AUSWR
The Association of U S West Retirees
 

 

 

Delta Accused of Diverting Funds From Retiree Trust Fund
By Evan Perez, Staff Reporter
THE WALL STREET JOURNAL
December 6, 2005

A bankruptcy court-appointed committee of Delta Air Lines retirees accused the carrier of improperly diverting more than $30 million from a trust fund set up to pay benefits to widows and dependents of retirees for other employee payments.

The committee said in a filing with the U.S. Bankruptcy Court in New York, which is overseeing Delta's Chapter 11 reorganization, that the Atlanta-based carrier improperly used the money to pay severance benefits to employees since 2002 in violation of the regulations governing the trust fund.  The committee last month won the right to represent the interests of 10,000 non-pilot retired workers.

John Kennedy, a spokesman for the airline said, "Delta strongly believes it has acted properly and has administered the trust for purposes fully recognized under the law."

The filing from the retiree group is the first signal of battles over retiree benefits that are likely to come if Delta follows in the footsteps of other bankrupt carriers by trying to shed its underfunded pension obligations.  Delta says it hasn't decided what to do about its pensions and is awaiting possible relief from legislation pending in the U.S. Congress which could give it more time to catch up on its pension obligations.

Delta, which filed for bankruptcy court protection on Sept. 14, is the least unionized of the major U.S. airlines and, partly because of that distinction, its bankruptcy proceedings were expected to feature less sparring with employee groups than at other carriers.

However, the airline's restructuring efforts have already run into challenges amid a standoff with its union pilots over the company's efforts to dump the pilots' collective bargaining agreement and impose about $325 million wage and benefits cuts.  Meanwhile, the retirees, by winning a court-appointed committee, now get a say when the company turns its attention to their benefits.  Delta's largely non-union workforce doesn't have a separate representative in the bankruptcy proceedings.  Delta says it can't afford to have further delays in its restructuring because it is burning through $5 million a day.

Cathy Cone, chairwoman of the retiree committee, said the retirees believe Delta failed to properly notify beneficiaries of its use of the money and that the company should repay the money into the trust fund.

However, Rob Kight, Delta's vice president of compensation and benefits, said U.S. Treasury regulations allow the company to use the trust fund for several of its benefits plans and that the company has followed the rules in notifying beneficiaries of the individual plans of any changes made.

Separately, Delta's request to reject its pilots contract is being heard in a New York bankruptcy court, with the judge pushing the company and the union to try to reach a compromise.  The judge hasn't ruled on Delta's request.

Write to Evan Perez at evan.perez@wsj.com

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