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Politics : A Neutral Corner -- Ignore unavailable to you. Want to Upgrade?

To: Constant Reader who wrote (182)	9/16/2005 10:10:56 AM
From: Constant Reader	Respond to of 2253

This is the second item in the WSJ this morning, an editorial about the Delta and Northwest bankruptcies and the boondoggle known as the Pension Benefit Guaranty Corporation. I think the average taxpayer is oblivious to the huge liabilities assumed by the PBGH. BTW, check out the author name at the beginning of the editorial ;-) Come Fly With Congress By HEADLINE AVAILABLE September 16, 2005; Page A14 This week's bankruptcy filings raise the possibility that Delta and Northwest will join United Airlines and US Airways in dumping their pension obligations onto taxpayers. Members of Congress will howl, but it's time for the politicians to admit their own role in co-piloting the airline industry into Chapter 11. The immediate causes of the Northwest and Delta filings are failed labor negotiations and bad luck. Northwest is struggling with striking mechanics who refused to join other unions in negotiating $1.4 billion in annual savings to prevent bankruptcy. Delta has its own high-cost union contracts and has long been bleeding cash. Hurricane Katrina and sky-high fuel costs were the tipping point. But the root of the problem for these "legacy" carriers is the burden of pension costs. And one tantalizing option is to use bankruptcy to pass them off to the taxpayer via the federal Pension Benefit Guaranty Corp. (PBGC). Congress created this government-run insurance system in 1974, promising to "protect workers" when companies failed. But as always with such government guarantees, Congress only created a future "moral hazard" that is now coming due. Management and labor would agree in flush times on big pension obligations because they knew the taxpayer was their safety net. The PBGC charges paltry premiums that in no way cover the huge liabilities rolling in from steel, airline and retail industries. Its current deficit exceeds $23 billion, while pensions nationwide are underfunded by an estimated $450 billion. Delta and Northwest alone could dump another $12.4 billion in unfunded liabilities on the agency, with other airlines likely to follow. By the way, current airline management isn't the major villain here. Northwest CEO Doug Steenland has been warning about the pension problems for years, and has suggested sensible reforms that might have saved both retirees and Northwest. (See his op-ed on this page, November 16, 2004.) But Congress typically dawdled, and bankruptcy eventually became the better part of financial triage. Some of the biggest losers could be airline employees who'd receive only a fraction of their promised pension. So the PBGC is one more case of Congress writing checks it can't cover. The feds have also burdened airlines in other ways. The Railway Labor Act discourages union compromise, taxes are piled onto ticket prices, foreign investment is all but prohibited, and the antitrust lawyers at Justice have blocked sensible mergers. (See Robert Crandall nearby.) In a classic case of the latter, Justice barred a US Airways and United merger on the ground of unfair competitive advantage, only to see them both go bankrupt. One hopeful bit of speculation this week is that perhaps the Delta and Northwest Chapter 11 filings were coordinated. The two airlines have compatible routes that would make them ideal merger partners, and bankruptcy is a perfect place to deal with the pilot integration issues that are the biggest reason airline mergers can fail. In any case, the presence of four airlines in Chapter 11 at the same time suggests that something's got to give. United is already struggling to get enough capital to emerge from bankruptcy, despite its pared down pension costs. Sooner or later one of these carriers will exit not as a going concern, but stage left, via Chapter 7 liquidation. Especially compared with that alternative, a Delta-Northwest merger would make sense. The impulse on Capitol Hill will be to provide yet another bailout, hoping that Northwest and Delta can keep their pension plans. As if the politicians haven't done enough harm already. The Senate Health, Education, Labor and Pension Committee has already passed another "reform" that would give most companies 20 more years to get their pension plans in order, meaning 20 more years to grow the PBGC's future liabilities. If the Members really wanted to help, they'd leave the airlines alone and find a way to phase out PBGC guarantees. URL for this article: online.wsj.com

To: Constant Reader who wrote (182)	9/16/2005 10:36:27 AM
From: Rambi	Read Replies (5) \| Respond to of 2253

Personal interest is putting it mildly. I have a husband not sleeping nights for all the reasons Crandall mentioned. (Dan worked directly with him when he was in legal and has enormous respect for him). The system is a mess. American has struggled to fund its pension plan (I believe they are 80% funded right now) but if everyone else is allowed to dump theirs in BK, obviously we can't compete. It's insane. We have a friend who's an attorney with the pension guarantee fund, and over a year ago, he told us they were stretched and couldn't take on any more airline BKs without substantial addtional funds. And of course, it's the taxpayer who ultimately pays. It's almost as if you are rewarded for BK. I know nothing about business, but common sense tells you that something is terribly sick about this system. Am forwarding the articles to Dan. Thanks!