American offers to freeze pension plans instead of terminating
March 08-- As part of parent AMR Corp.'s bankruptcy restructuring, American Airlines has agreed to freeze -- rather than terminate -- defined-benefit pension plans for non-pilot employees, company and union executives said Wednesday.
Under agreements proposed with the Transport Workers Union and the Association of Professional Flight Attendants, American would freeze pension benefits earned by TWU and APFA employees as of the Nov. 29 date AMR filed its bankruptcy reorganization petition.
As of early evening Wednesday, TWU leaders had agreed to the company's plan; APFA executives were studying it.
"The company changed their proposal from terminating the pensions to a 'hard freeze' of the pensions," APFA said on its website. "A follow-up Hotline will be sent shortly defining what this will mean for the flight attendants. APFA ... is meeting internally to evaluate the proposal."
TWU International President James C. Little said American's agreement to freeze the pensions of 26,000 mechanics and related work groups was a bittersweet victory for the union. Although the TWU would have preferred to retain the pension plan for new hires, freezing the plan shows movement in the negotiating process from the company's initial position, he said.
"Our members will at least be able to have what they've already invested," Little said. "We're pleased that this will set us on a course to a consensual (contract) agreement. It's certainly going to help."
In proposing the pension freeze, American agreed to drop its initial proposal for additional wage and/or benefit concessions up to $800 million.
American says it still must reduce employee costs of $1.25 billion a year to compete successfully in the airline industry.
"Freezing instead of terminating these plans of course would mean we will have significantly larger pension costs than contemplated in our business plan," said Jeff Brundage, American's senior vice president of human resources, in a letter to employees Wednesday.
"While we still must achieve $1.25 billion in employee cost savings outlined in our business plan, we do not plan to increase that employee cost savings target. Instead, as part of our plan of reorganization, we intend to seek new capital at the appropriate time to cover the incremental annual costs of funding the frozen pension plans and to help fund the pension liabilities we will continue to have on our balance sheet."
American executives stressed that time is running out on opportunities to achieve consensual contract agreements between the company and its mechanic, pilot and flight attendant unions.
"We must reach agreements soon, not later. We are losing money every day that we operate," said American spokesman Bruce Hicks.
AMR lost more than $11 billion over the last decade.
After AMR filed its bankruptcy petition, it said it needed to terminate the company's four defined-benefit pension plans, which cover 130,000 workers and retirees. U.S. Bankruptcy Judge Sean Lane would have to approve American's plan to terminate its pensions.
The Pension Benefit Guaranty Corp., which insures private pension plans, estimates American's four plans have combined liabilities of $18.5 billion, while plan assets total $8.3 billion.
If American were to terminate its pension plans, the PBGC estimates it will cover about $17 billion of the company's pension obligations. About $1 billion of pension benefits would be lost, agency officials said.
"Freezing the defined-benefit pension plans would mean that employees would retain the full value of benefits accrued for service prior to the date the plan is frozen, and those benefits would not be reduced to PBGC (Pension Benefit Guaranty Corp.) guarantee levels in retirement," Brundage said in his letter to employees.
But he said the company cannot offer, without further negotiations, the same freeze to pensions of American's pilots.
The pension plans of the Allied Pilots Association contain a lump sum retirement option that could cost the company a significant amount of money, he said.
"Given the number of pilots who are eligible to retire, the company would be at significant operational risk if we emerge from Chapter 11 with a frozen plan that allows pilots to retire with a lump sum benefit," Brundage said.
D.R. Stewart 918-581-8451
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