American Airlines on Wednesday said it will freeze three of its four defined benefit pension plans rather than seeking their termination, according to a letter to employees from Jeff Brundage, senior vice president, human resources.
The airline had considered terminating its four DB plans as part of the Chapter 11 bankruptcy filing of parent AMR Corp., Fort Worth, Texas. The Pension Benefit Guaranty Corp. opposed termination.
The freeze will affect the plans for flight attendants, agents and ground crews. The pilots pension plan is not included.
“While we still need to work with certain stakeholders and, in some cases, secure court approval, I'm pleased to report that in working with the Unsecured Creditors Committee and the PBGC, we've developed a solution that would allow us to pursue a freeze of our defined benefit pension plans for non-pilot employees instead of seeking termination,” said Mr. Brundage in the letter.
“Unfortunately, freezing pensions for our pilot group would pose additional challenges beyond those raised by freezing pensions for other work groups. We are committed to working with the PBGC, the UCC and (Air Line Pilots Association) to identify acceptable alternatives to termination of the pilot pension plan,” Mr. Brundage said in the letter.
“The company initially wanted to terminate our pension plan, shift the cost to the government, and put our members at risk,” said Transport Workers Union International President James C. Little in a statement. “Our negotiating team drew a line in the sand and said this was totally unacceptable — and today we are pleased to report that AMR has informed us they are willing to accept our proposal for a freeze of the current pension plan.”
“We are not out of the woods, and we can't implement the pension plan freeze until we reach an overall agreement. But this is a very important step forward,” said Mr. Little.
Joshua Gotbaum, director of the PBGC, said in a statement: “It is great progress and good news that American recognizes it can reorganize successfully and preserve its employees' pension plans. We're also glad the company is willing to work with us to preserve their pilots plan, too.”
“We welcome management's willingness to offer a solution that is not a termination,” said Allied Pilots Association spokesman Gregg Overman. “I think American ran the numbers and decided that paying the difference vs. terminating would also avoid the label of having the biggest default in U.S. corporate history. Taxpayers are passengers, too.”
American Airlines had $8.3 billion in assets in the four plans and an estimated $9 billion in unfunded pension liabilities.