April 23, 2005, New York Times

Airlines Seek to Stretch Out Pension Dues

By MICHELINE MAYNARD

The big airlines are lobbying Congress for what is effectively another bailout, their third plea for assistance since the September 2001 attacks. The deep first-quarter losses they reported this week are being used to bolster their argument.

This time, the effort has the support of unions representing pilots and flight attendants, a startling coalition given the depth of wage and benefit cuts the companies demanded in the last few years from unions.

"There's nothing like a common problem that can unite what in our day-to-day lives are adversaries," the pilots' union president, Duane Woerth, said.

The carriers, especially Delta Air Lines and Northwest Airlines, and the unions, led by the Air Line Pilots Association, began a major push for assistance more than a month ago. This week, Senator Johnny Isakson, a Georgia Republican, introduced legislation that would allow airlines to stretch out their overdue pension obligations over 25 years, instead of having to cover the shortfall in three years, as current law requires. Collectively, the six big traditional airlines owe $20.8 billion in back payments.

Their argument to Congress is simple: help us fix our pension problem now or risk seeing airlines, employees and taxpayers suffer more in the near future.

The legislation, the Employee Pension Preservation Act, is "a far superior alternative" to possible layoffs and bankruptcies, said Andrea Fischer Newman, senior vice president for government affairs at Northwest. The airline said Thursday that it lost $458 million in the first quarter, double its loss a year earlier.

As if to illustrate the consequences of inaction, the federal pension agency said yesterday that it would assume control of four union pension plans at United Airlines, which has been operating in bankruptcy since December 2002. The agency said the plans, covering pilots, flight attendants, mechanics and other workers, were underfunded by $9.8 billion, an even bigger deficit than the airline estimated at the end of 2004.

The industry effort, which has been gathering steam all year, essentially began on March 3, when a dozen airline executives and labor leaders met on Capitol Hill with 10 senators.

The gathering, convened by the Senate Commerce Committee, was not open to the public or the press. Billed by the committee as a listening session, it gave the main proponents of the pension changes the chance to emphasize their need for aid.

Backers see the proposal as having three main benefits. By stretching out the pension obligations, struggling airlines would ease their immediate financial burden, helping them avoid bankruptcy, a fate that has already befallen United, a unit of UAL, and US Airways.

That breathing room, in turn, would protect the federal Pension Guaranty Benefit Corporation, saddled by a $23 billion deficit, from having to assume control of more pensions like United's. The agency has warned that its deficit could balloon to $40 billion if it has to take over more airline pension plans.

And with a smaller annual burden from pensions, airlines might become more attractive to debt rating agencies and a better bet for investors, proponents of the bill say.

But the effort is not universally supported within the industry or in Washington.

In particular, the low-fare airlines, which posted good first-quarter results and which do not have traditional pension plans or pension deficits, are characterizing the proposal as assistance for a handful of competitors who have not been financially disciplined.

"Once again, the people who claim they don't want government interfering in their business are asking it to interfere in their business," said Joseph D. Leonard, the chief executive at AirTran Airways.

Unions are split, too. The International Association of Machinists and Aerospace Workers, which represents mechanics and ground workers, does not like the bill.

The pension agency has also not endorsed it. A spokesman, Randy Clerihue, said the agency needed to "scrutinize the proposal very closely" to make sure it protected pension benefits owed to workers and enabled companies to meet their future obligations.

Proponents acknowledge that they face an uphill fight - not least because the airlines have come back to Congress again after receiving extensive assistance in 2001, a suspension of security fees during the summer of 2003 and a short-term pension reprieve in 2004 that allowed them to put off required payments.

"There's a very, very bitter taste in a lot of peoples' mouths about helping the airlines with their pension plans," D. Scott Yohe, vice president for governmental affairs at Delta, said in Washington last week.

But Mr. Yohe's company has a desperate need to ask. Delta was only hours away from a bankruptcy filing in October, when it persuaded its pilots to grant deep wage cuts. The airline, which had the worst year in its history in 2004, said Thursday that it lost $1.1 billion in the previous quarter, triple its loss a year ago, and the deepest among the major airlines.

Mr. Yohe, who says the fight is among the most critical of his 26 years as a Washington lobbyist, argues that the bill is not a bailout, like the $15 billion rescue measure passed by Congress 17 days after the September 2001 attacks.

Instead, he contends it should be viewed as the equivalent of a mortgage refinancing, simply stretching out payments the airlines are legally required to make.

Clearly, airlines have to do something about pension costs, said Philip A. Baggaley, an airline analyst with Standard & Poor's. Otherwise, Mr. Baggaley said, the industry could be hit by "the dreaded domino effect of a series of bankruptcies."

But leaders at low-fare airlines are not convinced that their rivals should be helped when other industries are also in need.

"How can you pass legislation to help the airlines and not steel or autos?" Mr. Leonard said in a telephone interview.

Officials at Southwest Airlines, which reported a tripling of first-quarter earnings, took issue with Mr. Yohe's refinancing analogy. "Normally, you finance an asset, you don't finance a liability," Ron Ricks, Southwest's vice president for government affairs, said in Washington.

Southwest, which provides its employees with profit sharing and a 401(k) plan in lieu of pensions, far prefers that Congress focus on providing more money for airports or eliminating security fees placed on airline tickets in recent years.

Mr. Woerth, however, argued that low-fare airlines would be viewed as "pretty petty and self-serving" for opposing efforts to fix a problem they did not have.

Mr. Yohe at Delta agreed, saying, "They ought to play with us on this one."


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