Northwest and Delta
executives to make millions from bankruptcies
By Jerry Isaacs
19 September 2005
Over the last several years the top corporate
executives at Northwest and Delta airlines negotiated
retirement packages guaranteeing them millions in the
event the companies declared bankruptcy and defaulted on
their pension payments to employees. Both companies filed
for Chapter 11 bankruptcy protection last Wednesday, in
large measure to escape their pension obligations and
seek the bankruptcy courts backing for sweeping
cuts in airline workers jobs, wages and benefits.
Since 2000, Delta has lost $10 billion, slashed 23,000
jobs and cut pay for pilots, managers and other
employees. Three years ago the company spent more than
$44 million setting up trusts to protect executives
pension benefits from creditors in case of bankruptcy,
saying the perk was needed to retain executives in hard
times. Because transferring money to bankruptcy-proof
trusts typically triggers big tax bills for the
executives, Delta inflated the amounts to compensate for
the extra taxes.
Retiring CEO Leo Mullin, who was paid $13 million in
compensation in 2001, was given 22 years of instant
seniorityalthough he worked for Delta for only
five-and-half yearsboosting his retirement package
to $16 million. While incoming CEO Gerald Grinstein took
a ceremonial pay reduction to bolster the companys
demands for sweeping employee wage and pension cuts,
behind the scenes other executives were cashing in on the
benefits of their golden parachutes.
Former CEO Ronald Allen, who was forced out in 1997,
continued to draw $500,000 a year from Delta for
consulting services up until 2005, although neither the
company nor Allen would say whether he ever provided any
such services. Allens exit package also included a
$4.5 million cash severance payment and a $765,000-a-year
pension that continues. He also got 10 years worth
of perks, such as a 2,090-square-foot Buckhead, Georgia
office, a car and club memberships provided by Delta.
When Northwest Airlines CEO Richard Anderson left the
company last year, he took his pension in a lump-sum
payment of $3,028,700. Andersons check covered
three separate pensions he received from Northwest: the
regular pension plan, his excess pension plan and his
supplemental executive retirement plan, or SERP. Other
top executives at Northwest, including current CEO Doug
Steenland, also were guaranteed three pensions.
Union workers at Northwest have a pension plan based
on years of service. For mechanics, custodians and
cleanerscurrently on strike against
Northwests demands for the elimination of more than
half their jobs and the replacement of traditional
guaranteed pensions with 401(k) plansthat amounts
to $85 a month for every year they work. According to the
Aircraft Mechanics Fraternal Association (AMFA), a
mechanic who retires at 65, after 40 years at Northwest,
will collect about $40,000 a year.
The companys 2005 proxy statement indicated that
CEO Steenland will receive $947,417 a year if he retires
at 65. Deltas supplemental plan adds
multipliers to boost the pensions of the companys
four top executives, crediting Steenland with 15 years of
service for every five he works and paying him pension
credits at twice the rate applied to regular salaried
workers.
The companys four top executivesSteenland
and executive vice presidents Tim Griffin, Phillip Haan
and Andrew Robertswill receive a total of
$2,476,100 in annual pension benefits. This is enough to
fund the pensions of 90 flight attendants with comparable
years of service.
In addition to their pension benefits,
Northwests top five executives (the
above-mentioned, plus Executive Vice President and
General Counsel Barry Simon) have taken in $32,000,721 in
compensation since 2002, not including other perks such
as lifetime health-care coverage and travel benefits. The
five also sold more than $1 million worth of stock in the
months leading up to the bankruptcy announcement, as did
big investors, like professional financier and former NWA
Board of Directors member Al Checchi, who sold 1,650,240
shares from April 23 to May 3, raking in $8,439,884.
The New York Times reported Thursday that the
timing of Northwests bankruptcy filing allowed the
company to protect its assets while executives reneged on
a payment of $65 million into the employee pension fund,
which is already underfunded by $3.8 billion. If
Northwest skipped the payment before filing for
bankruptcy, it would have been in violation of federal
pension laws, and the government-run Pension Benefit
Guaranty Corporation (PBGC) could have placed a lien on
the airlines assets, giving itself a better chance
of recovering some of the money.
Instead, the newspaper noted, [S]ince Northwest
filed for bankruptcy first, then skipped the pension
contribution, the government has no legal power to place
a lien on its assets. It makes the pension
guarantorand the employees and retirees whose
interests the government representsinto unsecured
creditors for the $65 million. Unsecured creditors
generally fare poorly in bankruptcy, recovering just
pennies for every dollar they are owed.
If the PBGC takes over Northwests pension plans
pilots would suffer the loss of half or more of their
pensions because the PBGC caps payments at $45,613 a year
for plans canceled in 2005. Other unionized workers could
also see drastic reductions.
Northwest also wants to freeze its current defined
benefit pension plans and switch to defined contribution
plans, such as 401(k)s, which are cheaper for employers
but dont provide workers the guaranteed benefits of
traditional pensions.
Deltas pension funds are in even worse shape. If
the company defaults on its obligations it would set a
record, surpassing the size of the United Airlines
pension collapse earlier this year, and further
staggering the overburdened pension guarantee board.
According to board officials, Deltas pension plan
has promised benefits worth $17.5 billion, but it only
has $6.9 billion in assets. With its bankruptcy filing
the company is expected to press for even more drastic
cuts than it outlined in its corporate restructuring plan
last year, when it announced plans to cut $5 billion and
7,000 jobs by next year.
The looting of airline workers pension funds is
but one example of how the assets of the major airlines
have been squandered over the last several decades to
enrich the airline bosses and big investors. It also
underscores the widespread parasitism that pervades the
boardrooms of corporate America.
The top personnel of the airline industry are
chosenand highly compensatednot because of
their ability to manage complex organizations or to lay
out a long-term corporate strategy. Instead a definite
social type has risen to the top, whose only
qualifications are its acuity for slashing tens of
thousands of jobs and guaranteeing the quickest and
largest payoffs to Wall Street.
Northwests CEO Steenland began his career
working for the Office of General Counsel for the
secretary of the Department of Transportation when the
Democratic administration of President Jimmy Carter was
preparing the deregulation of the airline industry. He
later joined a top law firm in Washington DC, which
represented Pan American Air Lines during the merger
frenzy that preceded the companys bankruptcy
declaration, and later represented an investor group that
organized the leveraged buyout of Northwest Airlines in
1989.
Steenland is particular adept at working the halls of
Congress to lift regulations on pension funding and any
other restrictions on profit-making, and at making use of
the services of the labor bureaucracy to cut labor costs.
Since the biggest input is the wages, salaries, and
benefits line, this puts a lot of attention on working
with our employees in knowing what we need to do to
survive in the long term, he commented.
Last year, in the midst of concession talks with the
pilots union, Steenland hired Barry Simon as the
companys executive vice president and general
counsel. Simon was a top executive in the Seabury Group,
a New York consulting firm whose
restructuring clients have included Air
Canada, US Airways, America West Airlines and
Continental.
Simon earned his credentials as an executive at
Continental and Eastern airlines, where he served under
corporate raider and union-buster Frank Lorenzo. In 1983
Continental filed for bankruptcydespite the
airlines $60 million in cash reservesin order
to exploit a provision in the Bankruptcy Code allowing
Lorenzo to abrogate his contracts with the unions. Simon
directed Continentals legal strategy when it
emerged from bankruptcy a second time in 1991.
Simon also played a leading role in the bankruptcy of
Eastern Airlines, which stopped flying in 1991 following
the bitter strike by unionized mechanics. At the time,
Lorenzo and his team stripped the airline of valuable
assets and sold them at fire-sale prices to Continental.
The 1980s and 1990s saw the emergence of junk-bond
dealers and corporate raiders in the airline industry
like Lorenzo and Carl Icahn (who bankrupted Trans World
Airlines, among others, and who is now worth $5.8
billionno. 55 on the list of the worlds
richest people).
Today, after nearly a quarter of a century of
betrayals by the trade union bureaucracy (from the
striking air traffic controllers in 1981 to the present
scabbing organized by the airline unions against the
striking Northwest mechanics), the corporate executives
running the airlines feel even less restraint than their
predecessors did when slashing workers jobs, wages
and benefits and looting company assets to enrich
themselves.
See Also:
Delta
and Northwest airlines declare bankruptcy
[15 September 2005]
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