AIRLINES SEEKING ANOTHER GOVERNMENT BAILOUT
By MICHELINE MAYNARD, New York Times News Service
April 23, 2005
The nation's big airlines are lobbying Congress for what is effectively another bailout, their third plea for assistance since the September 2001 attacks. The deep first-quarter losses they reported this week served to bolster their argument.
This time, the effort has the support of unions representing pilots and flight attendants, a startling coalition given the depth of wage and benefit cuts demanded in the last few years from unions by the same companies.
But, said the pilots' union president, Duane Woerth, "There's nothing like a common problem that can unite what in our day-to-day lives are adversaries."
The airlines, especially Delta and Northwest, and unions, led by the Air Line Pilots Association, actually began a major push for assistance more than a month ago. This week, Sen. Johnny Isakson, R-Ga., introduced legislation that would allow airlines to stretch out their overdue pension obligations over the next 25 years, instead having to cover the shortfall in three years, as current law requires. Collectively, the six big traditional airlines owe $20.8 billion in back payments.
Their argument to Congress is simple: Help us fix our pension problem now or risk seeing airlines, employees and taxpayers suffer more in the near future.
The legislation, the Employee Pension Preservation Act, is "a far superior alternative," to possible layoffs and bankruptcies, said Andrea Fischer Newman, senior vice president of government affairs at Northwest. The airline said Thursday that it lost $458 million in the first quarter, double its loss a year earlier.
As if to illustrate the consequences of inaction, the federal pension agency said Friday that it would assume control of four union pension plans at United Airlines, which has been operating in bankruptcy since December 2002. The agency said the plans, covering pilots, flight attendants, mechanics and other workers, are underfinanced by $9.8 billion, an even bigger deficit than the airline estimated at the end of 2004.
The industry effort, which has been gathering steam all year, essentially began on March 3, when a dozen airline executives and labor leaders met on Capitol Hill with 10 U.S. senators.
The gathering, convened by the Senate Commerce Committee, was not open to the public or the press, a signal of how sensitive the discussion was.
Billed by the committee as a listening session, the session gave the main proponents of the pension changes the chance to emphasize their need for aid.
Backers see the proposal as having three main benefits. By stretching out the pension obligations, struggling airlines would lessen their immediate financial burden, helping them avoid bankruptcy, a fate that has already befallen United and US Airways.
That breathing room, in turn, would protect the federal Pension Guaranty Benefit Corp., saddled by a $23 billion deficit, if it has to assume control of more pensions like United's. The agency has warned its deficit could balloon to $40 billion if it has to take over more airline pension plans.
And with a smaller annual burden from pensions, airlines will become more attractive to debt rating agencies and a better bet for investors, proponents of the bill say.
But the effort is not universally supported within the industry or in Washington.
In particular, the nation's low-fare airlines, which do not have traditional pension plans or pension deficits, and which posted good first-quarter results, are labeling the proposal as assistance for a handful of competitors who have not been financially disciplined.
"Once again, the people who claim they don't want government interfering in their business are asking it to interfere in their business," said Joseph D. Leonard, the chief executive at AirTran Airways.
Unions are split, too. The International Association of Machinists and Aerospace Workers, which represents mechanics and ground workers, does not like the bill.
The pension agency has also not endorsed it. A spokesman, Randy Clerihue, said the agency needed to "scrutinize the proposal very closely" to make sure it protected pension benefits owed to workers and enabled companies to meet their future obligations.
Proponents acknowledged that they faced an uphill fight — not least because the airlines have come back to Congress again after receiving extensive assistance in 2001, a suspension of security fees during the summer of 2003, and a short-term pension reprieve in 2004 that allowed them to put off required payments.
"There's a very, very bitter taste in a lot of peoples' mouths about helping the airlines with their pension plans," D. Scott Yohe, vice president of governmental affairs at Delta, said in Washington last week.
But Yohe's company has a desperate need to ask. Delta was only hours away from a bankruptcy filing in October, when it persuaded its pilots to grant deep wage cuts. The airline, which had the worst year in its history in 2004, said Thursday that it lost $1.1 billion last quarter, triple its loss a year ago, and the deepest among the major airlines.
Yohe, who says the fight is among the most critical of his 26 years as a Washington lobbyist, argues that the bill is not a bailout, like the $15 billion rescue measure passed by Congress 17 days after the September 2001 attacks.
Instead, he contends it should be viewed as the equivalent of a mortgage refinancing, simply stretching out payments the airlines are legally required to make.
Clearly, airlines have to do something about pension costs, said Philip A. Baggaley, an airline analyst with Standard & Poor's. Otherwise, Baggaley said, the industry could be hit by "the dreaded domino effect of a series of bankruptcies."
But leaders at low-fare airlines are not convinced their rivals should be helped when other industries are also in need.
"How can you pass legislation to help the airlines and not steel or autos?" Leonard said in a telephone interview.
________________________________________________________________
US SENATE PENSION RELIEF BILL WOULD AID AIRLINES
NEW YORK (Dow Jones)--Major U.S. airlines may soon get the pension relief they have been stumping for if a bill introduced in the U.S. Senate late Wednesday becomes law.
The bill, called the "Employee Pension Preservation Act of 2005," would allow airlines to spread their pension plan funding over 25 years, instead of the current four years, if the airlines agree to freeze their old-fashioned defined-benefit pension plans.
The bill would also limit the liability of the Pension Benefit Guarantee Corp., a federal company that insures defined benefit pensions.
In a press release late Wednesday, Sen. Johnny Isakson, R-Ga, who introduced the pension-relief legislation, said the new rules would keep some major airlines out of Chapter 11 and protect pensions from termination. Several airlines have dumped their pensions during bankruptcy proceedings, cutting those costs and pressuring rivals to find some pension solution in order to compete.
The bill comes as executives from major airlines that haven't recently gone through bankruptcy, including Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWAC), have been stumping for more time to shore up their underfunded pension plans. Those airlines face hundreds of millions of dollars in pension payments this year.
"In the aftermath of the (Bush) administration's legislation, it was very clear to several senators and many congressmen that it was not possible to apply that directly to the airline industry and have all equally survive," said Delta Chief Executive Gerald Grinstein in a conference call Thursday. "Particularly the two proponents of this - Northwest and Delta - need to get the legislation through because there will be some payment spikes in the system."
Delta expects it will have to contribute $450 million to its pension plans this year, even though the airline has frozen the defined-benefit plans and started fresh defined-contribution plans. Grinstein said he expects pension contributions to rise significantly in coming years if Delta isn't given more time to fund it. As of the end of 2004, Delta's pension was underfunded by $5.3 billion.
Northwest executives and pilots have also proposed freezing their pension plan, and both groups support a longer amortization period.
The bill requires airlines taking advantage of the rules to freeze all or part of their defined-benefit plan. Employees would be eligible for the benefits they've earned up to the date of the freeze but no additional benefits would accrue unless the airline pays for them immediately.
Under a defined-benefit plan, the company promises employees certain future retirement-benefit levels. Under a defined-contribution plan, the company contributes to employee retirement plans during employment, with no promise of particular benefit levels upon retirement.
Before an airline can use one of the options in the bill, it must have an affirmative vote of its union employees.
The Air Line Pilots Association union has expressed support for freezing old defined-benefit plans and replacing them with more modern plans, and the union supports the new legislation.
While major airlines and their unions will continue lobbying for the passage of the bill, officials with some low-cost carriers say the bill gives unfair aide to major carriers.
America West Holdings Corp.'s (AWA) senior vice president of government affairs, C.A. Howlett, has called such legislation a "weapon" that major airlines can use in their competition with low-cost carriers. The bill would allow some airlines to cut their costs, while other airlines that offer the more modern, defined-contribution retirement plans, get no benefit.
By MICHELINE MAYNARD, New York Times News Service
April 23, 2005
The nation's big airlines are lobbying Congress for what is effectively another bailout, their third plea for assistance since the September 2001 attacks. The deep first-quarter losses they reported this week served to bolster their argument.
This time, the effort has the support of unions representing pilots and flight attendants, a startling coalition given the depth of wage and benefit cuts demanded in the last few years from unions by the same companies.
But, said the pilots' union president, Duane Woerth, "There's nothing like a common problem that can unite what in our day-to-day lives are adversaries."
The airlines, especially Delta and Northwest, and unions, led by the Air Line Pilots Association, actually began a major push for assistance more than a month ago. This week, Sen. Johnny Isakson, R-Ga., introduced legislation that would allow airlines to stretch out their overdue pension obligations over the next 25 years, instead having to cover the shortfall in three years, as current law requires. Collectively, the six big traditional airlines owe $20.8 billion in back payments.
Their argument to Congress is simple: Help us fix our pension problem now or risk seeing airlines, employees and taxpayers suffer more in the near future.
The legislation, the Employee Pension Preservation Act, is "a far superior alternative," to possible layoffs and bankruptcies, said Andrea Fischer Newman, senior vice president of government affairs at Northwest. The airline said Thursday that it lost $458 million in the first quarter, double its loss a year earlier.
As if to illustrate the consequences of inaction, the federal pension agency said Friday that it would assume control of four union pension plans at United Airlines, which has been operating in bankruptcy since December 2002. The agency said the plans, covering pilots, flight attendants, mechanics and other workers, are underfinanced by $9.8 billion, an even bigger deficit than the airline estimated at the end of 2004.
The industry effort, which has been gathering steam all year, essentially began on March 3, when a dozen airline executives and labor leaders met on Capitol Hill with 10 U.S. senators.
The gathering, convened by the Senate Commerce Committee, was not open to the public or the press, a signal of how sensitive the discussion was.
Billed by the committee as a listening session, the session gave the main proponents of the pension changes the chance to emphasize their need for aid.
Backers see the proposal as having three main benefits. By stretching out the pension obligations, struggling airlines would lessen their immediate financial burden, helping them avoid bankruptcy, a fate that has already befallen United and US Airways.
That breathing room, in turn, would protect the federal Pension Guaranty Benefit Corp., saddled by a $23 billion deficit, if it has to assume control of more pensions like United's. The agency has warned its deficit could balloon to $40 billion if it has to take over more airline pension plans.
And with a smaller annual burden from pensions, airlines will become more attractive to debt rating agencies and a better bet for investors, proponents of the bill say.
But the effort is not universally supported within the industry or in Washington.
In particular, the nation's low-fare airlines, which do not have traditional pension plans or pension deficits, and which posted good first-quarter results, are labeling the proposal as assistance for a handful of competitors who have not been financially disciplined.
"Once again, the people who claim they don't want government interfering in their business are asking it to interfere in their business," said Joseph D. Leonard, the chief executive at AirTran Airways.
Unions are split, too. The International Association of Machinists and Aerospace Workers, which represents mechanics and ground workers, does not like the bill.
The pension agency has also not endorsed it. A spokesman, Randy Clerihue, said the agency needed to "scrutinize the proposal very closely" to make sure it protected pension benefits owed to workers and enabled companies to meet their future obligations.
Proponents acknowledged that they faced an uphill fight — not least because the airlines have come back to Congress again after receiving extensive assistance in 2001, a suspension of security fees during the summer of 2003, and a short-term pension reprieve in 2004 that allowed them to put off required payments.
"There's a very, very bitter taste in a lot of peoples' mouths about helping the airlines with their pension plans," D. Scott Yohe, vice president of governmental affairs at Delta, said in Washington last week.
But Yohe's company has a desperate need to ask. Delta was only hours away from a bankruptcy filing in October, when it persuaded its pilots to grant deep wage cuts. The airline, which had the worst year in its history in 2004, said Thursday that it lost $1.1 billion last quarter, triple its loss a year ago, and the deepest among the major airlines.
Yohe, who says the fight is among the most critical of his 26 years as a Washington lobbyist, argues that the bill is not a bailout, like the $15 billion rescue measure passed by Congress 17 days after the September 2001 attacks.
Instead, he contends it should be viewed as the equivalent of a mortgage refinancing, simply stretching out payments the airlines are legally required to make.
Clearly, airlines have to do something about pension costs, said Philip A. Baggaley, an airline analyst with Standard & Poor's. Otherwise, Baggaley said, the industry could be hit by "the dreaded domino effect of a series of bankruptcies."
But leaders at low-fare airlines are not convinced their rivals should be helped when other industries are also in need.
"How can you pass legislation to help the airlines and not steel or autos?" Leonard said in a telephone interview.
________________________________________________________________
US SENATE PENSION RELIEF BILL WOULD AID AIRLINES
NEW YORK (Dow Jones)--Major U.S. airlines may soon get the pension relief they have been stumping for if a bill introduced in the U.S. Senate late Wednesday becomes law.
The bill, called the "Employee Pension Preservation Act of 2005," would allow airlines to spread their pension plan funding over 25 years, instead of the current four years, if the airlines agree to freeze their old-fashioned defined-benefit pension plans.
The bill would also limit the liability of the Pension Benefit Guarantee Corp., a federal company that insures defined benefit pensions.
In a press release late Wednesday, Sen. Johnny Isakson, R-Ga, who introduced the pension-relief legislation, said the new rules would keep some major airlines out of Chapter 11 and protect pensions from termination. Several airlines have dumped their pensions during bankruptcy proceedings, cutting those costs and pressuring rivals to find some pension solution in order to compete.
The bill comes as executives from major airlines that haven't recently gone through bankruptcy, including Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWAC), have been stumping for more time to shore up their underfunded pension plans. Those airlines face hundreds of millions of dollars in pension payments this year.
"In the aftermath of the (Bush) administration's legislation, it was very clear to several senators and many congressmen that it was not possible to apply that directly to the airline industry and have all equally survive," said Delta Chief Executive Gerald Grinstein in a conference call Thursday. "Particularly the two proponents of this - Northwest and Delta - need to get the legislation through because there will be some payment spikes in the system."
Delta expects it will have to contribute $450 million to its pension plans this year, even though the airline has frozen the defined-benefit plans and started fresh defined-contribution plans. Grinstein said he expects pension contributions to rise significantly in coming years if Delta isn't given more time to fund it. As of the end of 2004, Delta's pension was underfunded by $5.3 billion.
Northwest executives and pilots have also proposed freezing their pension plan, and both groups support a longer amortization period.
The bill requires airlines taking advantage of the rules to freeze all or part of their defined-benefit plan. Employees would be eligible for the benefits they've earned up to the date of the freeze but no additional benefits would accrue unless the airline pays for them immediately.
Under a defined-benefit plan, the company promises employees certain future retirement-benefit levels. Under a defined-contribution plan, the company contributes to employee retirement plans during employment, with no promise of particular benefit levels upon retirement.
Before an airline can use one of the options in the bill, it must have an affirmative vote of its union employees.
The Air Line Pilots Association union has expressed support for freezing old defined-benefit plans and replacing them with more modern plans, and the union supports the new legislation.
While major airlines and their unions will continue lobbying for the passage of the bill, officials with some low-cost carriers say the bill gives unfair aide to major carriers.
America West Holdings Corp.'s (AWA) senior vice president of government affairs, C.A. Howlett, has called such legislation a "weapon" that major airlines can use in their competition with low-cost carriers. The bill would allow some airlines to cut their costs, while other airlines that offer the more modern, defined-contribution retirement plans, get no benefit.
