Delta Air Lines Inc., the largest U.S. carrier in bankruptcy, won court approval to give retired pilots at least $77 million in claims in return for terminating their pension plan.
U.S. Bankruptcy Judge Adlai Hardin on Tuesday authorized Delta to pay about 3,600 retired pilots $9 million in cash for benefits accrued under one of the airline's pension plans. The pilots will receive an unsecured claim for the rest, valued at about $68 million as of Tuesday.
"Delta faced a choice: We could either keep fighting through various courts and pay $9 million to the lawyers, or pay $9 million to the retirees who are really suffering," Marshall Huebner, Delta's lawyer, said at a hearing in White Plains, N.Y. "We'd rather give it to Delta people who were injured economically."
DP3, a nonprofit corporation that represents about 2,800 retired Delta pilots, agreed to the proposal in June. Atlanta-based Delta is seeking court approval to end pilot pension programs while it develops a plan to repay creditors and exit bankruptcy.
The retired pilots last week asked Hardin to delay a Sept. 1 hearing on Delta's termination request so they can try to determine whether a new federal law will let the airline maintain the pension plans.
"We reached this settlement after serious negotiations," said Dean Booth, a lawyer representing DP3,. "This was sound judgment on the part of our clients."
Hardin, who had previously approved the agreement, revisited the matter Tuesday after some pilots said the proposal was unfair. Delta agreed to remove them from the settlement. The airline expects to terminate the plan on Sept. 2 after winning court approval, Huebner said.
"I am not in position to reject a stipulation as to which only a relative tiny handful have objected," Hardin said. Delta has about 5,600 retired pilots, according to court documents.
Under the agreement, the retired pilots will receive a $9 million administrative claim, for which they will be fully repaid in cash. They will get an unsecured claim for the balance of their benefits, now accruing at roughly $7 million a month.
Delta, the third-largest U.S. airline, said Aug. 4 it may have to liquidate unless the plan is terminated. The carrier said the plan doesn't have enough money to satisfy a lump-sum provision allowing retired pilots to receive half their benefits through an up-front payment.
Delta has been operating under bankruptcy protection since Sept. 14. The company's unsecured claims are currently trading at about 30 cents on the dollar, Huebner said.