Delta's pension tab rises Execs' perk likely to cost $65 million by '04 By RUSSELL GRANTHAM The Atlanta Journal-Constitution Delta Air Lines' controversial plan to protect top executives' pensions in the event of a bankruptcy filing could cost the ailing airline $65 million by early next year, the company now acknowledges. Delta paid $25.5 million in 2002 to establish special bankruptcy-proof pension trusts for 33 executives. Those payments, along with hefty performance bonuses for top executives, ignited a firestorm of criticism when they were disclosed in regulatory filings this spring. The airline has made no move to reconsider the pension trusts, despite the urging of former executives who termed them "unconscionable" at a time the company was axing jobs and seeking federal aid. Three days after the initial disclosures, on March 28, Delta made a second round of payments into the pension trusts totaling $19.6 million, said Michele Burns, chief financial officer. "It wouldn't be surprising" if a third payment due in 2004 is about the same amount, added Burns, who is among the executives covered. That would push the total to about $65 million the airline will have paid to essentially pre-fund 100 percent of the after-tax pension benefits of the covered executives. Delta may make smaller payments in future years to keep the trusts fully funded. The payments also include the executives' current tax liability for receiving the payments. Two more executives have been added to the covered group since the initial disclosures, Burns said, bringing the total to 35. 'An emotional issue' While the furor has subsided, the pension trusts are still an issue for some. Delta's spending on executive perks "continues to be an emotional issue with all Delta employees, including the pilots -- especially the bankruptcy-proof retirement trust funds that they've funded for 35 Delta employees," said Mike Pinho, spokesman for the Air Line Pilots Association's Delta unit. Pilot anger over executive compensation is likely to affect the company's recent efforts to win pay cuts from pilots. In late April, Delta asked pilots to accept roughly a one-third cut in pay and other concessions before their contract ends in 2005. The union may decide this week whether to enter concession talks. Delta has defended the compensation moves as a prudent strategy to keep top executives -- whose stock holdings were savaged by the decline in Delta share prices after 9/11 -- at the company. Chairman and Chief Executive Leo Mullin apologized at the annual shareholder meeting for not being "sensitive to the implications" of the pension and bonus plans, and he said he will forgo personal bonuses this year and next. The former executives who objected to the pension trusts remain angry. Mullin "and his group have a lifeboat and everybody else is sinking," said Harry Alger, a one-time pilot who retired as executive vice president for operations in 1998. He and 29 other retired Delta executives who are not covered by the pension protection plan last winter signed a letter to Delta objecting to the trusts. Some of them had initially asked to be included, but the larger group based its objections on the appropriateness of such a plan at a time of financial crisis for the company. Most Delta executives have remained close-lipped about the bonuses and pension plans. The Atlanta Journal-Constitution recently e-mailed questions regarding the perks to most of 60 Delta executives who received 2002 bonuses totaling $17.3 million, a group that also includes all of those covered under the pension trust plan. None replied. But Delta agreed last week to a phone interview with Burns, who spoke about how the pension trust payments are being made. Burns said the timing of the 2003 payment -- which had to be made by April 1 under the pension plan's rules -- had nothing to do with criticism of the program that was then swirling. The 2002 payment had funded the trusts to 60 percent of their total pension obligations. The reason the next two payments are nearly as much is because the pension benefits grow annually, Burns said. Also, the addition of two more executives broadened the pool. Falling rates a factor Retired Delta Chief Financial Officer Thomas Roeck said last year's falling interest rates, which would have the effect of increasing the calculated pension liabilities, probably also forced Delta to bump up its funding for the executive pension trusts. "The interest numbers just lever all this stuff," he said. Delta has not disclosed the list of executives covered, other than the airline's top five officers: Mullin, Burns, President Fred Reid, marketing chief Vicki Escarra and human resources chief Robert Colman. Mullin and Burns have denied the establishment of the pension trusts signaled that management felt Delta was on course toward a Chapter 11 filing. The trusts, however, would be beyond creditors' reach if Delta did file for bankruptcy. "I wouldn't suggest to you that we particularly have ever been concerned about a potential for a bankruptcy filing," said Burns. Delta felt it needed to retool its pension and bonus plans, Burns said, after stock option portfolios were decimated in the aftermath of the terrorist attacks and huge losses made bonuses unlikely under the old plan. Likewise, she said, executives' enhanced pensions -- which, as at most companies, are calculated differently and are far larger than ordinary pensions -- were at risk of being mostly wiped out if Delta did file for bankruptcy. Most Delta workers' benefits are guaranteed by a government-backed agency, the Pension Benefit Guaranty Corp. Executives in the pension trust program "were the people we wanted to be sure were treated fairly and equally to the rest of the employee base," she said, "and to keep them focused on ... maintain[ing] the strength of this company in the midst of a terrible time." Some benefits at risk Despite Burns' assertion that the trusts simply ensure equal protection, many retirees and current employees -- including pilots, early retirees and those who made over about $73,000 before retirement -- could lose some retirement benefits if Delta filed bankruptcy, under PBGC rules. Since the controversy, two groups representing hundreds of Delta retirees have elected representatives and met with lawyers, Delta executives and PBGC officials to investigate their options and risks in the event of a Delta bankruptcy. Delta's largest employee pension plan is underfunded by about $4.9 billion -- the largest such liability in the airline industry. That means the plan would likely be canceled in a bankruptcy and the workers would be left with whatever PBGC or company guarantees they have. Delta employees' ire over the executive pensions was also deepened by the airline's switch last year to a less costly pension plan, known as a cash-balance plan, that will reduce many longtime employees' retirement benefits by about a third. The switch, which Delta expects to save $500 million over five years, was one of several moves by the money-losing carrier to conserve cash and cut costs. But the airline decided to spend cash on executive retention. After doling out no bonuses in 2001, Delta retooled its executive bonus plan early last year to put more emphasis in their performance targets on conserving cash. Previous bonus targets were heavily weighted toward Delta's achieving certain profit levels, which Delta had little chance of doing in 2002. It wound up losing $1.3 billion for the year. The result of the new bonus plan was cash payouts ranging from $1.4 million for Mullin to just over $100,000 for numerous vice presidents. Aside from Mullin's decision to forgo bonuses this year and next, the retooled bonus plan apparently remains in effect. Delta's top officers took 8 percent to 10 percent cuts in their regular salaries early this year, and after the controversy erupted, Mullin boosted his cut to 25 percent. Similar disclosures about planned retention bonuses and pension trusts at American Airlines -- just after it had won wage concessions from unions -- prompted the resignation of its then-CEO, Don Carty. *************************************************** The owner of Roger's Trinbago Site/TnTisland.com Roj (Roger James) escape email mailto:ejames@xxxxxxxxx Trinbago site: www.tntisland.com Carib Brass Ctn site www.tntisland.com/caribbeanbrassconnection/ Steel Expressions www.mts.net/~ejames/se/ Mas Site: www.tntisland.com/tntrecords/mas2003/ Site of the Week: http://www.natalielaughlin.com/ TnT Webdirectory: http://search.co.tt *********************************************************