as part of their mAAssive refleeting efforts.

Given that DL is already generating billion dollar profits and could push that to two billion per year with the initiatives in the pipeline, DL can afford the new pilot contract. I hope ALL DL employees can share even more in DL's success.

 

[WorldTraveler]

Isn't it funny, E, that my negative votes always come in 2s and always seem to show up when you are on the board.

 

[FWAAA]

Apparently, DL considers giving pay raises to its people, even if it isn't as large as many would like, a priority over buying new airplanes, settling for a bunch of used ones instead.

There are varying figures used to value the TA anyway. Some sources say it is cost neutral while others say that it might be several hundred million per year.

<snip>

Note that DL's fleet expenditures, even considering the new 737-900ERs will amount to around $1B per year, as much as 1/3 of what other carriers are spending as part of their mAAssive refleeting efforts.

Dunno why you continue to focus on the cost of the new 739s that Delta ordered, since according to Anderson, the 739s will add to profits and will be cash flow positive from year one:

As a result of maintenance efficiencies and a 15 to 20 percent improvement in fuel consumption per seat, the Boeing 737-900ER will have lower unit costs than the older technology Boeing 757 and 767 and Airbus A320 aircraft that it will replace. The aircraft will be equipped with CFM56-7B engines produced by CFM International, a joint venture of General Electric Co. of the U.S. and Snecma of France.

"With significant savings from increased fuel efficiency and lower maintenance costs, these aircraft will be cash flow positive and earnings accretive from the first year of operation," Anderson said.

http://news.delta.com/index.php?s=43&item=1428

If Anderson was speaking honestly and accurately (and I have no reason to doubt him, since I am not a disgruntled airline employee who believes that everything management says is a lie), then these new planes really won't cost DL anything, which is exactly the situation with AA's larger single-aisle order. DL isn't replacing the less fuel efficient MD-88s with these 739s, which would bring even greater fuel and maintenance savings. Unless DL sees fuel prices collapsing and staying low for the long-term, look for DL to order more Boeings in the next couple of years to replace the MD-88s.

So DL will get profits and positive cash flow from these new Boeings in year one (according to the know-it-all CEO) yet according to you, AA is spending money like a spendthrift on its single-aisle order (which will replace even less-efficient fuel hogs than DL will replace)? It sounds to me like you're talking out of both sides of your mouth on the new plane issue. Which is it? Will the new planes pay for themselves (as Anderson says) or are new plane purchases not prudent (as you seem to intimate with AA's order)?