Killing pensions won't fly at American Airlines because of union protected workers. This is good for taxpayers since Wall Street can't raid the treasury.
American Airlines in an unexpected about face told union workers today that it will freeze pension plans for most instead of killing them as the company pursues a reorganization under bankruptcy.
The so-called pension freeze covers unionized flight attendants and other ground workers, but does not cover American Airline pilots because their pension plan includes a lump-sum payment upon retirement. It would have been possible for some of them to immediately flee the once proud airline, meaning American would have an expensive aviation museum consisting of planes largely on the ground.
This very real problem of no workers to do the actual work compounds because of Chinese airlines that are now holding job fairs in the U.S. to recruit airline captains and first officers to fly in China’s booming economy.
“Bankruptcy forces tough choices, but that doesn’t mean pensions must be sacrificed for companies to succeed. We will continue to work with American and the other participants in the bankruptcy to ensure that success,” said Pension Benefit Guaranty Corporation Director Josh Gotbaum in a statement issued almost immediately after American’s.
The disparity in premiums paid is at the core of the American Airlines dispute with PBGC. American has paid a total of $260 million over 37 years, but was seeking to terminate its pension plans, adding some $9 billion to PBGC’s deficit – and this after receiving some one billion dollars in pension funding relief from Congress, which allowed it to defer payments.
If American Airlines were to end the plans, the agency would be responsible for paying about $17 billion in benefits; about $1 billion in benefits would be lost.
No wonder then that Gotbaum fought a very public war – well documented here by AutoInformed – against the original American Airlines management plan, which would have dumped the pensions onto U.S. taxpayer roles, a common tactic used by companies and venture capitalists, which then go on to reap billions in profits. This tactic was also soundly rejected by the Obama Administration when it forced General Motors and Chrysler into bankruptcy, but insisted on protecting worker benefits.
Pressure not only from Gotbaum, but also from pilot and transport worker unions, created what appeared to be formidable opposition to American’s dump-and-run bankruptcy plan. This is surely to come up in debates about Bain Capital and struggling Republican multimillionaire presidential candidate Mitt Romney’s tenure there.
However, the give on pensions will put pressure on unions to take some of managements’ demands for cost cutting, which also occurred during the auto bailouts. The lump sum payout for retiring pilots is sure to be high on the list.
On 29 November 2011, AMR Corporation, the parent company of American Airlines and American Eagle filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Southern District of New York.
American Airlines has four traditional pension plans that cover almost 130,000 participants. The plans collectively had only about $8.3 billion in assets to cover about $18.5 billion in benefits, according to the Pension Benefit Guaranty Corporation.
“In past bankruptcies, workers and retirees have lost their healthcare and seen their pensions cut. Based on our estimates American Airlines employees could lose a billion dollars in pension benefits if American terminates their plans,” said PBGC Director Josh Gotbaum at the time.
A termination would also weaken the financial health of PBGC, which has a record $26 billion deficit because of failed plans the agency has already assumed.
See:
- PBGC Says American Airlines Workers Should Worry About Pensions and Medical Care – So Should Taxpayers
- American Airlines Files for Bankruptcy – Pensions Threatened?
- Federal Regs Work as Airlines Cut Delays and Cancellations
