Northwest Seeks Time To Shore Up Pension, Or Risk Ch 11 Wednesday May 25, 5:35 PM EDT NEW YORK (Dow Jones)--Unless the U.S. Congress grants Northwest Airlines Corp. (NWAC) more time to shore up its pension plans, the airline's difficulty in funding those plans could contribute to a bankruptcy filing, an executive said. Andrea Fischer Newman, Northwest's senior vice president of government affairs, is stumping to obtain 25 years to shore up the airline's pension plans, which are underfunded by $3.8 billion. Current law requires the airline to close the gap in five years. "It factors into any decision we make about bankruptcy. It is not the only factor, but it is a factor that has to be considered," Fischer Newman said in an interview with Dow Jones Newswires on Wednesday. Fischer Newman declined to say how much money the airline would have to stash in its pension plans in the next few years if the law doesn't change. But the pilots' union, the Air Line Pilots Association, said in a newsletter earlier this month that funding for the pilot plan alone would total $1.8 billion between now and 2009, and funding for all employee plans would be double that amount. But those figures don't account for a crucial element to Northwest's pension plans. Key to Northwest's funding, and a component of the legislation for which Fischer Newman is lobbying, is freezing defined-benefit plans and starting new defined-contribution plans. That means Northwest's old-fashioned pensions that promise retirees certain monthly salaries would be closed, though the funds would continue paying benefits to those retirees who earned them. The airline would open a new, 401(K) -style retirement plan with a defined level of employer contribution. The pilots' union supports the legislation and has agreed to a pension freeze. Still, it said, if Northwest isn't given more time to fund a pension, even a frozen pilot pension would require $1.3 billion in funding during the next three years. The pilots estimate that, under the proposed legislation, the airline would have to pay only $152 million into the pilot pension plan during the next 10 years. Already Northwest executives are negotiating pension-plan freezes with all unions. Pilots have said they will agree to a freeze as the best way to preserve the benefits already accrued. As rival airlines have gone through bankruptcies, pension plans have been terminated. "As we're learning the hard way, the security of pensions was somewhat of an illusion," said Hal Myers, a spokesman for Northwest's pilot union and a DC-10 pilot. He said the chief concern among pilots - particularly older pilots - about freezing the defined-benefit fund and switching to a 401(K)-style plan is that they won't have enough time to accrue the amount of benefits the old plan had promised. And he said it isn't clear if other unions will agree to a freeze. Under the proposed legislation, both unions and management must agree to freeze pension plans in order for the airline to get extra time to fund them. Representatives from Northwest's flight attendants' and machinists' unions weren't immediately available to comment. A negotiator for the Aircraft Mechanics Fraternal Association said the freeze has been discussed at the bargaining table, and pensions are as important to mechanics as job security. But how did Northwest find itself with a $3.8 billion hole in its pension funding? Fisher Newman said the traditional defined-benefit plans are a product of another era, when airlines were regulated, low-cost carriers didn't exist, the Internet was a science-fiction dream, and flight attendants were always young and single. Now, loss-making major airlines like Northwest must compete with profitable, lower-cost airlines. There is little prospect for revenue to rise, since customers have become skilled at finding rock-bottom fares on the Internet. And one way those lower-cost airlines save money is by offering employees 401(K)- style retirement plans, rather than traditional pensions. "We recognize that these types of plans don't work in this industry," Fischer Newman said. "We came through deregulation with these plans intact, and all of the new carriers have instituted 401(K) plans." Fischer Newman said she expects to see a pension-reform bill sometime this summer. Delta Air Line Inc. (DAL) is lobbying for the same legislation, while American Airlines-parent AMR Corp. (AMR) has proposed a different plan that would give airlines more time to fund the plans without requiring plan freezes. Fischer Newman said members of Congress have been open to hearing her suggestions, and they like the fact that the proposed legislation would limit the liability of the government's Pension Benefit Guarantee Corp., which insures pensions. "I'm optimistic that Congress will very much try to deal with it this year," she said. One reservation some members of Congress have is the length of time for funding - 25 years - and they ask what would happen if a company goes bankrupt before it finishes shoring up the pension, Fischer Newman said. She points out that, by freezing the pensions, the PBGC's liability is capped, so even if the company funds its plans only for a few more years, the PBGC's liability has at least been reduced. A spokesman for the PBGC declined to comment on any proposed pension changes. -By Elizabeth Souder, Dow Jones Newswires; 201-938-4148; elizabeth.souder@ dowjones.com Corrected May 25, 2005 18:48 ET (22:48 GMT) Northwest Airlines Corp. (NWAC) would open a new, 401(K)-style retirement plan with a defined level of employer contribution. Roger EWROPS