A bankruptcy judge Wednesday approved the $280-million-a-year concessions agreement between Delta Air Lines Inc. and its pilots, rejecting claims by the government’s pension insurer that it should receive the compensation the pilots were promised if their pension is terminated.
The decision came hours after rank-and-file pilots gave their nod to the deal. The agreement, which runs through 2009, will take effect Thursday.
The deal, which replaces an interim pact agreed to in December, includes an initial 14 percent pay cut for pilots and assurances the pilots union won’t fight any company effort to terminate the pilots’ pension.
Judge Adlai Hardin signed the agreement during a hearing in White Plains, N.Y. Earlier in the day, pilots of the Atlanta-based airline, the nation’s No. 3 carrier, approved the deal with a vote of 61 percent in favor.
The judge’s approval, the last hurdle in the process, came despite an objection filed by the government’s pension insurer, which insisted that a $650 million note and $2.1 billion unsecured claim that Delta has promised the pilots should belong to the agency if the pilots’ pension is terminated as expected.
Hardin heard arguments from lawyers for both sides, but determined in the end that the agreement was in the best interest of the airline.
The Pension Benefit Guaranty Corp. said afterward that it was reviewing its options, including the possibility of an appeal.
“It was probably the most significant negotiation transaction we’ll face as part of this bankruptcy process,” Chief Financial Officer Edward Bastian said of the concessions deal. “It gives us the ability to put the past behind us and make Delta a success again.”
The chairman of the pilots union’s executive committee, Lee Moak, said in a telephone interview that he was encouraged by the agreement getting final approval.
“The sacrifices we have made were difficult,” Moak said. “It has been difficult and I am confident in the process going forward.”
Also Wednesday, Delta said in a filing with the bankruptcy court that it lost $27 million in April. Excluding reorganization items, it would have posted a profit of $22 million in the 30-day period. As of April 30, Delta had $2.5 billion of unrestricted cash. It has posted losses of more than $14.4 billion since January 2001.
In a letter to pilots after the pilot vote was made public, Delta’s top three executives said the ratification by the rank-and-file marks a new beginning for the airline.
“If we seize this opportunity rather than squander it, Delta Air Lines once again can proudly become the gold standard of the industry,” the executives said.
The cuts are in addition to $1 billion in annual concessions the pilots agreed to in a five-year deal in 2004.
Hardin rejected the PBGC’s main argument, that a deal between Delta and the pilots union was illegal.
He said that although, in some people’s minds, there was a link between the $650 million promise and the potential loss of the defined pension plan, that “did not render a private agreement between an employer and union illegal.”
“That is not a legal proposition I can endorse,” he said. “So I must reject that.”
Separately, a retired pilots group had objected to the new deal out of concern the Delta deal would ultimately reduce their benefits based on the pension being terminated. But their objection was resolved at Wednesday’s hearing.
As part of the settlement, Delta has agreed to provide retired pilots an administrative claim of $9 million to cover a portion of certain pension benefits that the retired pilots would have gotten since the bankruptcy filing in September had the benefits not been frozen. An administrative claim is a debt incurred by a company that has filed for bankruptcy, with court approval.