Legislative and Political Report

Air Line Pilot, November/December 2004, p.32

Capt. Woerth Warns Congress About Airline Pension Crisis

Government and industry insiders say defined-benefit plans are in trouble.

ALPA’s president, Capt. Duane Woerth, told a Senate Commerce Committee in October that many airline pilots might not get the retirement benefits they’ve been promised. He urged Congress to review the situation fully and to take action to avoid a scenario that could deprive thousands of airline pilots of their hard-earned retirement benefits and cost taxpayers untold billions of dollars.

"We’ve got members approaching retirement age that feel like the rug has been pulled out from under them," Capt. Woerth testified. "But I believe that avoiding disaster is possible if we apply creative solutions and if the Congress takes swift, effective action now."

Capt. Woerth said that the biggest obstacle to resolving the pension crisis is the minimum funding requirement of the Employee Retirement Income Security Act (ERISA), which says that airlines must make accelerated deficit-reduction contributions whenever an employee pension plan’s funding drops below a certain level. This restriction has created cash flow problems for many airlines. These pensions were acceptably funded before 9/11 and before the stock market plummeted. Previously, unfunded liability could be amortized over a 30-year period, but now airlines have only 3 to 5 years to fund currently unfunded liability. The effect is the same as forcing a homeowner to pay off a 30-year mortgage over the same period of time as a typical car loan.

The pension problems at United Airlines are an alarming example of the dire situation that many pilot groups are now confronting.

The airline has recently missed several required pension fund contributions, including a $72.4 million payment in July and a $110 million payment in September. The company has said that it will likely terminate its four employee pension plans and allow the PBGC to take them over.

Although PBGC estimates that United’s plans are under-funded by approximately $8.3 billion, many employees would receive considerably less in their benefits if the plans are terminated because the PBGC’s liability for the plans covers only about $6.4 billion of that amount.

The Senate Committee, chaired by Sen. John McCain (R–Ariz.), also heard testimony from Bradley Belt, executive director of the PBGC; Robert Crandall, former AMR Corp. chairman and CEO; and David Walker, Comptroller General of the United States.

Belt estimated that the PBGC’s total exposure to the airline industry was approximately $31 billion at the end of 2003. Although he says that the PBGC can handle its current obligations, Belt cautioned that the crisis in the U.S. airline industry threatens the long-term solvency of the pension insurance program.

"While developments in the airline industry are cause for concern," said Belt, "they are symptomatic of a broader and deeper set of problems confronting the pension insurance program, plan sponsors, and beneficiaries. Companies should be held accountable to make good on the pension promises they have made to their workers and retirees."

Comptroller General Walker agreed with Belt’s assessment, saying that Congress should conduct a complete review of the pension insurance program. Walker also indicated that the effects of the crisis were likely to spread as the situation worsened.

"The current crisis illustrates the need for comprehensive reform," said Walker. "And it’s not just the PBGC that’s at risk. The situation has also adversely affected the FAA Airport and Airway Trust Fund."

Walker acknowledged the difficult circumstances in which airline pilots have recently found themselves and noted that pilots have made significant sacrifices as a result of the current crisis in the industry.

"Pilots are the ones who face the most dramatic types of cuts," he said. "They get a double whammy when their pension funds fail: reduced retirement benefits, and retirement at age 60."

Crandall had a slightly different take on the looming pension problems. Crandall suggested that current bankruptcy laws have encouraged irresponsible actions on the part of management and labor unions, allowing them to maintain excess capacity in the marketplace. He said that bankruptcy laws and labor laws should be reviewed.

"If nothing is done, one way or another the legacy carriers will find a way to get rid of their defined-benefit plans," said Crandall, "either by negotiating concessions with employee unions or by dumping the plans on the PBGC through the bankruptcy process."

Capt. Woerth asked, "What do you tell a pilot who, after a lifetime spent working in this profession, suddenly realizes that he or she is probably not going to get the retirement benefits the company promised to pay?

"Airline employees have given billions and billions in concessions," he said, "they shouldn’t have to lose their pensions as well."—Gavin Francis, Staff Writer

Aviation Leaders Discuss Data Sharing at FAA International Safety Forum

Objective information is key to identifying aviation safety issues.

Leaders from various sectors of the aviation community gathered in September for the First Annual FAA International Aviation Safety Forum in Chantilly, Va., to talk about aviation safety and ways to improve it. The conference addressed a number of topics, including collecting and sharing information used to reveal safety concerns.

ALPA’s president, Capt. Duane Woerth, took part in a panel discussion about safety data collection and analysis, saying that pilots, the FAA, and airline managements must continue to strive for safety initiatives like FOQA (Flight Operations Quality Assurance) and ASAP (Aviation Safety Action Program) that don’t penalize pilots for participating.

"With 35,000 airline flights daily in the United States, we should constantly monitor our flight operations to discover potential safety hazards," said Capt. Woerth. "If we hope to collect and use this kind of data, it is absolutely crucial that we maintain a blame-free environment."

Capt. Woerth also stressed the importance of promoting this type of free exchange of information among all 188 member States of the International Civil Aviation Organization, suggesting that the United States and European nations should take the lead and hope that other countries will follow their example.

Data collected under FOQA and ASAP is protected from FAA enforcement action, except in criminal cases or for deliberate violations of federal aviation regulations. The programs have been an integral part of the FAA’s Safer Skies initiative, which the agency began in 1998 with the goal of reducing the airline accident rate in the United States 80 percent by 2007. Both FOQA and ASAP have helped to improve safety within the industry significantly since airlines first began using them. Yet currently only 35 ASAPs and 13 FOQA programs exist.

"In an international business such as ours, if you’re not protected internationally, then you’re not protected," Capt. Woerth said." We need to take our best practices and implement them globally."