COME FLY WITH CONGRESS
September 16, 2005
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, says the Wall Street Journal.
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, says the Journal.
- 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.
- PBGC's 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.
Northwest Airlines 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. 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, says the Journal.
Source: Editorial, "Come Fly With Congress," Wall Street Journal, September 16, 2005.
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