New provisions in the effort to reform the nation's pension laws could put American Airlines at a disadvantage against bankrupt competitors -- and encourage the airline to freeze its own pensions.
That's the concern of American executives and union leaders, who say the provision that surfaced in the U.S. Senate this week unfairly penalizes airlines that are trying to keep their pension plans intact.
"The fact is, it's going to be very difficult to compete with carriers who are dumping their pension plans while we're trying to hang onto ours," said Ralph Hunter, an American pilot who is president of the Allied Pilots Association. "This would make things even worse."
Lawmakers are scrambling to finish pension reform legislation this year, worried that more troubled pension plans could be turned over to the federal Pension Benefit Guaranty Corp., an agency that is already strained by a host of pension defaults in the past year.
Provisions being considered by legislators include a proposal that would allow airlines that have frozen their plans to go 14 years before fully funding their pensions and guarantee them a favorable interest rate on the plans.
Meanwhile, airlines that haven't frozen or terminated their plans -- American and Houston-based Continental Airlines -- would have to pay their pension shortfalls within two or three years, and at a higher interest rate.
"This puts us at a significant competitive disadvantage, simply because we're trying to fund our employees' well-deserved retirements," said Ned Walker, a spokesman for Continental.
"We need legislation that does not force us to freeze our plans," said Tommie Hutto-Blake, president of the Association of Professional Flight Attendants.
American officials hope they can change the language of the law to give all airlines the same relief, regardless of their financial condition.
"The situation is extremely fluid right now," said American spokeswoman Lisa Bailey. "We're pushing very hard for the changes that we need."
The latest provision was introduced in the Senate this week by Sen. Chuck Grassley, R-Iowa, and co-sponsored by Sens. Max Baucus, D-Mont., Michael Enzi, R-Wyo., and Edward Kennedy, D-Mass. The House pension reform bill does not currently have an airline-specific provision.
Hunter said American's unions and executives are counting on Texas lawmakers to level the playing field.
"We're getting a good reception to our message," he said.
Ralph Kruger, who oversees pension issues for the American pilots' union, said the skyrocketing price of fuel will further strain the airline's pensions in the days ahead.
"Let's face it, fuel puts an extreme pressure on our business model," he said.
Kruger pointed out that pilots approved steep wage cuts in 2003 in part to keep the pension plan intact. Protecting those pensions remains a top priority for the union, he said.
While other airlines have frozen or terminated their pensions, American and Continental have been contributing millions of dollars to their retirement plans. This year, American has contributed $287 million to its pensions, Continental $239 million.
Two airlines, United Airlines and US Airways, have terminated their pensions. Many analysts expect that Delta Air Lines will also attempt to dump its plan. Delta and Northwest airlines, which recently filed for bankruptcy protection, have frozen their plans.
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