Aviation bill stalls in Senate

By John Crawley

WASHINGTON (Reuters) - Sweeping legislation to upgrade the aging U.S. air traffic system and to strengthen airline safety and service stalled in the Senate on Wednesday over airline pensions and procedural wrangling.

On the first day of debate, lawmakers quickly clashed over a proposal to toughen airline pension funding rules, a plan opposed by congressional allies of American Airlines, a unit of AMR Corp, and Continental Airlines Inc.

By nightfall, Senate Democrats had dropped the provision but uncertainty shifted to another area -- a partisan fight over whether unrelated amendments would be permitted. They included tax and energy proposals and a plan to boost highway construction spending.

"We've been spending all afternoon here doing nothing," said Max Baucus, a Montana Democrat and Finance Committee chairman, said as back-room negotiators settled in for a late night.

The Senate adjourned until Friday morning.

Sen. John Rockefeller, the aviation subcommittee chairman responsible for moving the Federal Aviation Administration (FAA) bill through the Senate opposed the pension provision but was frustrated the larger measure was now tangled in procedural maneuvering between Democratic and Republican leaders.

"I've heard almost no conversation today and virtually none yesterday about the perilous condition of our aviation industry," Rockefeller said.

The 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.

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.

Members of the Senate Finance Committee spearheaded the pension proposal which they said was necessary to correct an inequity in law approved last year. The 2007 change allowed American and Continental to calculate benefits in a way that reduced their contributions.

That adjustment was triggered by a 2006 overhaul of corporate pension funding rules, which gave airlines special preference to avert the type of pension plan collapses that had occurred earlier this decade.

United Airlines, a unit of UAL Corp, and US Airways Group Inc canceled pension plans in bankruptcy.

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.

Baucus said he was disappointed that Senate leaders wanted to drop the tougher pension proposal, saying the Senate would let "certain airlines off the hook."

(Editing by Carol Bishopric)