Hey, Buddy, wanna buy an airline for cheap?

"I don't think it (bankruptcy) is going to solve anything," said James Harris, president of Seneca Financial Group, which specializes in financial restructuring.

"The business model for all these airlines is broken," he said. "You can either fix them one by one, or you can adopt a policy that limits capacity."

More than 100 U.S. airlines have entered bankruptcy over the past 25 years.

The runway is littered with once proud names such as Pan Am and TWA, which could not survive repeated bankruptcies as the industry struggled to cope with deregulation.

UAL's United Airlines and US Airways Group are still in prolonged bankruptcy. High fuel and pension costs are driving the next wave of carriers to bankruptcy court.

"The legacy carriers are dinosaurs," said Jim Bromley, a bankruptcy and restructuring partner at law firm Cleary Gottlieb. "The investment that has to be made in people and equipment and the requirement that you keep these things full and moving all the time -- it's a daunting task."

There have been only two fully successful airline bankruptcies, Continental Airlines and America West Holdings, experts say.

Continental filed for bankruptcy in 1983 and 1990, but managed to reshape itself, making inroads into the transatlantic market, and is one of the strongest U.S. carriers today.

America West went into bankruptcy in the early 1990s, but fought back to a strong position and is now helping US Airways out of bankruptcy with a merger deal.

"It's recognizing where you make money, and being willing to shrink and move the business very quickly," said Bromley, identifying the key points of a successful reorganization.

Pan American World Airways, known as Pan Am, failed shortly after bankruptcy in 1991. Trans World Airlines, or TWA, went into bankruptcy three times from 1992 to 2001 until it was finally liquidated.

Eastern Airlines and Braniff went out of business in the early 1990s after bouts of Chapter 11 protection in the troubled 1980s. Smaller carriers such as Air Florida, Western Pacific and Grand Airways never recovered from bankruptcy.

Even Delta CEO Gerald Grinstein concedes that bankruptcy may not save the airline and that a merger or acquisition isn't out of the question:

"One of the reasons we tried so hard to avoid going in [to bankruptcy] is because there's not a good track record for it," said Grinstein.

He said 160 airlines have gone into bankruptcy, with 20 emerging. Of those, only two remain, both of which have filed for bankruptcy twice -- Continental and America West.

And, Grinstein added, in bankruptcy protection, creditors, debtors-in-possession, and the judge also get to participate in decisions.

Still, he said Delta offered a very sophisticated reorganization plan to investors American Express and General Electric, which decided to extend Delta $1 billion in needed cash and to lower Delta's cash-on-hand limit from $1 billion to $750 million, Grinstein said.

While Grinstein said he doesn't plan for a merger with another airline -- Delta presented a three-year plan to its lenders that "envisions a stand alone airline" -- he also wouldn't rule it out.

"My view is that mergers and consolidations will take place [in the industry]. They are probably unavoidable," he said.

There is also speculation that discount carriers will swoop in to pick the bones:

Deep financial trouble at Delta and Northwest airlines could open up market opportunities for discount giant Southwest and other aggressive low-cost carriers.

No. 3 Delta and No. 4 Northwest filed Chapter 11 bankruptcy last week in New York, and both are expected to pare domestic routes as they reorganize. It's too early to know for sure where growth-minded discounters will pick up the slack, but few doubt that they will.

"There's no question that all the low-cost carriers should benefit significantly," veteran analyst and industry consultant Julius Maldutis says.

Regardless of what happens, the economic impact around the South, and especially Georgia, could be enormous. With approx. 30,000 workers there, Delta is one of Georgia's largest employers. Most of them are in the Atlanta metro area.

Delta is expected to announce pay and benefit cuts later this week. Delta's CFO Edward Bastian said there will also be layoff announcements, and that the layoffs "will not be small." In the same meeting with Georgia officials, however, Delta says that while they are scaling back domestic service they are adding more profitable international flights and that service to Atlanta Hartsfield-Jackson may not be affected and may even be expanded.

Other Delta hub cities may not fare so well. Operations at their Dallas hub have already been cut back, and Delta's hub at Cincinnati/Northern Kentucky is next:

This is of secondary interest, of course, to the 8,000 Delta and Comair employees in Greater Cincinnati whose jobs, wages, pensions and health care coverage are more uncertain now than ever before.

Atlanta-based Delta, the biggest employer in Northern Kentucky, has for months been negotiating concessions from its employees and cutting costs across the board in what the company said was an effort to avoid bankruptcy court. Just last week Delta said it plans to cut flights from its hub at Cincinnati/Northern Kentucky International Airport by 26 percent to further reduce costs and get the maximum use from its planes and staff. Those cuts, scheduled to take effect Dec. 1, will mean the loss of about 1,000 jobs.

Delta's bankruptcy will also cause ripple effects in other industries:

According to court documents, Delta owes about $28 billion and Northwest nearly $18 billion to bondholders, trade creditors and other lenders, many of which are facing massive losses.

The bankruptcies will likely wipe out the carriers' equity investors and leave unsecured bondholders recovering less than 20 cents on the dollar, analysts said.

Some secured creditors will likely recover most of their investments, but others could lose up to 80 percent, according to analysts. As the airlines try to reduce costs and downsize their fleets, they may simply return many of the aircraft backing its debt to creditors, analysts said.

Walt Disney Co. on Wednesday said it may have to write down $100 million of Delta aircraft leases it holds, possibly hurting 2005 earnings. Similar disclosures are expected from other debtholders.

Sadly, some of these stockholders are employees who took Delta stock in lieu of pay raises and other benefits, and employee unions who invested in the company.

Also at risk are pension benefits owed to over 100,000 Delta employees:

While Delta said it will continue to press Congress for legislation to make its plans more affordable, the Atlanta-based airline said, "There can be no guarantees -- even with pension reform -- about the future of Delta's qualified defined benefit plans," because of its growing financial pressures.

Two Senate committees have passed broad pension reform legislation that includes provisions that would allow commercial airlines, like Delta, to stretch out pension plan payments over 14 years, a much slower amortization schedule than what other companies would face.

The three Delta plans, which cover about 106,000 people, have $6.9 billion in assets and $17.5 billion in liabilities, according to PBGC estimates. Based on preliminary estimates, the PBGC says it would have to guarantee $8.4 billion of the $10.6 billion benefits funding shortfall. The PBGC itself has a $23.3 billion deficit.

If those estimates hold up, a PBGC termination of Delta's plans would exceed the agency's $6.6 billion loss-by far its largest-absorbed through its takeover of United Airlines' pension plans.

Despite assurances in a memo to all employees, Delta says there are no guarantees:

"Understandably, in view of our circumstances, people also are concerned about their pensions. Delta has been doing everything it can, within the bounds of what it can afford, to continue to provide its active and retired Delta people with already earned qualified retirement plan benefits. Given our financial situation and the need to preserve as much cash as possible for our operations, we do not plan to make the qualified defined benefit pension funding contributions soon due. Neither filing for Chapter 11 nor missing contributions means that our qualified plans stop paying monthly retirement benefits or that we have initiated the process to terminate the plans. Nor does either action mean we have stopped pursuing pension reform legislation that might make the pension plans more affordable.

But to be clear, there can be no guarantees - even with pension reform - because of growing financial pressures. Low-cost carriers do not provide defined benefit plans, and network carriers restructuring through the bankruptcy process have transferred their defined benefit pension plans to the Pension Benefit Guaranty Corporation. Ultimately, what we can afford in the future airline business environment, as well as the nature of any legislation, will determine what is possible."

Based on those statements, it is clear that Delta is considering termination of their pension plan and turning it over to Pension Benefit Guaranty Corporation. What does this mean for Delta's employees?:

Legions of Delta workers have a stake in what happens next. The company's pension plans cover about 100,000 people, including about 28,000 who are retired.

The airline says its basic pension plans remain in place. But on the first day of bankruptcy hearings, Delta indicated that it expects to halt supplemental pension payments to higher-paid retirees, including pilots and executives. And there is speculation that the company could move to terminate its basic pension plans too, just as United Airlines did in its ongoing bankruptcy case.

Such a move would shift responsibility for pension payments to a federal agency, the Pension Benefit Guaranty Corp., which is funded not with taxpayer dollars but with payments from businesses. But that agency says it doesn't have enough assets to cover the future pension liabilities that companies already have dumped in its lap.

The PBGC estimates that Delta's pension plan is underfunded by $10.6 billion.

[..]

The only people who can be sure what they will get, she said, are about three dozen top Delta executives who were granted controversial bankruptcy-proof pension trust funds in 2002, even as the company sank into financial turmoil under then-Chief Executive Officer Leo Mullin. "All the rest of the Delta people are hung out to dry because of their bad decisions," Cone said.

If Delta drops retirees' pension plans, the people hurt most would include young retirees in their early-to-mid-50s, who will get the smallest payouts from the PBGC, Cone said. She said the sting would be especially sharp for former pilots and senior executives who led Delta before Mullin's tenure.

But pensions aren't the only thing Delta retirees are worrying about. Many accepted early-retirement packages that promised premium-free medical insurance until age 65. Now, some doubt that benefit will survive.

Retirees expect health insurance premiums to rocket, something workers from other companies also face. But Cone worries about the possibility of Delta's dropping its health plan for retirees altogether, potentially leaving few insurance choices for those who have serious pre-existing health conditions.

Based on limits to pension benefits under the PBGC program, Delta retirees may lose billions in promised benefits:

The agency [PBGC], whose finances have been severely shaken by a series of large corporate bankruptcies and pension failures, said it would be responsible for absorbing $11.2 billion, or 69 percent of the two carriers' combined underfunded total, under a termination. Employees of the two airlines would lose the rest of the shortfall.

Contrary to widely held misconception, takeover by the PBGC does not equate to a "taxpayer bailout." At least not yet.

The PBGC is a quasi-private (administered by the government) pension insurance program funded through premiums paid by companies with pensions. Premiums and benefits are based on the level of pension funding (or underfunding), quality of investments, and so forth. There is currently no taxpayer funding, and Congress says it is "not an option." As you may recall, that's what they said about the FDIC and FSLIC, too, before the infamous S&L bailout on Bush the First's watch.

Delta's looming $10 billion pension debt to their employees is no doubt one of the factors in their decision to file for bankruptcy. It also highlights a growing concern about underfunded pensions and the PBGC. Similar to recent natural disasters, the problem was not unforeseen. In fact, back in 2003 a Congressional committee called it a "perfect storm":

Many factors have contributed to the decline of the defined benefit pension system. Struggling stock markets, severely low interest rates, and an increasing number of retirees have produced a 'perfect storm' scenario that has weakened the funding status of these plans and resulted in decisions by many employers to terminate or freeze a large number of plans. Moreover, a complex statutory and regulatory structure for defined benefit plans has resulted in an increasingly expensive and complicated system to administer that provides little flexibility for employers who voluntarily offer these pension plans.

These factors, however, mask broader trends that pose serious risks to the defined benefit system and the PBGC's ability to insure pension benefits for firms concentrated in manufacturing industries. For example, the program's insured participant base continues to shift away from active workers, falling from 78 percent of all participants in 1980 to 53 percent in 2000. This means that a shrinking pool of workers in companies that offer defined benefit plans are working to pay for the pension benefits of an ever-increasing pool of retirees -- a situation that may be unsustainable in the long term. General Motors, for example, has three retirees for each active worker.

The trend of underfunded defined benefit pension plans threatens the retirement security of millions of workers who rely on the safe and secure benefits that these pension plans provide and endangers the future of the defined benefit pension system as a whole. This ongoing series of hearings is designed to take a broad look at the problems facing the future of the defined benefit system and set the table for possible reforms that focus on enhancing the system to ensure that workers have as many retirement security choices available to them as possible.

It appears the PBGC is a program that was intended to insure pension benefits for millions of workers that has instead given corporations incentives to dump their pension programs and reduce their employee's pension benefits. It also appears that successful companies are forced to make good on promises made to employees by failed companies and others who dodge their responsibilities by filing bankruptcy. (Remember this the next time Bush or the GOP talk about privatizing Social Security.)

So, as usual, creditors, shareholders, and employees will take the biggest hit. Fortunately, though, senior executives at Delta had the foresight to protect themselves by putting their pensions in a "bankruptcy proof" trust fund. One shouldn't speculate, however, on whether the fact that this will be illegal after October 17th had anything to do with the timing of their decision to file for bankruptcy.

Delta, if it survives, will not be the same Delta we knew and loved. In fact, the airline industry will never be the same again. First class service (or service at all in coach), hot meals, pleasant flight attendants, and travelers who dressed for the occasion and comported themselves with proper decorum are all a thing of the past. The flying public is no longer willing to pay for such service, or to even act civilized it would seem.

Not only that, post 9/11 security concerns (and the attendant hassles) have companies looking for ways to avoid air travel and finding other ways to conduct business, whether over the internet or by way of videoconferencing. Nowadays, our policy for business travel is that we drive to almost any destination within 400-500 miles. Not only is it less expensive, but with security delays and connections it can also be faster. For example, I checked on a flight from Knoxville to Atlanta the other day. It's about a three-and-a-half hour drive. The "discount carrier" had a round trip price of $300. For that price, you get to visit Washington D.C. and Cincinnati on your way to Atlanta.

And speaking of discount carriers (or "cattle car" airlines as the Mrs. calls them), it may seem they are meeting the demands of price-conscious travelers. One problem in the deregulated world of commercial air travel, though, is that they cherry pick profitable routes and low-ball the established competition. This results in price wars in which everybody loses. For example, local officials and businesses here in Knoxville worked for years to get a discount carrier. People were driving three hours to Nashville to get cheap Southwest flights. It was hurting business at the airport, and the lack of cheap flights or even good connections was hurting business around the region.

So they got their discount carrier, Independence Air. And guess what happened. Delta and everyone else lowered their fares. Then guess what happened. Delta went bankrupt. And now Independence Air is near bankruptcy. So like I said, everybody loses. We'll be lucky to have any reasonable jet service out of Knoxville at all before it's over.

But at least our Delta Frequent Flyer miles are safe. Oh, wait. We just got letters saying our unused Frequent Flyer miles are being folded into the SkyMiles program. This means they are not worth as much, and now they will expire if we don't use them. Oh, well. At least it's not like it's a pension benefit or something.

OK, then.