Airlines Seek Pension Relief

Earlier this year, the PBGC took over the last of US Airways' pension plans, leaving the government insurer with $3 billion in obligations, its second largest claim ever behind Bethlehem Steel's $3.7 billion one in 2003. The PBGC is also trying to take over plans for pilots and ground employees at United, which has said it wants to terminate its pension plans in order to help it exit bankruptcy.

United's pension obligations are even greater: $8 billion, of which the PBGC would likely be forced to cover $6 billion.

If it rids itself of all its pension plans, then United would have a significant competitive cost advantage over rivals such as Delta and Northwest. "If United walks out on $8 billion, it pretty much forces everybody else to consider walking out, too," Mann said.

If other airlines terminate their pension plans, that would simply increase the deficit of the PBGC, which faces a crisis of its own. The federal agency, which functions like an insurance company and receives premiums from companies providing defined-benefit plans, ended its fiscal year last September with a deficit of $23.3 billion. (This number accounts for US Airways' claims, but not United's.)

The airlines' woes prompted Bradley Belt, the PBGC's executive director, to call the industry the "most immediate threat" to the pension insurance program in congressional testimony in February.

The Bush administration has recognized the problems facing the federal program and has submitted a proposal to shore it up. Among other things, the White House would like to see companies' premiums rise to $30 for each covered employee from the current $19. Companies considered credit risks would have to pay an even higher, unspecified premium. The administration would also allow companies to contribute to their plans during good times, but companies would only have seven years to make up their funding gaps.

"The administration's proposal would be very damaging to the airlines," said Delta's Yohe, explaining that it would require contributions to be made in an unreasonably short period of time.