Another Pilot Shafting Coming - Great Management Timing

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Nov 4, 2003
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American Airlines filed a motion Friday in U.S. Bankruptcy Court to take away a pilot’s option to collect his or her pension as a lump sum rather than in monthly payments.
In its memorandum of law in support of the motion, American said that option would be too attractive for pilots once they can again exercise that option. They can’t while American is in bankruptcy, but they could do so when American emerges (probably in 2013).
American said if the pilots can take their pensions as a lump sum, “it would fuel a massive wave of pilot retirements. These retirements would create a pilot shortage which, in turn, would result in an operational crisis involving the wholesale cancellation of flights and the grounding of airplanes, with a corresponding devastating reduction in revenue and profitability.
“In short, if American cannot eliminate the principal motivation for this wave of retirements and preserve its ability to meet its business plan by enacting the Amendment, it will have no choice but to terminate the Pilot Plan,” American said in the memo.
The motion is part of a complex set of interrelated maneuverings designed to avoid having to terminate the pension plan and dump it on the Pension Benefit Guaranty Corp.
Last February, American proposed terminating the plan because of the lump-sum option, since federal law doesn’t allow a company to change a pension plan to take back a promised benefit like that option.
But American and the PBGC agreed to seek some legal changes needed so that American could freeze the plan, meaning that pilots would keep their pensions earned to that point, but wouldn’t accumulate any more benefits. And it would mean that the PBGC wouldn’t have to take over the plan.
The airline and agency worked with U.S. Treasury officials to come up with revised regulations to allow the elimination of such a benefit. The exemption would apply in cases where the pension is underfunded, the plan sponsor is in bankruptcy and the retention of the benefit would threaten the plan.
The pension plan’s actuary has certified that the plan is underfunded, and American asked the PBGC on Nov. 10 to attest that the lump-sum option meets the new regulations requirement. The last step is to get U.S. Bankruptcy Court approval.
In the filing, American spelled out the difference between having the lump-sum option, as was available before the Nov. 29, 2011, bankruptcy filing, and afterward:
“In 2011, retirement of active pilots prior to the filing of American’s chapter 11 case averaged about 33 retirements per month, and 99 percent of the retirees chose the lump sum option,” the filing said. “Since American commenced these chapter 11 cases and lump sums have been unavailable under the Pilot Plan, the retirement rate has fallen by half, to about 16 per month.”
Furthermore, “Considering that nearly all retiring pilots select the lump sum option, the decline in retirements during the pendency of American’s chapter 11 cases logically is based, in large part, on the unavailability of that option. Accordingly, when American emerges from chapter 11, in the absence of the Amendment, those pilots who delayed retirement hoping for reinstatement of the lump sum option will retire promptly.”
American further hypothesized that other pilots would perceive that the lump-sum may go away — because the plan fell below a certain funding level or otherwise had the option taken away — and would decide to retire before that happened.
“In short, if the lump sum benefits were available upon emergence, it is only reasonable to conclude that many retirement-eligible pilots would decide that ‘a bird in the hand is worth two in the bush.’ Indeed, given the perceived risk of future benefit losses, American would expect many pilots to view their choice as between two birds in the hand and one in the bush.
“Many undoubtedly would seek the certainty associated with securing a lump sum benefit promptly rather than deferring retirement and relying on continued monthly payments a plan that would be subject to the risks attendant to the vagaries of the airline business and the economy in general.”
 
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This management team is so inept and ignorant, they should ALL be replaced by the Unsecured Creditors Committee before they destroy what little is left to salvage.
 
Old news. I started a thread about this on November 9:

http://www.airlinefo...ump-sum-option/

The pilots saw this coming when AA filed for Ch 11. AA wanted to terminate their pilot pension but Obummer's point man, Josh Gotbaum, insisted that AA be stuck with legacy pension costs not saddling US, UA or DL (all terminated their pilot pensions). Gotbaum insisted on a freeze that would have left the lump sum option available. DL was unwiling to suffer the massive immediate retirements that would have happened if their pension had been frozen, so DL terminated their pilot plan. Gotbaum got Treasury to change the regulations so that AA wouldn't terminate its pilot plan. Of course, this means that AA will continue to have the highest pension costs in the industry even after it emerges from Bankruptcy, thanks to the Obummer administration.
 
Old news. I started a thread about this on November 9:

http://www.airlinefo...ump-sum-option/

The pilots saw this coming when AA filed for Ch 11. AA wanted to terminate their pilot pension but Obummer's point man, Josh Gotbaum, insisted that AA be stuck with legacy pension costs not saddling US, UA or DL (all terminated their pilot pensions). Gotbaum insisted on a freeze that would have left the lump sum option available. DL was unwiling to suffer the massive immediate retirements that would have happened if their pension had been frozen, so DL terminated their pilot plan. Gotbaum got Treasury to change the regulations so that AA wouldn't terminate its pilot plan. Of course, this means that AA will continue to have the highest pension costs in the industry even after it emerges from Bankruptcy, thanks to the Obummer administration.

Old news but the motion was just filed Friday.

Maybe going into Bankruptcy with $4.5 Billion was the real mistake and the rest of this politically driven garbage is just a symptom of that ignorance?

You can blame whoever you want, but the fact still remains that the decision to file, and the path we are one was all due to Horton and the gang. It is easy to blame Obama and his point men if you like, but how did AA get in that position to begin with?
 
Interesting choice of words by American's lawyers...

"..if American cannot eliminate the principal motivation for this wave of retirements..."

I don't suppose the "principal motivation" might be collective disgust at the current state of affairs within AMR?

That American's lawyers put this in writing is a testimony to the fact that it would be impossible to utter those words with a straight face.
 
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Old news. I started a thread about this on November 9:

http://www.airlinefo...ump-sum-option/

The pilots saw this coming when AA filed for Ch 11. AA wanted to terminate their pilot pension but Obummer's point man, Josh Gotbaum, insisted that AA be stuck with legacy pension costs not saddling US, UA or DL (all terminated their pilot pensions). Gotbaum insisted on a freeze that would have left the lump sum option available. DL was unwiling to suffer the massive immediate retirements that would have happened if their pension had been frozen, so DL terminated their pilot plan. Gotbaum got Treasury to change the regulations so that AA wouldn't terminate its pilot plan. Of course, this means that AA will continue to have the highest pension costs in the industry even after it emerges from Bankruptcy, thanks to the Obummer administration.

Did any of those carriers file with over $4 billion in the bank and over 500 new planes on order?

 


A Plan clarification

posted on November 25, 2012 13:39


The Dallas Morning News recently reported the following:

"American Airlines filed a motion Friday in U.S. Bankruptcy Court to take away a pilot’s option to collect his or her pension as a lump sum rather than in monthly payments."

There is nothing unexpected in this article. To be clear, the article is solely referring to the A Plan. Your B Plan termination benefit will be available as a lump sum, and the follow-on contributions to SuperSaver will of course be available as a lump sum upon retirement, or at age 59 ½.

There are recently enacted Treasury Regulations that will allow the A Plan to survive despite its lump sum feature. No pilot plan with such an option had previously ever survived bankruptcy – the fix involves removing the lump sum option from the plan. This will avoid a costly plan termination and significant dilution of any equity stake we may ultimately acquire.

There are four basic requirements that must be met before the A Plan lump sum option may be removed from the plan:

−The plan sponsor is in bankruptcy,
−The plan funded level is less than 100 percent,
−The bankruptcy court must hold a hearing to determine if removal of the lump sum option is necessary to avoid a termination of the pension plan, and
−The Pension Benefit Guaranty Corporation must certify certain facts with respect to the funded status of the plan.
The first two of these conditions have already been met. The motion filed by management that was noted in theDallas Morning News article is the first step in the process that will lead to a bankruptcy court hearing on the A Plan lump sum option. We expect the PBGC to issue its certification within the next few weeks. Once all four conditions are met, the pension plan may be amended to remove the lump sum option and allow the A Plan to survive bankruptcy.
 
Whether filing or not filing was right I will leave to others to argue. But from a FACTUAL side, anyone who complains about AA filing with so much cash on hand probably not familiar with what a bankruptcy is or costs. If you don't enter with cash, you have to find someone to give you cash who then 1) demand a voice, which leaves a smaller voice for everyone else, including the employees share of the company post BK; and 2) charge a hefty price for that money which again robs the company of money that can be used to rebuild and makes every dollar spent actually come out to cost MORE than a dollar.

Second, as far as lump sum, the reality of the situation that people DON'T want to see is exactly what AA has pointed out 1000 times. If 1,000 pilots jump ship within lets say 60-days of each other, and the lump sum is in tact, who is paying for the 2 billion+ in payouts? Please show me a business, EVEN PRIVATE HEDGE FUNDS, that could afford 2 billion in cash payouts over 60 days or less with nothing coming back? What pension fund in the WORLD can payout 2 billion in 60 days and not be completely bankrupt? There is this place called reality, and when people complain without thinking about the facts, it comes off as ignorance (even though it may just be frustration), which will lessen one's credibility during a negotiation. What we want in life, and what is POSSIBLE are many times different.

This was not AA trying to screw anyone, its AA saying 1+1 does not in fact = 5, and that is NOT stemming from AA mismanagement, that is just the reality of the numbers.

Cheers,
777 / 767 / 757
 
Whether filing or not filing was right I will leave to others to argue. But from a FACTUAL side, anyone who complains about AA filing with so much cash on hand probably not familiar with what a bankruptcy is or costs. If you don't enter with cash, you have to find someone to give you cash who then 1) demand a voice, which leaves a smaller voice for everyone else, including the employees share of the company post BK; and 2) charge a hefty price for that money which again robs the company of money that can be used to rebuild and makes every dollar spent actually come out to cost MORE than a dollar.

Second, as far as lump sum, the reality of the situation that people DON'T want to see is exactly what AA has pointed out 1000 times. If 1,000 pilots jump ship within lets say 60-days of each other, and the lump sum is in tact, who is paying for the 2 billion+ in payouts? Please show me a business, EVEN PRIVATE HEDGE FUNDS, that could afford 2 billion in cash payouts over 60 days or less with nothing coming back? What pension fund in the WORLD can payout 2 billion in 60 days and not be completely bankrupt? There is this place called reality, and when people complain without thinking about the facts, it comes off as ignorance (even though it may just be frustration), which will lessen one's credibility during a negotiation. What we want in life, and what is POSSIBLE are many times different.

This was not AA trying to screw anyone, its AA saying 1+1 does not in fact = 5, and that is NOT stemming from AA mismanagement, that is just the reality of the numbers.

Cheers,
777 / 767 / 757

http://en.wikipedia.org/wiki/Bankruptcy

This is about AA screwing over its workers. AA was never truly bankrupt per the definition of the word, they never missed a payment for lack of funds, and with $4 billion in cash, even under your scenario where 1000 pilots jump ship within 60 days AA would still have sufficient funds to pay its obligations, they may have to cancel some new aircraft purchases but if 1000 pilots left they wouldnt need them anyway. maybe they need relief from those contracts and since they are already in BK now would be the time to get such relief.
 
The pilot B-Fund is money already paid out every month that a pilot has been employed at AA. It doesn't matter if it is paid in a lump sum or an annuity.

The pilot A-Fund was reported to be funded somewhere in a range from low 80% to 90%.

it was seperate from other employee groups of whom I know zero of their funding levels.
 
The pilot B-Fund is money already paid out every month that a pilot has been employed at AA. It doesn't matter if it is paid in a lump sum or an annuity.

The pilot A-Fund was reported to be funded somewhere in a range from low 80% to 90%.

it was seperate from other employee groups of whom I know zero of their funding levels.

Which fund is available as a lump sum?
 
The A-Fund.

Not sure of the exact mechanics. The B-Fund is 11% of salary, taken out each month and placed into one big fund for the pilots, with each pilot owning a specified number of units (shares). It is being liquidated as well and paid out to each pilot very shortly. AA or the creditors can never touch it.

Delta and others only had the A-fund which was also wiped out.
 
Delta ... only had the A-fund which was also wiped out.

...you mean terminated and turned over to the PBGC under their limits on pension plans; the pilots in return received a $2B BK claim (about 25% of the value of the reorganized company) which was paid in stock on DL's emergence.

Remember that the PBGC went to bat for you in fighting to not only keep AA from terminating but also reduce the risk of a collapse of the PBGC.

In return, AMR will carry billions of dollars of pension liabilities on its books just as DL is doing because DL froze rather than terminated all plans except for the PMDL pilot plan because of the lump sum feature. Changes made specifically because of AA's case made it possible for AA to freeze all of its plans and avoid any terminations.
Prior to DL and NW, UA and US terminated their plans and walked away from the obligations. Don’t forget that when comparisons are made between UA/US and AA/DL regarding balance sheet strength.

I am glad for the employees that AA is able to freeze rather than terminate its pension plans and hope that what happened for AA’s pilots will mean that no other employee will see their pension plans terminated.