Parent company of American Airlines, AMR Corp, recently proposed an alternative to its earlier plan to terminate the American Airlines employee pension plan, leaving participants to the fate of government insurers. This would have the effect of lower payments than originally dictated by the pension plan.
Instead, AMR Corp has recently proposed to freeze pensions covering many of its workers. This would avoid becoming the largest pension default in U.S. history. It could also help American Airlines cut a deal with its unionized work groups to help address high labor costs.
AMR had been the only major airline to avoid filing for bankruptcy in the last ten years. It’s the only one that still has a traditional pension plan.
The freezing of the plan, as per company statements, would mean that employees would retain the full value of benefits accrued for service prior to the date the plan is frozen. This action would mean the company will retain larger pension costs than was considers in their business plan.
As the negotiations with labor continue, AMR says it needs to cut 13,000 jobs to help get rid of $2 billion in costs, of which $1.25 billion is labor. AMR will need to find new capital infusions to cover the additional cost of funding the frozen pensions.
The recent proposal does not include pilots because, according to AMR, their plan includes a provision for a lump sum payout to retiring workers that the other work groups do not have. AMR’s current plan still includes terminating the pilot pensions entirely.
AMR is looking to replace the pension plans covering 130,000 workers and retirees with 401(k) plans that include a company match.
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