A bankruptcy judge ruled Monday that if Delta Air Lines Inc. pilots want to challenge the company’s decision not to make certain pension payments, they need to file a lawsuit.
Judge Prudence Carter Beatty did not rule on the merits of a motion the pilots filed seeking reinstatement of the payments. Instead, the judge indicated they need to follow procedure and she recommended that Delta meet with its pilots to try to come to a resolution outside the court.
“I think the next step is we talk to the company and find some middle ground which is something she (the judge) encouraged,” said Dean Booth, a lawyer for the pilots. “She suggested that we call the debtor (Delta) and we intend to do that.”
The pilots want the nation’s third-largest carrier, which filed for bankruptcy protection Sept. 14, to continue making minimum contributions to their pension plan and certain payments to higher-paid retirees. The Atlanta-based company vows it won’t do either unless a judge forces its hand.
Lawyers for both sides argued the issue in court Monday. The dispute comes as many observers wonder whether Delta will terminate its pension plan altogether if it doesn’t get relief from Congress.
Beatty repeatedly expressed concern that if the airline tries to pay retiring pilots a lump sum payment, that would hurt the airline’s ability to emerge from bankruptcy “Delta does not have the money to pay off all of these pilots,” she said.
Retiring pilots can take half of the value of their projected benefit payments as a lump sum upon retiring. Attorneys for the airline estimate that if half of the pilots eligible for retirement do so and ask for a lump sum, the airline will face a $1 billion payment in January.
Over the last twelve months, attorneys for the airline say, Delta’s qualified pilot plan has paid out about $907 million in lump sums to 1,190 pilots. The plan, already diminished because of lump sum payouts, does not have enough money to legally make more of these large payments without an October contribution from Delta.
“This plan is underfunded because of lump sum payments,” Beatty said.
The pilots argue their contract with Delta requires the airline to continue making the pension payments in question until it applies for and gets permission from the bankruptcy court to void the contract, which it has not done.
The company argues that the payments are unsecured, pre-petition claims against the airline and, therefore, Delta does not have to make the payments a priority during its reorganization.
Lawyers for the pilots had filed a motion seeking to compel Delta to continue making minimum funding contributions to the pilots’ qualified pension plan and nonqualified payments to retired pilots.
Attorneys representing the retired pilots could appeal the judge’s order Monday or they can comply and file a lawsuit in the bankruptcy court within a week.
“Whether we do that (file a suit against Delta) or not depends on a couple of things such as an evaluation of the legal merits of an appeal versus an adversary proceeding. Then there is the potential for any discussions with Delta,” said John Christy, another lawyer for the pilots.
Also Monday, the bankruptcy judge ruled that Delta can surrender aircraft it has been leasing.
The airline does not have to transport the aircraft to their original locations — where the lessors are based — nor does it have to repair the aircraft, the judge ruled.
The bankruptcy judge did not rule out that Delta may have to pay the expense of getting planes back to their owners.
The next Delta bankruptcy hearing is on Oct. 27. In that hearing, retired pilots are expected to ask for the formation of a separate committee that would represent their interests.
The judge also said she would ensure Delta does not interrupt any payments or benefits to four of its retired oldest pilots, ages 81 to 96, or their survivors. “It is not a lot of people,” she said.