A U.S. bankruptcy judge ruled that US Airways Group Inc. can end its pilots' pension plan to help the airline emerge from bankruptcy protection, but it must enter into negotiations with the union to create an alternative retirement savings plan.
U.S. Bankruptcy Judge Stephen Mitchell ruled late Saturday in Alexandria that although the Arlington-based airline could end its pilots' pension plan under bankruptcy law, the airline still had to prove that such a move would not violate its pilots' contract.
The pension issue was the last hurdle US Airways faced in its plan to emerge from bankruptcy protection by March 31. The airline sought Chapter 11 protection from creditors in August.
Roy Freundlich, a spokesman for the Air Line Pilots Association, said that although the pilots were disappointed that Mitchell approved the airline's request to end the pension plan, the pilots were "gratified" that the judge upheld the union's ability to argue in front of an arbitrator that ending the plan violated the pilots' collective bargaining agreement.
US Airways had argued that ending the pilots' pension plan was not in violation of its contract. The airline is to argue its position before an arbitrator at a March 13 hearing.
"Our position is the company can't unilaterally wipe out the benefits that have been negotiated in our contract, regardless if the plan is terminated," Freundlich said. "They can't simply come in without [our] consent to modify that contract."
The federal Pension Benefit Guaranty Corp. must approve the US Airways proposal to end the plan, a decision that is likely to be influenced by the arbitrator's ruling. The PGBF insures the pensions of about 44 million Americans.
Since January, US Airways has fought to end its pilots' pension plan that it said was under funded by $2 billion, a shortfall for which the airline is responsible. The decision affects the airline's 7,000 current and retired pilots.
David N. Siegel, president and chief executive of US Airways, said the airline hopes to begin negotiations with representatives of the pilots union. "We cannot meet the financial obligations of the existing plan and emerge from bankruptcy protection without taking the action," he said in a statement.
US Airways said it needs to eliminate the plan to get $200 million in financing from Retirement Systems of Alabama, the lead investor, as well as a $900 million federal loan guarantee.
The airline said it plans to provide $850 million during the next seven years to fund a defined-contribution plan that is similar to a 401(k) retirement plan. The airline has said the plan would reduce the pilots' benefits by about 50 percent.
A final hearing on the airline's bankruptcy recovery plan is scheduled to begin March 18 and last through March 20. During that time, US Airways creditors are to vote on the airline's restructuring plan. Mitchell is then likely to rule on whether the airline can emerge from Chapter 11 bankruptcy protection.