Concern about the potential fall-out for workers' pensions has led to renewed calls in Washington for immediate pension relief.

Harry Reid, senate minority leader, said: "Congress has an immediate opportunity to pass legislation enabling both companies to keep pension plans for workers in place. We must not sit by and do nothing while thousands of hard-working Americans' retirement security is at risk." The call was echoed by Johnny Isakson, a senator from Georgia, where Delta is based. In the wake of the largest ever termination of pension plans by United Airlines in April, he jointly introduced the Employee Pension Preservation Act of 2005.

The PBGC yesterday estimated that it could be forced to assume liabilities of $8.4bn from Delta's pension plan if it terminated its pensions. That would mark the largest ever pension termination. Northwest's liabilities were smaller, at $2.8bn, it said yesterday.

Employees would also lose. If the PBGC takes over a pension plan, it typically pays pensions up to a cap of about $46,000 – far lower than a typical pilot pension. The PBGC said the effective pension loss for employees at Delta would be $2.2bn and $2.9bn at Northwest.

In June the agency, whose deficit in 2004 reached $23.3bn, warned that the total level of underfunding by US corporations had risen to a record $353.7bn. The size of the plans it has been forced to assume has also jumped. Claims from failed single employer pension plans totalled $14.3bn in 2000-2004, 18 times the $783m in 1995-1999.

Putting it in perspective, the total claims from the wave of airline bankruptcies could easily surpass historical terminations. Including the United termination of $6.6bn in claims, the three airlines' claims could easily swamp that at $17.8bn.

To avert that danger, lawmakers have proposed changing the time period under which companies with underfunded pension plans have to make up the gap. It is currently four years. For loss-making airlines, that means having to make cash contributions at a time they can least afford it.

In June, David Strine, managing director at Bear Stearns, estimated that airlines would have to make $1.2bn of cash contributions to their pensions in 2005. With fuel then at $50 a barrrel, he said that figure "would represent 90 per cent of our operating cash flow forecast".

The Bush administration has proposed spreading the funding over seven years. Mr Isakson has proposed 25 years. On that basis, Mr Strine estimated in June that "contributions would fall 87 per cent to $300m from $2.4bn in 2006".

He warned that if both Delta and Northwest did terminate their pensions in bankruptcy, that could force the bankruptcy of American and Continental, as it would mean "45 per cent of the industry's capacity was operating with the advantage of having eliminated defined benefit pension plans".

Copyright 2005 Financial Times

Commentary:
Governing is about making hard choices. What kind of hard choices have the GOP done in the past four years. They cut taxes and created record deficits. They took us to war for no reason and destroyed our allies. They shown us the government can't protect us and now the agency that guarantees pension plans is broke. Have they done anything right?

The GOP panders--that's a given, but they've also caused long term irreparable harm to our economy, the budget and our status as "leader of the free world." At some point we may have to start thinking of banning the republican party. Serious.