FAA Reauthorization Act of 2007

Floor Speech

FAA REAUTHORIZATION ACT OF 2007 -- (Senate - April 30, 2008)

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Mr. DURBIN. Mr. President, if you sat down this morning to design a system that would offer American workers the most secure retirement possible, where would you start? If you are starting from scratch, what principles would guide you?

Here are a few I think you might begin with. First, you want to encourage companies to offer secure retirement benefits. That is obvious. Second, you want to ensure that companies keep their promises to their employees and retirees. That ought to be at the top of the list. Third, don't create circumstances under which employers decide they can't afford to keep offering decent retirement benefits without becoming uncompetitive as a business or insolvent. That is pretty sensible. Fourth, treat all the companies in an industry equally so as not to pick the winners and losers. Don't tip the scales.

There are many other goals you might set out to achieve. Of course, we are not starting from scratch this morning, and this is not primarily a pensions bill, it is a reauthorization bill for the Federal Aviation Administration. But the substitute amendment we are now considering contains one pension provision that I think violates the principles I just laid out. That is why I am offering an amendment with Senator Hutchison of Texas, with a lengthy list of bipartisan cosponsors, to strike that provision of the bill.

The impact of our amendment will be to provide retirement security for over 180,000 American workers and at the same time maintain air service for all of our constituents in over 300 cities in our Nation and around the world.

Who supports this amendment dealing with the pensions of workers? The workers themselves. It is supported by the 135,000-strong Transport Workers Union of the AFL/CIO, and it is supported by a long list, a bipartisan list of cosponsors starting with Senator Hutchison, who will be speaking a little later on this amendment this morning, as well as Senator Brown of Ohio, Senator Inhofe of Oklahoma, Senator Lautenberg of New Jersey, Senator Voinovich of Ohio, Senator Bill Nelson of Florida, Senator John Cornyn of Texas, Senator Bob Menendez of New Jersey, and Senator Tom Harkin of Iowa. As you can tell from this list, this is a very diverse sponsorship--both sides of the aisle, all over the country. We have the support of the workers whose pensions are being affected, and we have the support of Senators from both sides of the aisle in a bipartisan fashion to strike this section of the bill.

It is a little complicated, but for the record we need to get into the background of why we are here today.

In 2006, we passed the Pension Protection Act, which established new rules for defining which companies were meeting their obligations to their employees and retirees and which companies were not. All the companies in America were, in effect, given 7 years to catch up on any underfunded pension plan, and rules were established regarding how the underfunding was to be estimated. That is only right and sensible because if we are going to offer a pension to an employee and the employee can count on that pension, they have to make sure the pension plan is adequately funded so when they call on that plan at the time of retirement, the benefits will be there, the benefits that have been promised over the lifetime of a worker.

It affected all the companies in America except for airlines. We recognized at the time that the airlines were facing unique circumstances. They owed huge amounts of money to hundreds of thousands of workers and retirees, and yet they were facing a very difficult struggle to profitability after 9/11. We all recall what happened. Airlines were shut down completely across the United States and then air travel was at least compromised if not inhibited for months and years afterward.

We understood the airline industry needed special consideration, so we gave the airlines a special arrangement when it came to funding their pension plans. We said airlines had 10 years to make their pensions whole instead of 7 years, which gave them a little longer period of time. We allowed the airlines to assume a rate of return on their investments of 6 percent instead of assuming a lower rate based on the formula that other companies were forced to use--all airlines, that is, except for two, Delta and Northwest. These airlines had frozen their defined benefit retirement plans.

What does that mean to freeze the benefit plan? It meant no new workers at those airlines could participate. It meant the workers then working were covered by their defined benefit pension plans; those new workers coming onboard at these airlines did not get that benefit; and no new benefits could be provided to existing workers and retirees. The current pension benefits were frozen, excluded new employees from coverage.

So, in a way, Delta and Northwest were given special treatment. They were allowed to deal with their retirees in a different fashion than any company in America, than any airline in America. These airlines were told they could take 17 years to catch up on the payments instead of 10 years, and they could assume a rate of return of not 6 percent but 8.85 percent. It was a very generous deal.

Let me restate that another way. Some airlines, but not all of them, could assume a far higher rate of return and spread their payments over a much longer period of time. What difference does it make? It meant those airlines, Delta and Northwest, had to set aside far less cash toward their pension plans each year than the other airlines with which they were competing.

In a very competitive industry such as air travel in this country, this created a huge advantage for these two airlines, Delta and Northwest. To make matters worse, we rewarded the airlines that froze their pensions. Let's compare that result then to the principles I laid out at the beginning of the statement.

Did we encourage, with this decision, companies to offer secure retirement benefits? No. It seems to me instead we encouraged companies to freeze their benefit plans.

Second, did we ensure that companies keep their promises to their employees and retirees? I do not know about that. Does allowing companies to take 17 years to adequately fund their obligations ensure that they keep their promise? It is a fair question.

Third, did we avoid creating circumstances under which employers might decide they could not afford to keep offering decent retirement benefits without becoming uncompetitive or even insolvent? I think trying to avoid this scenario was part of the rationale for giving airlines a bit more of a cushion. So perhaps we did.

Did we treat all companies in an industry equally, so as not to pick winners and losers and create a competitive advantage for some airlines over others? We most certainly did not.

Now, fast-forward to last year. On the first day of the new Congress, Senator KAY BAILEY HUTCHISON of Texas introduced legislation to bring more balance to pension rules for the airline industry. We passed this legislation as part of the Iraq supplemental last spring, and I supported Senator Hutchison.

What did the language do? It gave the airlines that have not frozen their pension plans--and let me be specific which airlines: American Airlines, Continental, Hawaiian, Alaskan, and US Airways--the opportunity to assume a better rate of return on their investments. They now can assume a rate of return of 8.25 percent.

Remember, Delta and Northwest, under the law that we passed, can assume a rate of return of 8.85 percent, whether that, in fact, takes place. So even under the existing law before the bill that we have before us, those two airlines are going to benefit. They get a better break, better treatment, Delta and Northwest, than all the other airlines, and they can smooth out these payments over 17 years, not 10 years.

So did the change in the law on pensions benefit those two airlines initially? Yes. Is their benefit compromised by what we are doing with this amendment today? No. But does it bring the other airlines in the country closer to the same treatment? Yes, it does. So we still have not provided all of the industry players with parity. Delta and Northwest still do much better. The airlines that are still trying to provide their workers secure retirements through defined benefit plans that are not frozen are still getting a much worse deal than the airlines that froze their plans, but it is a bit fairer.

So what was done years ago rewarded those airlines--struggling, I will concede--with better treatment in terms of funding their pension plans from a corporate point of view than other airlines. What we are doing today is lessening that advantage slightly but not at the expense of Delta and Northwest. In fact, what we are doing is maintaining what has been the law since last year. That brings us today to this substitute amendment which we are considering.

Section 808 of the substitute amendment would place new responsibilities on only those airlines that we tried to help last year. This section would once again widen the disparity between the rules that apply to some airlines versus the rules that apply to others. That does not make any sense. This section would require only the five airlines that I mentioned to fully fund all new pension obligations this year and every year going forward, only those five airlines.

Now, you might say, in a vacuum that seems reasonable, fully funding a pension. We want companies to pay their pension plans, right? Well, it is up to a reasonable point. There are three fundamental problems that I think are very important for my colleagues to understand. First, the provision in the bill which Senator Hutchison and I would strike penalizes the airlines that have worked the hardest to fully fund their pensions already. Don't we want companies to work hard to fully fund their pensions? If we do, why would we want this section of the bill which penalizes them for their effort to protect their workers and be fair in their pension plans?

Take American Airlines, for example. According to the rules, American Airlines' pensions are 116 percent funded. To put it another way, the management has put more money into their pension plans than they actually need to put in to make sure they make all of the payments promised, 16 percent more. It is not as if American is underfunding their pensions; they are overfunding their requirements. The assets on hand, after assuming the investment rate of return over time, are worth more than what American Airlines has promised its workers and retirees. How can we ask for anything more than that?

So why should American Airlines have to then fully fund all of its new obligations each year so it continually maintains 116 percent funding? Is not 100 percent enough?

Second, this provision unnecessarily pushes these five airlines closer to bankruptcy. Is it really in our Nation's best interest that these five airlines pay an additional $2 billion into their pension funds over the next 5 years when they simply do not have cash laying around?

As a national policy, is it better for us to have more airlines or fewer? Do we want more competition or less? Do we want fewer bankruptcies or more? And if we really care about the retirements of these hundreds of thousands of workers who are employed at these five major airlines, why would we push their companies closer to bankruptcy?

Do you know what happens when a company goes into bankruptcy? Ask the employees of United Airlines what happened? The first casualty is their pension plan. I have been there. They are based in Illinois; they are based in Chicago. It was painful. And if you push more airlines into bankruptcy, you are not helping their workers and their retirement, you are jeopardizing it.

If that sounds dramatic, I would like to show this chart to my colleagues who are following this debate. These are the bankrupt airlines, recent bankrupt airlines: Frontier Airlines filed for bankruptcy, 6,000 employees were affected by that decision; ATA filed for bankruptcy, 2,230 employees affected; Skybus, 450 employees terminated; Aloha, 1,900 employees; EOS airlines, 450 employees.

This is the reality of the airline industry today. By my count, over 11,000 employees were affected by these bankruptcies. So why in the world would we put a provision in this bill which would require our airlines, these five airlines, to put dramatically more cash into these pensions, beyond what is required of other airlines, beyond what is required for 100 percent funding, and jeopardize them and endanger them so that they face bankruptcy?

Let's look at the losses recently reported for the first quarter by some of the largest domestic carriers, just in case those who are critical of this amendment believe these airlines are flush with cash. Look at what happened in the first quarter of this year: Delta Airlines' first quarter losses, $274 million; American Airlines, $328 million; and United, $537 million.

If there is someone who believes--and I do not know who it might be--that the airline industry is so flush with cash, that they are so strong they can handle this new pension requirement that is put in this bill, and it will not have a negative impact, they have not noticed the reports on the first quarter. In virtually every instance every airline in America has struggled and fallen behind because of jet fuel costs.

Now comes this bill, not providing these airlines a helping hand through one of their most difficult periods in history where bankruptcies are rampant and losses are at record levels. This bill imposes new regulations on airlines struggling to survive.

At a time where crude oil is threatening to reach $120 a barrel--it did last week--and jet fuel is pushing $160 a barrel, I do not think the airlines are in a position to add another $2 billion to their pensions which are already well funded.

Remember, Delta and Northwest were given a privileged position when it came to the treatment of their pension plans under the law. They did not have to put as much money into their pension plans. They were given a longer period of time to pay out or to fund them, 17 years, and the rest of the airlines were given circumstances which were more demanding of them. They had to put in more money.

What Senator Hutchison and I are trying to do is protect a difference but one that we think is reasonable. What the bill does is to push these airlines at exactly the wrong moment in America's business history into a position where they are going to have to surrender cash reserves and risk bankruptcy.

Now, is that in the best interests of the workers and the pilots of those airlines? Eleven thousand workers at airlines are already bankrupt or out of work. There are over 180,000 workers in America who stand to lose nearly everything if we push these airlines into bankruptcy, and the over 300 cities that could lose air service and face higher fares? Why? Why do we want this?

Third, and finally, this provision creates an even larger disparity between the way some airlines are treated and the way other airlines are treated. In this most competitive industry, why in the world are we trying to tip the scales to the advantage of some airlines and push others near bankruptcy? It does not sound right.

Why are we demanding these five airlines to follow rules that no other company in America must follow? Why are we demanding these five airlines follow rules that two of their competitors do not have to follow?

The amendment I have with Senator Hutchison and others would strike this provision from the bill and leave current law unchanged. I think this is important to all Senators. It is not just an issue for those of us whose home States entertain these airlines and have them as carriers. I urge every Member who is interested in providing equitable treatment under the law to all companies in a given industry to support our amendment.

Do this for 180,000 workers who have weighed in, whose pensions are at stake and strike section 808. It is a bad idea. And let me also say this on behalf of the largest carrier affected, American Airlines. This legacy carrier is the only one left--of the larger carriers, I should say--that has not gone through bankruptcy. They have made sacrifices. They have cut back. They have tried to protect their workers and provide quality service. It has not been easy.

Now they are facing recordbreaking jet fuel costs. That is a reality. They have tried to keep their word to their unionized workforce to keep them on the job, to pay them as promised, to give them the pension they promised. Why do we want to punish good conduct? Why do we want to punish an airline that has tried its level best to keep its word to its employees and retirees? That is a question not only asked by the management of American Airlines, it is being asked by the workers of American Airlines.

They oppose section 808. They think it could be the end of their airline. What a legacy we would leave at the end of the day if we pass a bill that is supposed to pass to make air travel safer and jeopardize the existence of five major airlines in the process.

That is exactly what section 808 would do.

I urge every Member who is interested in giving their constituents as many options for flight travel as possible by keeping afloat as many airlines as we can to support our amendment. I thank the 135,000 members of the transport workers unions whose pensions are at issue with this amendment. They have stood up in what I think is the best interest not only of transportation workers today but those retirees. I thank Senators HUTCHISON, BROWN, INHOFE, LAUTENBERG, VOINOVICH, NELSON, CORNYN, MENENDEZ, and HARKIN for cosponsoring the amendment. I urge my colleagues to join us. Let's strip this section from the bill and then move forward to do what we need to do to make American air travel safe and to respect the companies and workers we count on every day.

I yield the floor.

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Mr. DURBIN. Mr. President, I respect the Senator who is the chairman of the Finance Committee. It is one of the toughest assignments on Capitol Hill. He has adequately described what I think is the challenge of pension plans--how to make sure companies put the money in they promised, and to keep their promise to their retirees.

What I am saying is, the approach the Senator brings to the floor, in section 808, is opposed by the retirees and workers. They do not believe it is in their best interest. They certainly do not think it is in their best interest if their airline goes into bankruptcy. They know what has happened repeatedly. When an airline goes into bankruptcy, the first losers are the retirees and the pension benefits of current workers. They are worried, and they should be. Look at how precarious this industry is, with the jet fuel costs and the record losses these airlines are facing.

Secondly, I cannot quarrel with the chairman's premise about keeping the playing field level when it comes to airlines. But if that is the case, how can he explain to us that two airlines are treated so dramatically different than others? Delta and Northwest have 17 years to make their pension liability right. We assume they are going to earn 8.85 percent each year on their investments regardless of what they actually earn.

The airlines we are talking about have 10 years to make their pension liability right, and their assumption of interest is 8.25 percent. Doesn't sound like much. It has been dismissed a little bit here. But if you are talking about hundreds of millions of dollars that are being invested in pension funds, you can understand the impact this might have.

The last point I wish to make is this: Senator Hutchison and I wish to keep the status quo. The section 808 amendment we want to strike changes it. Under the current status, the largest airline affected, American Airlines, has 115 percent of funding--115 percent. They are not falling behind; they are keeping their word to their employees and their retirees. That is why I hope my colleagues will support our amendment to strike section 808.

Mr. President, I ask unanimous consent before yielding the floor that Senator Bond be added as a cosponsor of our amendment.

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