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August 18, 2003
Airline to Fund Pensions With Stock

Northwest Airlines won permission from the Department of Labor on Monday to fund its pension plans with a subsidiary's stock instead of cash, according to the Associated Press.

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The AP notes that such a strategy has been used only twice before by struggling companies.

The Minnesota-based airline had been seeking to use the subsidiary's stock so it could hold onto more cash - something in short supply these days in the airline industry.

To carry out the move, however, Northwest needed an exemption from the DOL's pension-financing rules. It got it from a panel of DOL lawyers and pension specialists, who voted Monday after holding a public hearing on the airline's request in May. The panel did not include Labor Secretary Elaine Chao; she recused herself because she is a former Northwest director.

The DOL's action will allow Northwest to contribute the privately held stock of its regional affiliate, Pinnacle Airlines Corp., to three pension plans covering 73,000 employees and retirees, according to the AP. Pinnacle, considered one of Northwest's more valuable assets, is a Memphis, Tenn.-based "feeder" airline.

The AP reports that the DOL granted similar authority in 1989 to Pan Am shortly before the airline collapsed, and in 1994 to General Motors Corp.

"An independent fiduciary has been retained by the pension plans to establish the fair market value of the Pinnacle stock and to determine that the stock is a prudent investment for the plans," the Labor Department said in announcing the exemption.

The AP reported that some unions had objected to the proposal, concerned that the privately held stock is not market-tested and its price may be inflated.

Northwest said in May it wants to use the stock to cover $223 million it owes the plans for 2002. The company has obtained a waiver from the Internal Revenue Service to pay about $450 million in 2003 obligations over five years.


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