U.S. Says Eastern Pension Plans Are Under-Funded

The federal agency that guarantees workers’ pensions said Monday that Eastern Airlines pension plans are under-funded by about $1 billion and that any claims by the government to satisfy the shortfall could supplant other creditors.

A spokeswoman for the agency, the Pension Benefit Guaranty Corp., said that if Eastern were liquidated, at least $330 million of the unfunded pension liability would supersede the claims of Eastern’s unsecured creditors.

But she also said the government’s claims might be as much as $1 billion, or the full potential liability in the plans. Eastern’s unsecured creditors are owed about $980 million.

Last week, some of the creditors threatened to try to force a court-supervised liquidation of Eastern after it said it would not be able to pay them 50 cents on the dollar for their debts, as promised in February.

Eastern, which has been struggling to emerge from bankruptcy proceedings, cited weak revenues from business travelers, who often pay higher fares and generate more airline profits. It also increased its projected losses.

The spokeswoman for the pension guaranty corporation said it hopes a solution other than liquidation can be found for Eastern, a subsidiary of Texas Air Corp.

A liquidation of Eastern also could hurt Texas Air because the parent company, as well as Continental Airlines, Texas Air’s other airline subsidiary, could be liable for some of the shortfall in Eastern’s pensions.

The agency spokeswoman said it would have the right to seek redress from either Texas Air or Continental if the Eastern pension plans were terminated.

Eastern’s unsecured creditors have sought without success for over a year to negotiate a lasting agreement to have their claims repaid and allow the carrier to emerge from Chapter 11 bankruptcy proceedings.