US Airways, Pilots Argue Pension Plan

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US Airways, Pilots Argue Pension Plan

By Matthew Barakat

February 28, 2003

US Airways could fully fund its pilots' pension plan if it froze benefits and made proper actuarial assumptions, according to an actuary hired by the pilots.

But airline executives, including chief executive David Siegel, told a bankruptcy judge Friday that the only way they can avoid liquidation is to terminate that plan, which provides benefits to roughly 8,000 active, retired and furloughed pilots.

U.S. Bankruptcy Judge Stephen Mitchell heard a third day of testimony Friday on the pension issue, and will hear more testimony Saturday. It is not clear when he will issue a ruling.

The pension issue is the last major hurdle US Airways faces in its plan to emerge from bankruptcy by March 31. Siegel testified Friday that the March 31 date is critical because the company stands to receive $1.24 billion in financing upon emergence from bankruptcy. If it doesn't receive that financing, it may run out of cash, he said.

The airline believes it will save more than $800 million over the next seven years by terminating the plan and replacing it with a plan that would provide defined contributions instead of defined benefits.

The terminated plan would be taken over by the federal Pension Benefits Guaranty Corp., which would pay greatly reduced benefits - in most cases payments would be capped at about $28,000 a year.

Most pilots under the old plan would receive pensions of $50,000 to $70,000 a year, according to the union. A few would receive benefits of up to $100,000 a year or more.

If US Airways gets what it wants, most pilots say their benefits could be reduced by 50 percent or more.

The pilots' union questioned the need for terminating the plan during questioning Friday. They claimed the airline is overestimating how much it will be required to contribute to the pension plan.

The difference of opinion amounts to an argument between actuaries. Different assumptions about interest rates on the order of half a percentage point can account for differences of hundreds of millions of dollars in projected pension liabilities.

Airline spokesman Chris Chiames said the company's financial projections have been solid throughout the bankruptcy process and been approved by a committee of creditors and the federal Air Transportation Stabilization Board, among others.

But James Kenney, an actuary who testified on behalf of the pilots, said the company's projections about its liabilities are overstated by more than $500 million. That, along with a freeze in benefits that would save about $350 million, would eliminate the need to terminate the plan.

Union spokesman Roy Freundlich said the union wants the judge to leave the old pension plan in place so that an alternative way can be found to reach the cost savings the airline needs. The pilots have already agreed to $565 million in annual wage and benefit concessions.