Aviation bill stalls on airline pension fight

By John Crawley

WASHINGTON (Reuters) - Fierce wrangling on Wednesday over a proposal to make airlines contribute more to their pension plans derailed U.S. Senate consideration of sweeping aviation legislation.

Sen. Jay Rockefeller, a West Virginia Democrat and chairman of the aviation subcommittee, said it was unclear when the chamber could move forward with the landmark bill to authorize Federal Aviation Administration (FAA) programs.

"We have to work this through," Rockefeller said. "Everybody can't be a winner."

The overdue bill proposes a multi-year blueprint for modernizing the aging U.S. air traffic control system as well as steps to address pressing concerns about commercial aviation -- maintenance practices, FAA safety oversight, delays and congestion, and service complaints.

"It is a bipartisan bill that has enormous consequences to the economy," said Rockefeller, who is trying to shepherd the measure through the Senate and into negotiations with the House of Representatives on a final package.

The House approved a similar bill last year. The White House objects to several proposals in the Democratic-controlled Congress and has threatened a veto.

Wednesday was the first full day of Senate debate, which immediately stalled on a provision to toughen funding requirements for airline pensions.

Powerful legislative allies of American Airlines, a unit of AMR Corp, and Continental Airlines Inc, said the change would restrict cash reserves at a time when struggling airlines need spending flexibility.

"This is not the time to impose unrealistic pension funding requirements on the airlines," Rockefeller said. "America cannot afford another bankruptcy to cripple our aviation system. We cannot do one more thing to jeopardize the health of our commercial aviation system," Rockefeller said.

The biggest airlines lost more than $1 billion in the first quarter but say they have adequate cash and other liquidity reserves to help them stay aloft, if needed. No industry experts are forecasting any near term bankruptcies among major carriers.

Sen. Max Baucus, a Montana Democrat and chairman of the Finance Committee, said the claim that a tougher funding requirement could push carriers into insolvency was a "bogus argument."

"It's not going to affect the bottom lines of these airlines," Baucus said.

Baucus and other backers said the bill corrects an inequity in law approved last year -- benefiting American and Continental -- that allowed them to calculate benefits in a way that reduced their contributions.

That change was triggered by a 2006 overhaul of corporate pension funding rules. That law gave airlines special breaks to avert the type of pension plan collapses that had occurred earlier this decade during bankruptcies at United Airlines, a unit of UAL Corp, and US Airways Group Inc.

The 2006 law gave extra help to Northwest Airlines and Delta Air Lines Inc, which Continental and American thought unfair since they restructured outside Chapter 11 at higher cost and their pensions in better shape.

(Editing by Carol Bishopric)