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PBGC to Airlines: Pay Up

Reportedly, the government would have had a stronger claim on Northwest's pension money if the airline had delayed its Chapter 11 filing ''by even one more day.''
Stephen Taub, CFO.com | US
September 15, 2005

The head of the Pension Benefit Guarantee Corp. has sternly warned two major airlines that despite filing for bankruptcy protection, they're still on the hook for pension payments.

"Northwest Airlines and Delta Airlines are required to make minimum pension contributions under ERISA and the Internal Revenue Code," stated PBGC executive director Bradley Belt, in a press release issued Thursday. According to the PBGC, the pension funds of the two airlines are underfunded by a total of $16.6 billion.

Earlier on the CFO Blog, we noted that the government would have had a stronger claim on the pension money if Northwest had delayed the Chapter 11 filings "by even one more day," according to The New York Times. As it stands, the PBGC is an unsecured creditor, and $65 million worth of employee benefits are at risk.

As for Delta, chief executive officer Gerald Grinstein has said that his airline wants to pay its obligations but needs more time to do it, reported Bizjournals.com.

Noting that workers and retirees will be placed at greater risk of losing their benefits if the airlines fail to make those contributions, Belt added, "The financial challenges facing the airline industry are significant, but nothing in the bankruptcy code requires companies to skip their pension funding payments."

Belt also pointed out that Northwest and Delta will continue to pay for fuel, wages, health care, utilities, and aircraft leases. "As long as companies remain in operation with ongoing pension plans, they have a legal obligation to meet their funding requirements," Belt further insisted.




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