American Airlines Pressed to Protect Pensions ; Company Putting Less Money Than Scheduled into Workers' Funds

Article excerpt

The Pension Benefit Guaranty Corp. filed liens of $91 million against some assets of American Airlines' parent company, which is operating under bankruptcy court protection.

The U.S. government has signaled that it is ready to fight to prevent American Airlines from using bankruptcy to shed its pension plans.

While American has not said it intends to force the government to take over its pension plans, Joshua Gotbaum, director of the Pension Benefit Guaranty Corp., said Tuesday that he was hoping to get out in front of any such move by the airline. The government agency is already operating with a deficit of $23 billion and has said it would bear an additional $9 billion loss if American terminated all four of its employee plans, which cover 130,000 people.

Last month, American's parent company, AMR, said that it was contributing $6.5 million to the pension plans, far short of the $97 million that it would need to contribute if it were outside bankruptcy.

In a move to recover that shortfall, Mr. Gotbaum said Tuesday that the agency had put liens on $91 million of American's assets, beginning the process of foreclosure. Most of the assets are in Latin America. They include aircraft, ticketing offices and real estate and are not part of the bankruptcy.

American Airlines was set to meet with its employee unions in Dallas on Wednesday to outline its new business plan, including the concessions it is seeking. The unions fear that the business plan may include job cuts and either a freeze or a termination of some or all of its four defined-benefit pension plans. Each plan covers a different group of workers.

The meeting is likely to bring about weeks of tense negotiations between American and its main unions -- the Allied Pilots Association, the Association of Professional Flight Attendants and the Transport Workers Union, which represents the airline's ground workers.A bankruptcy judge will eventually have to rule on the company's restructuring plan and any alternatives proposed by the unions or potential bidders for the airline.

Both the unions and the pension guaranty corporation are bracing for a battle with clear political implications, since jobs and benefits are likely to feature prominently this year in the presidential campaign.

"Companies in bankruptcy often try to do things that they don't need to do," Mr. Gotbaum said at a news conference, adding that he believed American was preparing to argue that it could not emerge from bankruptcy without shedding some of its pension obligations.

American, led by Tom Horton, who became its chief executive late last year, reported Tuesday that it had lost $904 million in December, on revenue of $2 billion. It did not provide year-earlier comparisons in its filing to U.S. Bankruptcy Court for the Southern District of New York. The company said that so far, it had paid $14 million in professional fees linked to its restructuring, including fees to lawyers and investment bankers.

American told its employees in a letter on Jan. 23 that it was putting less money than scheduled into their pension funds. Its head of human resources, Jeff Brundage, said that the $6.5 million covered the amount the company owed from Nov. 29, when it filed for bankruptcy, to Dec. 31.

Any portion owed before the bankruptcy filing would be "dealt with under the supervision of the court," Mr. Brundage wrote, "just like unpaid bills from suppliers."

In previous bankruptcies in the Southern District of New York, the court has permitted companies to treat a large part of their pension contributions as prebankruptcy debt, which does not have to be paid down during the bankruptcy proceedings.

When a defined-benefit pension plan is taken over by the government, some retirees end up having benefits cut because of limits on the government's pension insurance program. Mr. Gotbaum said American employees would lose about $1 billion in benefits if the plan failed. …