Delta Air Lines Inc. filed a formal request with bankruptcy court to terminate its pilots' pension plan, as President George W. Bush prepared to sign a bill aimed in part at helping the struggling carrier save its other employees' pensions.
If the court in New York approves Delta's request Friday to cancel its pilots' pensions effective Sept. 2, the government's pension insurer would take over the plan and pay pilots a reduced benefit based on when they retire and other factors. A hearing on the request is set for Sept. 1.
The 6,000 pilots, as part of a $280 million (euro218.9 million) concessions agreement with the company first reached in April, have agreed not to oppose the pension termination request, though other groups may oppose it. Atlanta-based Delta notified the Pension Benefit Guaranty Corp. in June of its intent to seek termination of the plan.
"Unless the pilot plan is terminated, Delta will very soon face an operational and financial crisis that will prevent it from emerging from Chapter 11," the airline said in its filing.
The bankruptcy court request comes just a day after the Senate approved a pension bill that provides special relief for Delta and Eagan, Minnesota-based Northwest Airlines Corp., allowing them to have 17 years to fully fund their pension plans.
Delta, the nation's third-largest carrier, had lobbied hard for the bill, arguing it was essential to help them avoid terminating the pension covering its ground workers and flight attendants. Bush said Friday he planned to sign the bill into law soon.
Delta's effort to terminate its pilots pension plan, which is significantly underfunded, had been expected, as the company seeks to emerge from Chapter 11 by the middle of 2007 a leaner airline. UAL Corp.'s United Airlines, the nation's No. 2 carrier, terminated its pilots' pension when it was in bankruptcy protection.
Delta has promised its pilots a $650 million (euro508.1 million) note in the event the pension is terminated. Delta also has promised the pilots a $2.1 billion (euro1.64 billion) unsecured claim. The PBGC has argued that money belongs to the agency, a claim the company has rejected.
Once the plan is terminated, the company's pilots will not be entitled to the hefty lump sum payments under the existing pension plan, which allows pilots to retire at 50 and receive half their benefits in a one-time payout and the rest in an annuity later.
The lure of that lump sum prompted many pilots to put in for retirement before Delta filed for bankruptcy protection last September. But a shortfall in the pension fund has prevented pilots from cashing in their lump sums since Oct. 1.
"If the pilot plan is not terminated and the lump sum door reopens, Delta will immediately face a huge wave of pilot early retirements by its most senior pilots," Delta said in its filing Friday.
Delta said it would have to cancel thousands of flights if that happened.
"Delta likely could not survive an operational disruption of this magnitude," the airline said.