The Pension Benefit Guaranty Corp. is girding for battle to keep American Airlines' four defined benefit plans in the hands of the company whose parent, AMR Corp., filed for Chapter 11 bankruptcy protection.
And with responsibility for $10 billion in liabilities at stake, the federal agency wasted no time fighting to be placed on the airline's creditors committee.
The stakes are high for the nearly 130,000 participants, who could lose as much as $1 billion in pension benefits if the PBGC takes over the plans — especially the more highly compensated pilots, who have typically opted for lump-sum payments at retirement. In fact, some experts predict the pilots will finagle a way to freeze their defined benefit plan to avoid a termination.
But the stakes are also high for a federal agency that's already in the hole by $26 billion.
The PBGC estimates American's four defined benefit plans — for pilots, flight attendants, ground crews and mechanics — have combined liabilities of $18.5 billion, while plans assets total only $8.3 billion. The defined contribution plans of American Airlines, with $9.44 billion, are not affected by the bankruptcy.
So far, airline executives have said relatively little about the pension situation. “Obviously pensions are part of our cost disadvantage,” Thomas W. Horton, American Airlines CEO and president, said at a news briefing after the Fort Worth, Texas-based company filed for Chapter 11 in New York on Nov. 29. “But we're not prepared to say how that will go.”
A company website dedicated to the restructuring noted that “unlike many companies, American has remained committed to preserving its employees' defined benefit plans. ... The company's goal continues to be to avoid adverse pension outcomes suffered by other network carriers. ... We need to look at ways to modernize our retirement plans to more closely align with what the industry and other large companies are providing.”