US Airways challenges government on pensions
Reuters, 10.27.03, 6:21 PM ET

By John Crawley

ALEXANDRIA, Va., Oct 27 (Reuters) - US Airways Group Inc. (nasdaq: UAIR - news - people) said on Monday that federal pension insurers have unfairly overestimated what the airline owes its pilots and asked a bankruptcy judge to intervene.

Calling calculations by the Pension Benefit Guaranty Corp. "regulatory fiction," US Airways attorney Doug Foley said at a hearing it was necessary for the court to resolve questions about a pension plan that was terminated earlier this year so the company could save enough money to emerge from bankruptcy.

The struggling airline now wants permission to use a new formula for calculating benefits that would lower its cash contributions and improve its sagging balance sheet. US Airways, which emerged from bankruptcy in March, reported a $90 million loss in the third quarter.

The case before Judge Stephen Mitchell is being closely watched by Congress, which is considering pension reform legislation that would help airlines and other corporations with hugely underfunded retirement accounts. Companies also want to see if there will be legal support for the somewhat novel approach now advocated by the No. 7 airline.

When US Airways terminated the pilots plan, the PBGC calculated the gap between the plan's $1.2 billion in assets and what the airline was obligated to pay was $2.2 billion. The pension insurers based their calculation over time on a discount interest rate commonly associated with conservative insurance annuities, which at the time was 5.1 percent.

But the airline is asking Mitchell for permission to use a higher rate -- 8 percent - that would tie assumptions for pension fund gains to the broader performance of markets. Because it is assumed that investments at a higher rate would return more over time, the company's contribution would go down. At 8 percent, US Airways said the underfunded amount of the pilots' plan would be $900 million, less than half of what the government estimates.

The pension agency has filed a $2.2 billion claim against US Airways assets as an unsecured creditor. While any payout would be substantially less than that amount and probably in stock, the government is fighting to preserve that figure to enhance benefits for pilots whose retirement accounts in some cases have been cut by nearly three quarters.

Active US Airways pilots are covered by a new pension plan that is less generous than the original one.

"As a practical matter, the PBGC will double its take of assets available to all unsecured creditors. That's not right," Foley said. "PBGC is not right about the way its claims should be measured."

But Susan Birenbaum, an attorney for the pension agency that is also running a huge deficit, said the airline's claim lacks substance.

She called the company's new proposal for calculating the shortfall speculative and one that "pension gurus on Wall Street" could never justify. "PBGC might as well flip a coin to the pilots and say 'heads we pay you the benefits or tails we don't,'" Birenbaum said.

Copyright 2003, Reuters News Service