By James Pilcher
Enquirer staff writer

Salaries have gotten the headlines during the concession negotiations between Delta Air Lines and its pilots. But the carrier's pension funds are nearly as important.

The pension fund is the subject of meetings between the two sides this week, and both have something to gain and lose.

The pilots could see their retirements cut, but could save at least some, as opposed to losing nearly their entire pension plan if the airline were to file for bankruptcy.

As for the company, one expert says the management proposal now on the table that would remake the retirement program could save the company at least $200 million annually. That's 20 percent of the $1 billion in annual cost cuts Delta is asking from its 7,500-member pilot union.

Vaughn Cordle, chief analyst with the Washington-based airline consulting firm AirlineForecasts LLC, also estimates that the company could face mandatory payments into both its pilot and non-union pension funds of nearly $6 billion over the next five years if nothing is done - with the pilot fund taking up about two-thirds of that total.

"Delta is not a viable business with its current plan, and neither are other major airlines with the same kinds of plans," said Cordle, a senior captain with United Airlines, which this month defaulted on its pension plans.

"That's why this is such a big deal to both the pilots and the company. Both want to salvage something."

Delta is seeking the concessions as it continues to struggle financially, losing more than $5 billion in the last three years. The Atlanta-based carrier has warned that without the pilot cuts and other cost reductions in the "near term," it would be forced to declare bankruptcy. The airline operates its second-largest hub at the Cincinnati/Northern Kentucky International Airport, where it and Erlanger-based subsidiary Comair employ more than 8,000 - including more than 800 Delta pilots.

The airline's pilot union and internal Delta documents obtained by the Enquirer say management is asking to freeze its plan, which pays retirees a monthly stipend based on years of service and requires no worker contributions. (Pilots also have the option of taking a lump sum settlement worth half the estimated value of the life of the pension). A pilot with 25 years' experience gets 60 percent of his or her top salary under this plan.

Instead, Delta wants to contribute 9 percent of a pilot's annual salary into a fund that could be given as lump sum upon retirement, given as an annuity or some mixture of both options.

The pilot still would get a full salary, and would be able to contribute to the fund. At retirement, that pilot would still get a portion of his or her old pension from the frozen fund, with some coming from the new contribution benefit.

In addition, the airline is seeking to drop its match on a separate 401(k) plan from 3 percent to 2 percent.

Delta's non-union pension matches the pilot plan except that non-union workers can't take half the estimated value as a lump sum.

Experts say if the pilots agree to a modified plan, the company will change the non-union programs to match.

Officials with Delta's branch of the Air Line Pilots Association said the union hasn't calculated how much the proposal would cut pilots' retirement. They would not comment on this week's negotiations or on the different plans.

Delta officials also would not comment on the plans, or on how much the proposed changes would save the company, saying only that its pension funds for pilots and non-union workers were fully funded according to federal standards.

That included a $325 million payment to the non-pilot fund in the first quarter of this year, and another $75 million due to the pilot fund by the end of this year. But Cordle says that under the existing plans, the requirements for those payments will get much bigger over the next few years, for two main reasons.

First, Delta has not updated its actuarial tables that calculate lifespan and other demographic data since 1980, according to Cordle. When those tables are updated next year, the fund will require more money because retirees are living longer.

Second, the standards followed by Delta have notoriously underestimated the actual amount needed to fund the plan fully, according to standards set by the federal agency that insures pensions nationally, Cordle says.

Under a bankruptcy, the pension plan would be untouched initially, but Delta could follow the lead of United and default. And the prospect of losing most or all retirement benefits alone in a default situation could give the union a reason to reach an agreement to avoid a Chapter 11 filing, experts and analysts say.

The pilots would suffer "if their pensions were defaulted and turned over to the government," said Kit Darby, president of Air Inc., an airline pilot placement service.

Darby, who also is a United pilot, points out that pilots are penalized twice by the Pension Benefit Guaranty Corp., the government agency that insures pensions earned by 44 million workers and retirees participating in 31,000 plans nationwide.

The agency never gives back a full value when it takes over a defaulted pension fund. Then, it sets its retirement age at 65, even though pilots are required to retire at 60.

"I figure I'll be lucky if I get back 25 to 33 percent of the value of my retirement," said Darby. "This is a really bad scenario - a catch-22 times 22. But I would rather have a smaller plan than not have a plan at all."

E-mail jpilcher@enquirer.com