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The government's pension insurer is now responsible for paying pension benefits to more than 13,000 active and retired pilots, while the airline will continue to sponsor a retirement plan for other employees.
Stephen Taub, CFO.com | US
January 5, 2007
The Pension Benefit Guaranty Corp. has officially become the trustee of the pilots' retirement plan for troubled Delta Air Lines.
The U.S. Bankruptcy Court — which previously determined that Delta could not reorganize or emerge from Chapter 11 unless the plan was terminated — approved the airline's agreement with the PBGC last month. The government's pension insurer is now responsible for paying pension benefits to more than 13,000 active and retired pilots, while the airline will continue to sponsor a retirement plan for other employees.
The agreement grants the PBGC an unsecured claim against Delta of $2.2 billion and provides for the distribution to the PBGC of $225 million in senior unsecured notes. The plan itself has $1.7 billion in assets — and more than $4.7 billion in liabilities. By the PBGC's math, the agency estimates that it will be liable for almost $920 million of that $3 billion shortfall, making the Delta pilots' plan the sixth-largest claim in the PBGC's 32-year history.
Under federal pension law, for plans that terminate in 2006, the maximum guaranteed pension for participants at age 60 is $30,978.36 per year; at age 65, $47,659.08 per year. (The PBGC pointed out that participants who have already retired or are near retirement can receive more than those guaranteed amounts, provided that their plan has sufficient assets.)
"Delta appreciates the PBGC's recognition that the company satisfactorily met all of the statutory criteria for a distress termination of the Delta Pilots Retirement Plan and that the agency is now the plan's trustee," said Delta chief financial officer Edward H. Bastian in a statement. "This represents an important and necessary milestone in Delta's restructuring, and we are pleased we were able to work constructively with all parties involved to satisfactorily resolve what is an extremely important and complex issue."