Gerald Grinstein (search), Delta's chief executive, and Douglas Steenland (search), chief executive of Northwest, told a Senate Finance Committee hearing that pensions covering more than 150,000 workers and retirees at both companies are unmanageable and could lead to insolvency.
"There is no question that the single biggest uncertainty that may well determine whether or not Delta can successfully restructure outside of bankruptcy court is the pension cloud that hangs over the company," Grinstein said.
Federal pension insurers told the hearing the most troubled corporate plans — many of them run by airlines — are falling further into the red.
Pension underfunding for 1,108 plans at major U.S. companies rose 27 percent last year to a record $353.7 billion from $279 billion in 2003, the Pension Benefit Guaranty Corporation said. Those accounts cover 15 million people.
Financed by premiums paid by corporations, the pension agency is facing a $23.3 billion deficit fueled partly by having to assume control of pensions at US Airways (search) and United Airlines (search), both bankrupt.
Federal insurers recently agreed to guarantee $6.6 billion in pension obligations at United, the largest default in U.S. history. United's underfunding is nearly $10 billion.
In trouble are traditional defined-benefit plans — a fading fixture of old economy plans that depend on corporate contributions and offer a fixed monthly payment regardless of how the funds perform financially.
Bradley Belt, the PBGC's executive director, told senators United went for years legally without contributing to its pension plans or paying additional premiums to the agency.
"United offers important, albeit painful, lessons that illustrate the flaws in current law and which should guide us in reforming the defined benefit system and pension insurance program," Belt said in testimony.
Sen. Charles Grassley, the Iowa Republican who chairs the Finance Committee, said United used "fuzzy math" permitted by funding formulas to "hide and disguise" the true value of its sinking pension funds.
"There is nothing unique about United," Grassley said. "The same blinders that United put on are used by companies everywhere."
Glenn Tilton, United's chairman and chief executive, said terminating pensions was necessary for the airline's survival and the impact would not be as bad as some believe. "From the outset of the bankruptcy process, our mission has been to enable United as a whole to succeed. Without success for the enterprise, the rest is academic," Tilton said.
Delta and Northwest have been lobbying for legislation that would give airlines up to 25 years to repair pension underfunding.
Northwest's Steenland called for immediate action. Under current pension funding rules, Delta must contribute about $2.6 billion to its retirement plans to eliminate the gap between what those accounts hold in assets and what the company has promised in benefits. At the end of 2004, Northwest's pensions had $5.5 billion in assets and projected benefits of $9.2 billion — a difference of $3.7 billion.
Grassley, who is working on pension reform legislation, said "tinkering" with funding rules was not an acceptable remedy.
Congressional aides have said there is no consensus in the Senate to specifically help airlines again, after loan guarantees following the Sept. 11, 2001, hijack attacks and pension breaks approved last year that heavily benefited airlines.