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Fri, Aug 04, 2006

Senators Expect Pension Bill Agreement Before Recess

Northwest Responds To Claims Of Unfair Advantage

The US Senate is working hard to resolve the ongoing dispute over how airlines are to repay their pensions before the chamber is set to recess for the month at the end of this week, according to news reports.

"I think that will be taken care of," Georgia Republican Johnny Isakson, one of the senators involved in negotiating the bill's airline provisions, told reporters. Isakson also predicted the bill would "absolutely, without question," be passed unchanged before the recess.

As Aero-News reported Wednesday, senators from states that are home to airlines such as American and Continental had voiced objections to the 900-page bill, which they say gives an unfair advantage to carriers that choose to freeze their plans instead of allowing benefits to continue to accrue.

The bill is targeted specifically at bankrupt carriers Northwest and Delta, which under the bill would have 17 years to repay their respective funding gaps -- versus seven years for carriers that have opted to continue their plans.

The bill has already passed the House, and if approved by the Senate would next go to the president for approval.

Even if the bill is passed, however, it does not necessarily mean the law is then cast in stone... as Isakson hinted some "technical" changes in the legislation could be made when Congress reconvenes in September, with more involved changes waiting to be acted on "somewhere down the line."

Senate Majority Leader Bill Frist opposes any change to the legislation, as any changes would need to go back to the House for approval, or at least to joint committee.

Reuters reports airlines that do not freeze their pensions would be given a total of 10 years to reach full funding... but would also get a less-generous interest rate on which to calculate future benefits -- a move Texas Republican Senator John Cornyn called unfair to airlines that have managed to stay out of bankruptcy court.

Northwest Responds To Senators' Claims

This week, Northwest Airlines Media Relations Director Kurt Ebenhoch issued the following statement to Aero-News, responding to charges that the pension bill gives an unfair advantage to some airlines:

There is no competitive issue in the airline provision of the bill. The bill clearly does not give one airline an advantage or disadvantage over another. The airline section of the bill is not based on specific airlines – it is based on whether an airline's pension plans are frozen or ongoing.

All airlines have access to the various provisions of the bill and can choose which option they prefer. The reasons for the different options is because the frozen pension plan option limits and protects the liability of Pension Benefit Guaranty Corporation (PBGC) and potentially taxpayers, and the ongoing plan option does not.

The bill also provides special relief for airlines that choose to continue their plans, by waiving the Deficit Reduction Contribution (DRC) requirements for two more years and then allowing those airlines to amortize over ten years.

Any airline with pension plans -- including American and Continental -- is eligible for either option based on what they have chosen to do with their plans. In fact, a carrier such as Continental is eligible to take advantage of both provisions, as some of their pension plans are frozen and others are not. Continental's pilot plan was frozen last year.

FMI: www.senate.gov, www.nwa.com, www.delta.com, www.aa.com, www.continental.com

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