Airlines Face Billions in Pension Payments

The nation’s struggling airlines face at least $10.4 billion in payments for defined-benefit pension plans through 2008, significantly more than some are able to afford, a congressional report says.

The Government Accountability Office released the report Tuesday as the Senate prepared to take up legislation meant to bring long-term viability to employer-based pension plans. The Senate bill singles out the financially strapped airline industry in waiving pension-funding requirements.

The GAO, the investigative office of Congress, said easing pension-plan obligations would help, but not eliminate, the cost imbalances the major airlines have with low-cost competitors. It would not guarantee that they could avoid bankruptcy.

The report said defined-benefit plans for the major carriers were over-funded by $700 million as recently as 1999. But, with the declines in the stock market and other factors, the airlines’ pension plans had $21 billion more in liabilities than assets in 2004.

That figure has since fallen to $13.7 billion because UAL Corp.’s United Airlines and US Airways Group Inc. terminated their plans, shifting much of the financial burden to the Pension Benefit Guaranty Corp., the federal pension insurance agency.

The agency, which insures 31,000 private-sector pension plans covering 44 million employees, has seen its liabilities soar to more than $23 billion last year, mainly because of takeovers of steel and airline industry plans.

It warned of a significant rise in that figure if the agency were forced to assume the pensions of Delta Air Lines Inc. and Northwest Airlines Corp., which recently filed for bankruptcy protection and have a combined pension under-funding of $16.3 billion.

The recent plan terminations of United and US Airways resulted in $9.6 billion in claims -- the difference between liabilities and transferred assets -- for the federal insurance agency.

The legislation before Congress aims to tighten rules for pension contributions to prevent employers from falling behind in their payments and eventually shifting responsibility to the agency. The agency operates through premiums and investments, but there is concern that rising liabilities could result in a taxpayer bailout similar to the savings and loan industry crisis of the 1980s.