Benefits and Compensation

American Airlines in Bankruptcy Threatens to End $1B in Pensions

Photo: Dan Macy

When American Airlines and its parent company, AMR Corp., filed for bankruptcy in November, many industry watchdogs dismissed the event as a chance for the airline to restructure and bring down costs.

Which is why the developing skirmish between the #3 airline carrier and the Pension Benefit Guaranty Corporation (PBGC) since then has been like watching an unexpectedly amusing game of tennis.

Shortly after the airline filed for bankruptcy, PBGC Director Josh Gotbaum stated on Nov. 29 that his organization “will encourage American to fix its financial problems and still keep its pension plans.” PBGC, accustomed to stepping in and paying retirement benefits where employers can (or will) not save the plan, is limited by Congress to the size of pensions it can pay. Gotbaum stated that if  American full-out ended its plans, about $1 billion in benefits would be dropped due to PBGC’s limited safety net, and from contending with its own deficit. However, the organization was approved to assist American paying its benefits Dec. 5.

Since then, Gotbaum has become increasingly vocal in advocating American not to completely drop its retirement plans during its bankruptcy proceedings.

According to an LA Times blog, American reassured customers that it would be “Business as usual.” The company said, “the filing [will] not affect [customers’] travel plans,” and “all tickets, reservations and reward points [will] be honored.”

Nonetheless, dropping pensions is what American is now advocating, in addition to hefty layoffs and elimination of health benefits.

Gotbaum chastised American for its decision Feb. 1, asking that the airline company “show there is no better alternative. Thus far, they have failed to provide even the most basic information to decide that.”

While American has remained mum on many proceedings (including speculation of a merger), the PBGC has gained several supporters, including U.S. Rep. George Miller (D-Calif.)

However, that has not stopped some from predicting that American could see its wish to drop pensions from being fulfilled.

For more on this topic, PBGC offers a summary of the bankruptcy, as well as answers frequently asked questions on how it pays for dropped pensions.

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