Hawaiian Air
seeks to halt
pension plan
paymentsThe retirement plan
for airline pilots is already
$67 million underfunded
Hawaiian Airlines, following in the footsteps of other financially troubled carriers, filed a motion in U.S. Bankruptcy Court yesterday seeking approval to suspend required contributions to its pilots' pension plan.
The airline said it is facing more than $45 million in pension funding requirements over the next 25 months and needs the money for its Chapter 11 reorganization. Hawaiian said its Air Line Pilots Association pension plan is currently $67 million underfunded, with $99 million in assets and $166 million in liabilities. The airline said in its year-end filing it was $115.8 million underfunded for all of the company's pension plans.
"Our pension plan is severely underfunded, like that of many other airlines, automobile companies and steel companies," Hawaiian trustee Joshua Gotbaum said. "We filed the motion today to give us time to work with these pilots and resolve the issue. The purpose of the motion was to buy us time and preserve cash."
Hawaiian, which filed for bankruptcy protection on March 21 after losing $58 million in 2002, has plenty of company in turning a pension plan into a source of corporate cash.
US Airways Group Inc., which emerged from Chapter 11 on March 31, scrapped its entire pension plan after being underfunded by $2.4 billion as of Dec. 31, 2002. United Airlines parent UAL Corp., which is expected to come out of bank-ruptcy in the spring, reported at year-end that its pension plan was underfunded by $6.4 billion. Northwest Airlines, whose pension plan was underfunded by $4 billion at the start of the year, received permission from the U.S. Department of Labor to put stock of one of its subsidiaries, Pinnacle Airlines, into Northwest's pension plan.
"We are going to have to consider changes in the plan, including possible termination," Gotbaum said. "But we don't consider them precipitously, hastily or anything else. We want to work with the pilots to figure out what is in the best interest of the pilots union and Hawaiian Airlines."
Ron Hoopai, a Hawaiian 767 pilot who resigned Friday as master executive council chairman of Hawaiian's ALPA unit, said he stepped down because he didn't feel he was versed enough in pension issues that will be brought up in the future. The union represents 333 Hawaiian pilots.
"The company is in bankruptcy so everything is fluid right now," Hoopai said.
Jim Giddings, who replaced Hoopai, referred questions to the union's national headquarters in Herndon, Va. A spokesperson there had left for the day.
Hawaiian's other two major unions, the International Association of Machinists and the Association of Flight Attendants, both have 401(k) plans with matching contributions rather than pensions and were not affected by yesterday's filing.
Hawaiian's executive officers also have 401(k)s but no separate pensions. Pension plans of the IAM and nonunion employees that were frozen in 1993 were not affected.
Richard Aboulafia, an aviation analyst with the Fairfax, Va.-based Teal Group, said he's not surprised by Hawaiian's move.
"These are older enterprises with real work force problems and underfunded pensions because of dire economic straits," Aboulafia said. "In some cases, they regard pension plans as a ready source of cash, a ready source of savings -- USAir being far and away the most extreme example."
Aviation consultant Mike Boyd, president of The Boyd Group in Evergreen, Colo., said reducing its pension liability might help Hawaiian attract new investors.
"If you're looking for someone to help get you exit financing, they'll be really reticent to take on a pension liability that basically can be written off by the government," he said.
Boyd said that at USAir, pilots who were due to get a $2 million lump sum, or $70,000 or $80,000 a year upon retirement, ended up getting $23,000 a year.
The Pension Benefit Guaranty Corp., a federal agency that pays retirement benefits when a company's pension plan fails, agreed to USAir's replacement plan.
In Hawaiian's case, the airline said that for the time being it's only requesting permission to suspend contributions and that it would not change any pension benefits. Gotbaum said any proposed benefit changes would be discussed through the collective bargaining process.
Hawaiian said, however, it currently is required to fund more than $140 million in pension obligations over the next seven years.
Hawaiian, which reached an agreement with its unions on $15 million in labor cost reductions prior to filing for bankruptcy, also has been working on restructuring leases in its 27-plane fleet with its three aircraft lessors.
