Airlines Seek Pension Relief

During the 1990s technology boom in the stock market, investments in airline pension portfolios soared in value, allowing airlines to go without making fresh contributions, noted Robert Mann, founder of R.W. Mann & Co., an independent airline industry consulting firm. But the market decline that began in 2000 eroded the gains. Worse yet, the Fed's ensuing program of interest rate cuts only served to increase the amount of money airlines needed to set aside to meet future obligations.

Some airlines aren't facing such burdens because they don't have defined-benefit plans. For example, JetBlue Airways (JBLU Quote) and Southwest Airlines (LUV Quote) provide employees with profit-sharing, stock purchase and 401(k) plans.

For the large network carriers, pension under-funding is just one of several factors causing turbulence. Crude oil prices, which surged to record highs in October, have rallied again in recent weeks, setting new records, and analysts warn the rally is far from over. And -- until recently -- individual airlines have found it difficult to raise fares to cover higher fuel costs because of overcapacity and fierce price competition.

Of the airlines seeking pension relief, Delta may need it the most, and that may explain the aggressiveness of its lobbying efforts. The Atlanta-based airline warned last month of a liquidity crisis if oil prices fail to decline significantly from recent levels. It expects to have to pay $450 million into its pension plan this year.

Scott Yohe, Delta's senior vice president of government affairs, characterizes the airline's proposal as a "solution" that would simply give the airline more time to meet obligations, not shirk them.

"The employees would realize benefits earned and accrued under their plans, and we would avoid the situation of other carriers in the industry of pushing those liabilities to the PBGC," Yohe said.

He was referring to network rivals US Airways (UAIRQ Quote) and UAL's (UALAQ Quote) United Airlines. Both have used the Chapter 11 bankruptcy process to try to terminate their pension plans and rid themselves of the accompanying obligations.