Well, it happened. Delta Air and Northwest Air both filed for Chapter 11 Bankruptcy. Check out the 1-Year charts for Delta [DAL] and Northwest [NWAC]. This is going to be bad for current and future pensioners. United already broke its promise to workers and left them with about 60% of their expected retirement money. I have relatives in the airline industry and they needed to hear this like they needed a hole in the head. How would you like to hear that your 401k got chopped by a 1/3rd? And of course taxpayers will be footing the bill through the Pension Benefit Guaranty Corp. (PBGC). Delta’s pensions are already underfunded by $10.6 billion. Sheesh.
I know this may be a Catch-22, since if they kept going they might just bleed to death anyways, but this seems to be the easy way out. Like liposuction for airlines. I’m for cutting costs and streamlining, but not breaking old promises. And how do they get away with underfunding by that much? Either way, I am willing to bet that American and Continental will be sure to follow. Why pay pensions if you don’t have to? If I knew how to short stocks I’d short them, or do something with options. Time to read up…
Delta and Northwest Airlines File For Bankruptcy
Posted on September 14, 2005 // 7 Comments
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Like social security, pension should be treated as a bonus rather than a core retirement source. Instead, people should protect themselves well with their own 401k or IRA…
Now, yes. But 401ks and IRAs themselves are only 20 years old. People working 40 years ago had no clue about this, pensions were it.
What’s up with some other chick copying the name of your blog? My Money Blog 2? http://mmb2.blogspot.com/
Do you have any copyrights with your name?
The PBGC better get the keys to the Treasury, so that they can print their own money… It’s going to get expensive!
How are their 401k’s chopped by 1/3rd? Do they hold too much in company stock, or should that have read pensions?
Anon – I think mmb are her initials? I dunno, no big deal. I’ll save my rabid lawyers for RSS feed scrapers 😉
John – I was just making an analogy. Many retirees will be getting 60 cents on the dollar for the rest of their lives.
Obviously this is not a good thing for the employees and I know that it will cause some hardship. But I have two comments:
1) These employees should have seen this coming for the last 4 years. The writing has been all over every wall they have looked at. In fact, ANYONE that has a defined benefit pension plan is at extreme risk (mine was already replaced with a defined contribution plan). And the rest of us are somehow going to have to fund PBGC, which is going to get *real* expensive.
2) The airline “broken promise” problem is not an easy one to solve. The basic problem is that when times where good and air competition non-existent — the airlines did what they had to do to grow and be successful — they hired a massive amount of employees and treated them fantastically.
(Look at how much an experienced airline pilot made in 2000 vs. the number of days per month he worked. I have a buddy that wasn’t even all that experienced, made $150K per year, and worked 9 (Nine!) days per month.
Then they got the triple hit of 2001. a) Corporations stopped the free-for-all in spending whatever it took for biz-class and no advance purchase flights. They started managing their costs! (Go figure). b) Low cost airlines got more and more successful — and they had much lower operating costs (no unions, lower gate fees, lower capital costs). c) The downturn and terrorist activities drove both made business dissappear and drove what biz was left more toward the low cost carriers.
There is no way, shape, or form that they can stay in business AND keep the old promises. The best they can do is exactly what they are doing — trying their best to adapt the the new paradigm and stay in business. Otherwise — they can go out of business, the PBGC will pick up the pensions anyway — and the low cost airlines will buy the planes and start operating them with their low cost structure.