PBGC's Petition Rejected, Though May Appeal

ANN REALTIME UPDATE 05.31.06 1920 EDT: After hearing a petition from the US Pension Benefit Guaranty Corp asking the court to toss out a new pilot contract approved early Wednesday morning between Delta Air Lines and its pilots, US bankruptcy court judge Adlai Hardin gave his blessing to the deal -- clearing the way for Delta to save $280 million annually over the next three years in pilot pay and benefits, while also likely ending the looming threat of a pilots strike.

"This agreement provides a framework for Delta to successfully reorganize and emerge from bankruptcy ready to win in today's competitive marketplace," said union leader Lee Moak. "The new contract also provides real returns and job security for the unprecedented recent sacrifices made by the Delta pilots in support of our great company. We look forward to Delta's successful emergence from bankruptcy and together with all Delta employees, returning our airline to success."

Before issuing his ruling Wednesday afternoon, Hardin heard the PBGC's case that the loan guaranty company should be able to collect a $650 million note and $2.1 billion unsecured claim should the pilots' pension be terminated -- which is likely. Delta has promised those funds to the pilots as part of the contract agreement.

After hearing the PBGC's case, however, Hardin ruled that ratifying the new contract was in the best interests of all those involved in the long fight between Delta and its pilots -- and will finally give the beleagured carrier the opportunity to go forward.

It was unclear Wednesday night whether lawyers for the PBGC would appeal Judge Hardin's ruling.

ORIGINAL REPORT

Pilots for Delta Air Lines have approved a new pay agreement with the bankrupt carrier that will cut their pay and benefits by $280 million a year through 2009... but also lets them stay on the job, and stay flying.

The Air Line Pilots Association said Wednesday that 61 percent of the union's rank-and-file pilots voted in favor of the deal. The Associated Press reports the new contract is set to go into effect Thursday, pending approval by a federal bankruptcy court judge.

That approval isn't guaranteed, however. The judge is scheduled to rule on the contract late Wednesday in a White Plains, NY courtroom... after hearing arguments from the Pension Benefit Guaranty Corporation (PBGC) on its motion for the courts to reject the contract. The PBGC says the group should be the receipient of a $650 million note and $2.1 billion unsecured claim should the pilots' pension be terminated, as is widely expected. Delta has promised those funds to the pilots.

The PBGC made a similar objection in the bankruptcy case of United Airlines, but later settled the issue when parent company UAL promised to pay the agency up to $1.5 billion in notes and stock in the reorganized airline.

Should the judge rule against the new contract at Delta, however, it would open a Pandora's Box of potential trouble for the airline. Rejection of the deal would send the pilots union and the airline back to the negotiating table -- again -- after months and months of contentious arguments.

Of even greater concern is the likelihood Delta would ask the bankruptcy court for permission to toss out the old pilots contract, and institute its own sweeping cuts.

Pilots have promised to strike if that happens... and that would almost certainly mean the end of Delta.

FMI: www.delta.com, www.alpa.org, www.pbgc.gov