Responsibility Falls To PBGC

In a move unlikely to surprise anyone, Delta Air Lines has informed a senator working to maintain the airline's pension plans that the carrier intends to terminate those plans, effective September 2.

Senator Johnny Isakson, R-GA, had been working on legislation -- with Delta's blessing -- to help the carrier keep those plans operating -- but Delta CEO Gerald Grinstein (file photo, below right) said that in the end, the cost to the bankrupt airline was simply too great.

"I want to be sure you are aware of a necessary but difficult step Delta must take, why that step is essential to the long-term survival of our company," said Grinstein's letter to Isakson, obtained by CNNMoney.

The move likely means that Delta's pensions with be turned over to the Pension Benefit Guaranty Corp... and the government agency would be stuck with the unenviable task of making good on the airline's current pension obligations.

Neither the PBGC, nor the Air Line Pilots Association -- which represents some 6,000 pilots at Delta -- had an immediate comment on Delta's announcement.

As Aero-News reported, the PBGC had asked US Bankruptcy Court judge Adlai Hardin to toss out the new pilot contract approved last month between Delta and its pilots. The judge rejected the group's petition, clearing the way for the contract to take hold and for Delta to save $280 million annually over the next three years in pilot pay and benefits.

If Delta is successful in terminating its pensions, Delta's losses would be the PBGC's... even greater losses, with an estimated $10.6 billion shortage in promised benefits falling on the government agency. If that amount holds (the estimate was performed last September), it would make Delta the largest hit the agency has ever had to cover -- surmounting even the $10.2 billion the PBGC absorbed when the agency took over pension plans from United Airlines.

In the past, pilots at Delta could chose to take half their pension benefits as a lump sum when they left the company, and then receive the balance of their accrued benefits in monthly payments. That option disappeared when Delta filed for bankruptcy last September 14. The option was to become available shortly, however... and both the ALPA and Delta agreed the fund could not cover those obligations.

"Given both Delta's and the Air Line Pilots Association's public statements that the defined benefit pension plan for pilots likely could not be saved, the decision is not unexpected," said Grinstein's letter. "Delta and ALPA recognized in recent negotiations the potential impact on pilots."

The PBGC is expected to ask for a $650 million interest bearing note promised to pilots as part of their concession contract, to be paid to the agency instead. The agency will likely face an uphill battle, however, as the note was a crucial part of winning approval from the pilots for the new pay deal.

The new pilots' contract, approved May 31, was ratified by 61 percent of Delta's voting pilots.

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