A key Senate lawmaker said on Tuesday he was ready to help airlines close pension gaps, as chiefs of two carriers warned legislative action is needed soon for their companies to avert possible bankruptcy.
Senator Charles Grassley, the Iowa Republican who chairs the Senate Finance Committee, said he was willing to let airlines stretch out pension payments, but airlines should freeze plans so no more benefits are promised that they cannot pay.
Gerald Grinstein, chief executive of Delta Air Lines and Douglas Steenland, chief executive of Northwest Airlines, earlier told Grassley's committee that pensions covering more than 150,000 workers and retirees are unmanageable and could push each into court protection.
"There is no question that the single biggest uncertainty that may well determine whether or not Delta can successfully restructure outside of bankruptcy court is the pension cloud that hangs over the company," Grinstein said.
Delta and Northwest -- the third and fourth largest domestic carriers -- are lobbying for legislation that would give airlines up to 25 years to repair pension underfunding.
Steenland called for immediate action. "This is something we can't fix ourselves."
Under current pension funding rules, Delta must contribute about USD$2.6 billion to its retirement plans to eliminate the gap between what those accounts hold in assets and what the company has promised in benefits.
At the end of 2004, Northwest's pensions had USD$5.5 billion in assets and projected benefits of USD$9.2 billion - a difference of USD$3.7 billion.
Grassley's committee is working on a pension bill and said tinkering with funding rules alone was not an acceptable remedy. He said his plan would be comprehensive and could include proposals offered by the Bush administration to rewrite rules for all companies that offer traditional pensions.
Congressional aides in both houses of Congress have said a consensus has not developed on letting airlines amortize pension contributions over a long period after a USD$15 billion bailout in 2001 and pension funding breaks approved last year.
"It's quite obvious that 25 years is ridiculous. I want to see them made whole while I'm still in Congress," Grassley told reporters after the hearing. "We need to keep the airline industry alive... We're talking about the economy of the United States."
Grinstein said reducing the 25 year payment schedule could work but didn't suggest an alternative time span.
Federal pension insurers told the hearing that the most troubled corporate plans -- many of them run by airlines -- are falling further into the red.
Pension underfunding for 1,108 plans at major US companies rose 27 percent last year to a record USD$353.7 billion from USD$279 billion in 2003, the Pension Benefit Guaranty Corporation said. Those accounts cover 15 million people.
Financed by premiums paid by corporations, the pension agency is facing a USD$23.3 billion deficit fueled partly by having to assume control of pensions at United Airlines and US Airways, both in bankruptcy protection.
Federal insurers recently agreed to guarantee USD$6.6 billion of pension obligations at United, the largest default in US history. United's underfunding is nearly USD$10 billion.
In trouble are traditional defined-benefit plans -- a fading fixture of old economy companies that depend on corporate contributions and offer a fixed monthly payment regardless of how the funds perform financially.
PBGC Executive Director Bradley Belt told senators that current law allowed United to go for years without contributing to its pension plans or paying extra premiums to the agency.
Glenn Tilton, United's chief executive, said terminating pensions was necessary for the airline's survival. "Without success for the enterprise, the rest is academic," he said.
