Washington Wire: American, Continental Win Pension Relief

American Airlines and Continental Airlines last month won a long-fought battle to reduce their employee pension contributions, joining competitors Northwest and Delta airlines, which gained that ability in 2006. Legislation to continue funding for the Iraq war approved by Congress and President George W. Bush after protracted negotiations includes about $2 billion in relief for American and Continental. The airlines were denied relief in the 2006 measure, a broad overhaul of U.S. pension rules. The provision passed last month will allow the airlines to assume an 8.25 percent annual discount rate when they calculate the value of their pension obligations. That's 2.25 percentage points higher than the rate currently used, and will push down their obligation and pension expenses, which in turn will shore up their financial bottom line. The provision was welcomed by American Airlines, which said it would create a level playing field with its competitors. American has reported a pension obligation of $10.15 billion in public filings. Continental Airlines' annual report shows a $1.2 billion shortfall (see note below). Sen. Max Baucus (D-Mont.), the chairman of the tax-writing Senate Finance Committee, and Sen. Charles Grassley (R-Iowa), the ranking Republican on the panel, raised objections to the pension benefit on June 6, demanding American Airlines chairman Gerard Arpey and Continental Airlines chairman Larry Kellner explain the benefits they'll receive. "These two airlines flew around the Finance Committee to get this pension provision in the spending bill, but we will review in the light of day exactly what deal they got," Baucus said. "As chairman of the committee with jurisdiction over pension issues, I intend to see whether this provision is making real and fair improvements to the airline pension system." The committee can pass legislation to revoke the benefit.

Senators Seek Transcon Flights From National
Two U.S. senators from western states moved to increase the number of flights departing Washington, D.C.'s Ronald Reagan National Airport by 20 and require that 12 of them serve the Pacific Coast. Sens. Maria Cantwell (D-Wash.) and Gordon Smith (R-Ore.) amended legislation to fund the Federal Aviation Administration to increase cross-country traffic. Reagan National, located about 10 minutes from the Capitol when traffic is light, is one of the country's smallest major airports. Congress originally limited the number and distance of flights from the airport until 2000, when some longer flights were allowed at the behest of Sen. John McCain (R-Ariz.).

Pilots' Union Backs Retirement Age Increase
The Air Line Pilots Association dropped its long-standing objections to lifting the mandatory retirement age of 60 for commercial pilots, removing a major obstacle to boosting the cap to 65. Eighty percent of the union's executive board voted for the change at a meeting last month, and directed the union to work closely to shape new rules that allow older pilots to continue to fly, including any retroactive application of any rules or erosion of pension benefits earned by pilots that continue working. "The executive board spoke clearly this afternoon," said ALPA president Capt. John Prater. "ALPA pilots will be fully engaged in shaping any rule change. Any legislative or regulatory change needs to address ALPA's priorities in the areas of safety, medical standards, benefit issues, no retroactive application of change, liability protection and appropriate rule implementation." The Federal Aviation Administration and Congress back the increase, as do Southwest Airlines and JetBlue Airways, which don't have traditional pension plans that become more expensive to fund as pilots' careers grow longer. The mandatory retirement age of 60, adopted by FAA in 1959, was backed by younger pilots who believed it would stimulate better opportunities for promotion. However, today some pilots nearing retirement who worked for airlines that went bankrupt wanted more time to work to shore up their pensions. The U.S. move would dovetail with standards adopted by the International Civil Aviation Organization, which increased the retirement age for pilots to 65 in November.

Editor's Note: A previous version of this report incorrectly stated Continental Airlines faced a $2.7 billion pension shortfall.