One reason flying can be such a drag is that sinking feeling you get when you start talking to your seatmate and discover that she paid much less for her ticket than you did. The trick, of course, is to have access to the best information. What's true for airline fares is also true for airline shares. And for airline pension funds, too, given what happens when an airline goes broke.
Pension-fund information -- and the lack of it -- links Northwest Airlines chairman Gary Wilson and 9/11 widow Ellen Saracini, whose husband was a United Airlines pilot.
Guess what? Wilson benefited by having access to all of Northwest's pension numbers, while Saracini paid a steep price for not having access to United's pension fund numbers.
Wilson is a frequent seller, unloading more than 85 percent of his Northwest stock this year as the airline spiraled toward bankruptcy. Total proceeds: $19.7 million, according to Thomson Financial.
Throughout Northwest's descent, Wilson had access to an important number that wasn't publicly disclosed until Northwest filed for Chapter 11 protection in mid-September and its stock became virtually worthless. To wit: the $5.7 billion shortfall in Northwest's pension fund, as calculated by federal pension insurers. That's half again as large as the $3.8 billion Northwest had reported in its most-recent, publicly available financial filings.
This difference really matters. The U.S. Pension Benefit Guaranty Corp.'s huge claim in the Northwest bankruptcy virtually assures that stockholders -- including buyers of Wilson's shares -- will end up with nothing.
It also means that many pension recipients and creditors will get far less than they expected. Northwest's numbers -- the ones investors get to see -- differ from the PBGC's because Northwest is allowed to assume that its pension funds will stay in business for decades. This produces a far lower pension-obligation number than the PBGC, which assumes the pension fund is terminating tomorrow and finds out what an insurer would charge for annuities to cover the fund's obligations.
Northwest, like many other companies, has been filing a pension-termination number with the PBGC for years, as required by the laws covering pensions. Wilson, as a board member, had access to the number, which the PBGC is legally barred from disclosing to the public. Northwest could have disclosed it voluntarily. That would have given the buyers of Wilson's Northwest stock a level playing field and provided employees and creditors with information vital to their interests.
But like other companies in similar circumstances, Northwest didn't make the number public, because it wasn't required to. When I asked Northwest about all of this, the company would say only that it and Wilson did nothing illegal and that Wilson wouldn't talk to me.
Contrast Wilson with Ellen Saracini, whose husband, Victor, was a pilot on United Flight 175 that terrorists crashed into the World Trade Center's south tower.
When the Sept. 11 Victim Compensation Fund settled with Saracini, it subtracted the value of her husband's full United pension from her settlement, as its formula required. But Saracini won't get anything like a full pension because the shortfall in United's pension funds was so much greater than the company had disclosed.
This wasn't clear until May, when the PBGC terminated United's pension funds and showed a $9.8 billion shortfall. United's publicly available information had been showing only a $6 billion shortfall.
I can't tell you how much of a haircut Saracini got on her 9/11 settlement -- she declined to tell me, and the fund isn't allowed to disclose it. But trust me, it's major money. Had the 9/11 fund known how much the pensions of Saracini and other United employees' survivors would shrink, they would doubtless have gotten larger settlements. "I've lost my husband's pension twice," Saracini told me.
Workers whose employers have gone Chapter 11 have discovered, to their chagrin, that pension fund shortfalls hurt them because their pensions aren't totally covered by the PBGC. The agency insures pensions up to $45,613 annually for workers who retire this year at 65, but earlier retirees get less. The guarantee is below $16,000 for someone who retires at 50, a typical age for a "30-and-out" blue-collar worker.
All companies with below-investment grade credit ratings, such as Northwest, should be required to publicly disclose the pension-termination numbers they send the PBGC. That is part of the pension legislation that currently seems stalled in the Senate. Too bad, because everyone affected by these vital numbers should have access to them -- not just the platinum elite.
Tribune Co. objects to the portion of last week's column about its billion-dollar tax court loss where I wrote that chief executive Dennis FitzSimons said he expected Tribune to win on appeal. FitzSimons and a company spokesman both made optimistic statements about Tribune's appeal prospects, but never said flat out they expected Tribune to win. I'm sorry for any misunderstanding.
Sloan is Newsweek's Wall Street editor. His e-mail address is firstname.lastname@example.org.
because she lacked data on United's pension fund.
Northwest chief Gary Wilson benefited from his knowledge.