American Airlines has announced it wants to end the pension plans of its 130,000 workers and retirees. The company will ask the bankruptcy court to transfer its pension obligations to PBGC.
Pensions are promises made to working Americans who count on them for a secure retirement. Those promises should not be broken lightly. PBGC will make sure the AMR pensions end only as a last resort: if doing so is necessary for the airline to restructure itself successfully after considering the possible alternatives.
Unfortunately, some of the claims that have been made about these issues aren't true. Here are some of the facts:
AMR says the pensions must end as part of its cost-cutting effort in bankruptcy.
In fact: AMR can't just decide to end its workers' pensions because it wants to cut costs. The law is very clear: AMR must prove that it needs to terminate the plans in order to stay in business, that there aren't other ways for American to succeed. To date, AMR has not done that.
AMR says the pensions have to go so it can regain its "rightful place at the top of the industry."
In fact: Many other companies have successfully reorganized without ending their pensions. In the airlines industry, Northwest went through bankruptcy and emerged with all its pension plans. So did Continental. Delta kept two of its three pension plans, terminating only its pilots' pensions.
Furthermore, thanks to pension relief already granted, AMR's pension costs are lower than some of its major competitors. Delta has pension costs almost 2/3 higher than AMR's pre-bankruptcy cost; in 2010 Delta paid about $13,200 per employee, compared to $8,100 for AMR. Yet Delta posted earnings last year of $854 million, while American lost money.
AMR points to United Airlines and other carriers that shed pensions in bankruptcy, and says it too must do so in order to compete.
In fact: Some airlines had to terminate their plans, and others did not.
Other airlines reorganized at a time when the industry's situation was dire. Now, except for American, the major carriers are profitable, whether they terminated their plans or not.
AMR says the pensions must end to reduce labor costs.
In fact: Other airlines reduced their labor costs without terminating their pensions. Pension costs have not driven the decline in AMR's competitive position.
AMR says unless the pensions end, the company will have to come up with more than $800 million a year to pay for them.
In fact: AMR lobbied for and obtained pension relief from Congress that allowed the airline to reduce and defer pension payments. This funding relief has saved AMR more than $2.1 billion over the past six years. That's more than half of AMR's total $4 billion in cash on hand. In effect, that's money AMR borrowed from its workers' pensions, money that helped keep the company aloft.
For the next six years, thanks to the pension relief it already obtained, AMR's annual pension cost will be roughly half the $800 million the company says it will be. So the pensions are a lot more affordable than AMR claims.
AMR claims that most employees will not be affected if the pension plans are killed.
In fact: That claim just isn't true for the 13,000 current or future retirees that AMR admits would have their benefits cut. (Since AMR hasn't shared any information, the real number could be many more.) PBGC's initial estimates suggest AMR retirees would lose $1 billion in benefits. In the bankruptcy retirees also stand to lose other benefits, such as health care, that PBGC does not insure.