Flying On Empty?.Airlines, Pensions, And Disappointments

• Author: Nancy S. Abramowitz
• Position: Professor Abramowitz teaches Contracts, Pension Law
• Pages: 05

Professor Abramowitz teaches Contracts, Pension Law, and The Federal Tax Clinic at WCL. She is a graduate of Cornell University and Georgetown University Law Center; she clerked for Judge Theodore Tannenwald, Jr. of the U.S. Tax Court and thereafter was an associate and then a partner at Arnold & Porter in Washington where she practiced tax and employee benefit law until 1992.

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SINCE ITS DEREGULATION IN 1978, the airline industry has provided our bankruptcy courts with a fair amount of business. United Airlines (UAL) has continued operating in bankruptcy since initially filing for chapter 11 protection in December 2002. US Airways is a repeat player having reentered bankruptcy this year - shortly following its emergence from an earlier bankruptcy two years ago. At the time of this article, having just announced a recent agreement with its pilots union for labor cost savings, Delta seems uncertain about whether or not it has narrowly escaped a threatened filing. Other "legacy" carriers, as opposed to the newer, barebones, low-cost carriers, have dissolved in bankruptcy, been absorbed by others in bankruptcy, or merely flirted off and on with bankruptcy as the industry struggles with its new highly price-competitive identity.¹ The old guard domestic airline industry, like the domestic steel industry, has often struggled under the weight of labor costs - especially enormous pension obligations. The bankruptcy forum has become the vehicle with which employers may shed these obligations and move forward in reorganized, leaner form. The weighty pension obligations arise from bargaining table promises (often made as "IOUs" in lieu of cash wages) to provide retirement plans that offer workers defined benefit pension annuities at retirement. Until the passage of the Employee Retirement Income Security Act of 1974 (ERISA), such plans with their promises of future benefits were under lightly regulated and certainly were not subject to requirements that employers set aside funds to cover the benefits promised to employees. ERISA first imposed certain minimum funding standards on employer promises of this type, although the legal obligation did not involve playing a quick "catch-up" for outstanding obligations nor the immediate funding of new promises for prior years' work. ERISA also created a federal insurance program through the Pension Benefit Guaranty Corporation (PBGC) to insure some portion of promised benefits in the event of a plan termination where the plan assets are unable to satisfy the promised benefits. The PBGC's assets used for the payment of guaranteed benefits are derived from several sources: first, the PBGC collects insurance premiums from sponsors of insured plans; second, the PBGC succeeds...