American Reassures Workers About Pensions

Executives with American Airlines moved to reassure employees about their pensions Wednesday after a government takeover of retirement plans at rival United Airlines.


Executives with American Airlines moved to reassure employees about their pensions Wednesday after a government takeover of retirement plans at rival United Airlines.

In a memo posted on an internal company Internet site, American executives said many employees had been asking about the future of the pensions.

"We believe that companies must try to protect the retirement benefits that have been promised to their people if they can afford to do so," the memo stated, quoting Gerard Arpey, American's chief executive. "American is taking a different approach than some of its competitors."

But the airline also acknowledged that it must keep pace with its rivals. "We cannot afford to be uncompetitive in any part of our business," the memo stated.

The airline noted that its pension plans are in better shape than those of most other major carriers. The plans are 80 percent funded and have enjoyed an average return of more than 13 percent the past 10 years, the company said.

American's plans are underfunded by about $2.7 billion. Delta Air Lines' plans are underfunded by $5.3 billion, while Northwest's have a deficit of $3.8 billion.

Last year, American paid $461 million into the plans, meeting all its obligations. This year, the airline expects to pay about $310 million into its pensions.

United, in contrast, hasn't made its minimum contributions to its pension plans for almost a year as it shifted $5 billion in obligations to the federal Pension Benefit Guaranty Corp. Some analysts believe other airlines will also move to reduce pension obligations.

United's "rejection of pension liabilities will put pressure on Northwest and Delta, which have comparable liabilities per employee," Roger King, an industry analyst with CreditSights, an independent research firm, said in a recent report.

Most low-fare airlines have so-called defined contribution retirement benefits, such as 401(k) plans, that don't carry the long-term costs of traditional pensions.

Delta and Continental have had some success in reorganizing their pensions outside of bankruptcy. At Delta, for example, the pilots agreed to freeze the current pension and receive future benefits from a 401(k) plan.

American's executives and its union leaders hope to gain some pension relief from Congress. The two sides have teamed up to lobby lawmakers for pension reform that eases pressure on American's pensions by stretching out its funding obligations over 25 years.

In Washington, D.C., about 150 members of the Association of Professional Flight Attendants visited Capitol Hill on Wednesday, urging lawmakers to oppose a pension reform bill.

"American is different from other airlines," said Tommie Hutto-Blake, the association's president, pointing to a letter the unions and American's management signed this year supporting the pension plans and benefits.

Among the lawmakers union representatives met with was Rep. Kenny Marchant, R-Coppell. They also met with aides to Rep. Kay Granger, R-Fort Worth, Rep. Michael Burgess, R-Flower Mound, and Texas GOP Sens. Kay Bailey Hutchison and John Cornyn.

Rep. Mike Honda, D-Calif., credited the union with getting more supporters for a bill he plans to introduce Friday that would fund a $1 million study of fatigue among flight attendants. "If flight attendants are alert, then we're safer," Honda said at a news conference.

Union officials and executives are also lobbying Congress to prevent new pension rules from penalizing companies with poor credit ratings, like American.

Ralph Hunter, president of the Allied Pilots Association, said preserving the pilots' pensions is one of the union's highest priorities.

"We are highly skeptical that stripping employees of their hard-earned negotiated benefits, either through legislation or in federal bankruptcy court, will serve to ensure any organization's long-term success," he said in a statement Wednesday.

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