US Airlines Pension Gaps Seen Wider -Fitch



US Airlines Pension Gaps Seen Wider -Fitch
NEW YORK (Reuters) - Pension funding gaps at the largest U.S. airlines jumped 50 percent in a year to more than $18 billion by the end of 2002, raising concerns of financial fallout for the battered industry, rating agency Fitch said on Monday.
Airlines, and other major U.S. corporations like General Motors Corp and Ford Motor Co., have announced huge pension costs because years of U.S. stock market weakness has forced them to cut estimated returns on invested assets.
The combination of lower returns and new obligations has pushed the funding gap on a projected benefit obligation basis to $18.85 billion at the end of 2002 from $12.1 billion a year earlier for the largest U.S. airlines, Fitch estimated.
Growing pension gaps for the airlines, led by a $4.4 billion underfunding at Delta Air Lines (NYSE:DAL - News), could complicate restructurings for airlines in bankruptcy and hurt the credit quality of the others, Fitch said.
The airline sector''s pension problem is perhaps the most dire in corporate America, Fitch airline analyst William Warlick said in the report. The combination of substantial funding shortfalls and very poor operating performance endangers almost every company in this sector (at least those high-cost majors that have a defined benefit pension plan).
Low-cost carriers Southwest Airlines, AirTran Airways ATA Holdings Inc., JetBlue Airways and Frontier Airlines do not have defined benefit plans, giving then an edge over larger rivals, Fitch noted.
These growing obligations will inevitably lead to large increases in required cash contributions to pension plans, compounding the financial stress and cash flow concerns that already exist in the industry, he said.
Other analysts also believe cash flow is more important than actual dollar pension gaps, though shortfalls will become more important if stock market losses extend over the next few years. Pension obligations industrywide were overfunded as late as 1999 because of several years of economic expansion.
The increased burden of funding pensions may complicate the restructurings at United Airlines and US Airways Group Inc. which both declared bankruptcy in 2002, Fitch said. US Airways hopes to emerge from bankruptcy within months, while United plans an 18-month restructuring.
Fitch estimated United''s pension underfunding at $4.1 billion, followed by American Airlines parent AMR Corp. at about $3.3 billion, Northwest Airlines Corp. at $3.2 billion and US Airways at $3.0 billion.
This is an industrywide problem, American Airlines spokeswoman Andrea Rader said. We are paying close attention to it and are confident we are meeting all our obligations.
Most major U.S. airlines have announced plans to take year-end noncash pension-related charges.
In regulatory filings, United said it expected a charge of more than $1.5 billion, Delta of $700 million to $800 million and Northwest said its charge could exceed $700 million. American''s noncash charge is expected to be about $1 billion.
Northwest has sought to spread some pension contributions over a longer period and asked the U.S. Department of Labor for permission to use the common stock of its Pinnacle Airlines Inc. regional airline unit partly to fund its pension plans.