AMR Corporation, the parent of bankrupt American Airlines, pulled back on Wednesday from its previous threats to terminate all employee pension plans.þþþIt announced that it would freeze three of the four plans — the ones for everybody except its pilots — instead of turning them over to the federal government. That prospect could have meant cuts in the pensions that some workers took home.þþThe Transport Workers Union, which represents American’s mechanics and other ground workers, described the compromise as a victory. But the biggest winner may be the federal Pension Benefit Guaranty Corporation, which had previously calculated that it would bear losses of roughly $8 billion if it had to take on responsibility for the three pension plans.þþ“It is great progress,” the pension agency’s director, Joshua Gotbaum, said in a statement. “Bankruptcy forces tough choices, but that doesn’t mean pensions must be sacrificed for companies to succeed.”þþThe agency is already operating at a $26 billion deficit. Mr. Gotbaum had sought to make the pension fight at American a test case, saying pension terminations were not inevitable in bankruptcy and signaling that his agency would fight any attempt by the airline to use Chapter 11 proceedings to send its pension obligations to the government.þþHe appears to have had at least indirect support from American’s other unsecured creditors, who stood to have their claims significantly diluted because the agency’s claims of roughly $8 billion would have dwarfed everyone else’s in bankruptcy court. But that prospect would not come to pass unless the company succeeded in terminating its pension plans.þþThat $8 billion represents the shortfall in the pension plans for the mechanics, ground workers, flight attendants and others. The pilots’ pension plan, for now, continues to be a possible $2 billion claim.þþAs Mr. Gotbaum, along with the labor unions representing the airline’s workers, girded for battle with American in recent weeks, the airline consulted with members of Congress who have its airport hubs in their districts. But support for its plight was lukewarm, according to a person with knowledge of the bankruptcy, who would speak only on condition of anonymity because the issue was still unresolved.þþAmerican had previously received $2.1 billion in relief from Congress over the last six years, on the argument that the relief would allow it to keep all its pension plans going, and the lawmakers now seemed to think the airline was going back on its side of the bargain.þþBecause the three pension plans will be frozen instead of terminated, American’s mechanics, ramp workers, flight attendants and other workers will keep the pensions they have earned to this point, but give up the chance to add to their benefits with additional years of work.þþAmerican will keep responsibility for the three pension plans itself, paying these retirees their benefits in full. It said it planned to seek additional capital to cover existing shortfalls, but did not provide details.þþShortly after it filed for Chapter 11 in November, American said it was going to try to terminate all four of its workers’ pension plans, which together cover 130,000 people. The other major carriers in the United States have already stopped offering traditional, defined-benefit pensions, sometimes by terminating the plans in bankruptcy, and sometimes by freezing them, the less draconian approach.þþAmerican said it needed to terminate the plans to stay competitive, but Mr. Gotbaum disputed the airline’s calculations. In a previous job, he was involved in a pension battle at Hawaiian Airlines, serving as the airline’s bankruptcy trustee in Chapter 11 in 2003-5. In that case, Hawaiian ended up freezing its pension plans instead of letting the federal government take them over.þþWednesday’s announcement left the future of American’s pilots’ plan uncertain. The senior vice president of human resources for American, Jeffrey J. Brundage, said in a “dear colleague” letter filed with the Securities and Exchange Commission that the airline now hoped it could find a way to freeze the pilots’ plan, too, but it had run into an unusual legal obstacle that would first have to be resolved.þþThe pilots at American have the right to take their pensions as a single big payment when they first retire, as well as in the traditional format, a series of lifelong monthly payments called an annuity. The so-called lump-sum distributions are popular, but American suspended them when it declared bankruptcy, to comply with a law enacted in 2006 to protect pension plans from sudden losses.þþþAmerican said in its S.E.C. filing that it believed that if it came out of Chapter 11 with the pilots’ pension plan intact, it would once again have to offer the lump-sum distribution option. Its pilots can retire at any time after age 50. The airline currently has 5,207 pilots in their 50s and early 60s, eligible to retire, and American thinks they are likely to do so en masse if they have access to lump-sum distributions again.þþNot only could this strip their pension plan, like a bank caught in a run, but American said it feared it could also cripple the airline on its most profitable routes, immediately after the bankruptcy. The pilots likeliest to retire tend to fly the biggest planes over the longest routes — the ones that earn the most for American. If many left at once, it would take months for American to license and train enough replacements. In the meantime, it would not be able to fly certain routes.þþThis “is a risk that the company simply cannot afford to take,” Mr. Brundage said in his open letter. “Unless we are able to address the lump sum issue, a freeze scenario cannot even be considered.”þþIt would be difficult for American to revoke the lump-sum distribution option unilaterally because a federal law bars companies from reducing pensions once workers have already earned them.þþThe airline said it was still in talks with the Allied Pilots Association union, the federal government and its unsecured creditors’ committee “to identify creative solutions that would enable us to explore alternatives to terminating the pilot pension plan.”þ
Source: NY Times
