Another Costly Bailout?

Three troubled airlines are moving toward possible default of their pension plans, and others could follow. The worst case would throw billions of dollars in pension liabilities onto the Pension Benefit Guarantee Corp., a U.S. government agency that insures private retirement accounts for 44 million people. It pays benefits of failed plans, but within certain limits. The agency is already running a $10 billion deficit. It has sufficient assets to meet near-term obligations, but a massive airline pension default could throw it into bankruptcy and trigger a huge taxpayer bailout.

Here’s the present situation: United Airlines, now in bankruptcy, skipped a $72 million pension fund payment in July and plans to miss nearly $500 million in contributions this fall. Industry experts fear that it will dump its four pension plans that are underfunded by more than $8 billion and saddle the insurance agency with $6 billion of that obligation.

US Airways, trying to avoid slipping back into bankruptcy, must make a $133 million pension payment Sept. 15. It has already terminated its pilots’ plan and is seeking permission to delay paying $67.5 million that it owes this year to its other plans. Delta Air Lines is trying to negotiate a cutback in its pilot’s plan to avoid possible bankruptcy and termi-nation of the plan. One summary lists underfunded pension liabilities as Delta’s $5.65 billion, Northwest’s $3.74 billion, AMR Corp.’s $2.66 billion, and Continental’s $1 billion.

A run on the federal insurance agency thus is a real possibility. It raises the prospect of a taxpayer bailout much like the one Congress approved more than a decade ago for the savings and loan industry. That fiasco, financed by floating $157 billion in 30-year bonds, will ultimately cost American taxpayers somewhere between $500 billion and $1.4 trillion, depending on the course of interest rates up to the year 2020.

In a quirk of history, President George W. Bush could be tussling with a new bailout like the one that troubled his father, President George H.W. Bush, and entangled two other Bush sons. Jeb Bush defaulted on a $4.56 million loan from Broward Federal Savings in Sunrise, Fla., which federal regulators closed with a taxpayer loss of more than $4 million. And Neil Bush was a director of Silverado Savings and Loan, which collapsed at a cost of $1.6 billion to he taxpayers.

That mammoth S&L bailout – so big that most Americans can’t conceive of it or even remember it – grew out of the same misguided government generosity that would be to blame for the possible pension bailout. In both cases, the federal government has insured private enterprise against failure. When Uncle Sam stands by to finance failure, it amounts to taking the risk out of the risk-taking that is the essence of the capitalistic system.