2014 Investor Day presentation

[WorldTraveler]

AA is lobbying for a change in law so that will be treated exactly the same as Delta. AA wants the long-term flexibility to have the same low required minimum contributions for the same period of time as DL enjoys.

... which could mean that they might not make even the current minimum contribution levels.

dawg,
investor conferences do often show up here... not sure if this one will but this will be the place if it does.

http://seekingalpha.com/symbol/DAL/transcripts

thanks for the info on aircraft... I do agree with you.

 

[topDawg]

Meanwhile, back in Reality; from the AA 3rd Quarter 10-Q:


AA has contributed an extra $613 million beyond the minimum contributions for 2014. AA isn't lobbying to "cut its pension contributions" as you misleadingly posted. AA is lobbying for a change in law so that will be treated exactly the same as Delta. AA wants the long-term flexibility to have the same low required minimum contributions for the same period of time as DL enjoys.

err....unless AA is some how paying less than Delta then yes, they basically are lobbing to cut pension contributions. 
 
 

... which could mean that they might not make even the current minimum contribution levels.

dawg,
investor conferences do often show up here... not sure if this one will but this will be the place if it does.

http://seekingalpha.com/symbol/DAL/transcripts

thanks for the info on aircraft... I do agree with you.

I know. That is how i get all the call info. I don't even listen to the TechOps call ins. Wait till the transcript. 
 
I like being able to skim over the stuff that doesn't mean much to me. Listening to Joe bob ask about his insurance is a little boring to me. 

 

[FWAAA]

err....unless AA is some how paying less than Delta then yes, they basically are lobbing to cut pension contributions.

AA's minimum required annual contributions have been less than Delta's for several years, primarily because AA's pensions were not quite as underfunded as Delta's pensions. DL really should have terminated them when it terminated the pilot pension. As that was before Josh Gotbaum, DL would have had no objection from the PBGC.

For example, DL said in the Investor Day presentation that its minimum annual cash contributions are about $700 million a year (page 45). To DL's credit, it's been adding another $250 million each year on top of its required contributions. This year, AA's minimum contribution was $168 million (far less than DL's $700 million) plus AA kicked in another $613 million on top of the legally required minimum. Sensible, given that times are currently good and there's plenty of extra cash to add to the pensions.

The pension funding delay law passed in 2006 gave DL reduced funding requirements for 17 years, while AA got only 10 years. AA did get to use a more favorable/optimistic interest rate assumption but its reduced funding requirements end in 2017. AA simply wants an extra seven years (just like DL has) and AA wants to keep the more optimistic interest rate assumption which will also be available to Delta if the law is changed. DL got 17 years of reduced minimum contributions and AA got just 10. AA wants the same 17 just in case things go bad between 2017 and 2024. Without a change in the law, AA's minimum funding requirements balloon in 2018 while DL's minimums stay reduced for an extra seven years. AA isn't seeking to cut its pension funding - it wants to keep the lower minimums for seven more years.

http://www.dallasnews.com/business/airline-industry/20141130-american-airline-asks-to-extend-deferral-on-pensions.ece

 

[WorldTraveler]

Congress and the PBGC had considerable objection to DL and NWs threats of terminating their pensions. that is precisely why the Pension Protection Act was created. It was intended to keep DL and NW from terminating their pensions.

AA and CO were thrown in despite not being in BK.

DL's pilot pensions were terminated because of the lump sum payout feature that caused over 1000 DL pilots to leave in the months leading up to termination of DL's plan.

and you are correct that AA wants to customize pension law to once again reflect that it restructured after everyone else.

I have no information on what Congress thinks about this but it is far, far harder to argue that AA should be given any break when it emerged from BK and is posting record profits which on a net basis have exceed other carriers.

I would guess that AA's chances of getting a single carrier exemption at this point will be low esp. since pension quality in the US has deteriorated and AA is indeed making money. but I could be wrong.

 

[FWAAA]

and you are correct that AA wants to customize pension law to once again reflect that it restructured after everyone else.

I wouldn't characterize AA's lobbying as attempting to customize the pension law applicable to AA; rather, I would characterize it as an attempt to make the pension relief law the same for all airlines, regardless of when they entered bankruptcy and when they froze their pensions.

AA got 10 years instead of 17 years to catch-up because of Arpey's well-meaning but mis-guided view that it was better to not freeze the pensions and wait for other airlines' wages to catch up to AA's wages. Good intentions, to be sure, but naive and not business-savvy.

So because AA didn't file for Ch 11 and freeze its pensions like DL did, AA was given a 10 year break while DL got a 17 year break.

Now, however, AA has finally joined the BK club and frozen its pensions, just like DL. But unlike DL, AA still doesn't get the optional flexibility that Delta gets (the extra 7 years of optional lower contributions).

Now that AA has done what DL did, hard to justify the disparate treatment in terms of equal protection under the laws, etc.

If you want DL to have that 7 year advantage over AA, then just say so, but it is a definite advantage for Delta if it gets that additional 7 years. If the economy turns south in 2019 and fuel prices spike again, DL will have a huge advantage over AA for several more years. Why not level the playing field in early 2015 so both massively profitable airlines play by the same rules if things go bad again before 2024?
 

I have no information on what Congress thinks about this but it is far, far harder to argue that AA should be given any break when it emerged from BK and is posting record profits which on a net basis have exceed other carriers.

I have no idea what Congress thinks, but I'd bet that the idea is more popular in the Republican-dominated House and soon-to-be Republican-controlled Senate than it is among posters to this website.
 

I would guess that AA's chances of getting a single carrier exemption at this point will be low esp. since pension quality in the US has deteriorated and AA is indeed making money. but I could be wrong.

Like I said above, I would characterize it as an attempt to get equal/identical treatment that's afforded to Delta, which is also making money. Both carriers are contributing more than the minimums during this highly profitable period, but AA wants a 17 year period just like Delta in case the future isn't quite as rosy as the present. And of course if AA gets to keep the favorable interest rate assumption, then I'm certain the amended law would give DL that same favorable interest rate assumption.

 

[WorldTraveler]

at the time DL and NW - two separate companies at the time - got the relief - they were in a very different and challenging economic period you noted with your RASM reminder.

I agree that if equitable treatment is the goal, AA should get it.

but AA is in a far better situation today than DL and NW were then. and pension stress is greater now.

Congress, regardless of who is in charge, has to ask if it is really good sense to be giving out pension relief to companies that can pay its pension obligations with ease. If they are doing as well as they are, then accelerating those pension contributions now might be more prudent than asking Congress to revise something in the future that will involve far more financial stress for more companies

 

[topDawg]

AA's minimum required annual contributions have been less than Delta's for several years, primarily because AA's pensions were not quite as underfunded as Delta's pensions. DL really should have terminated them when it terminated the pilot pension. As that was before Josh Gotbaum, DL would have had no objection from the PBGC.

For example, DL said in the Investor Day presentation that its minimum annual cash contributions are about $700 million a year (page 45). To DL's credit, it's been adding another $250 million each year on top of its required contributions. This year, AA's minimum contribution was $168 million (far less than DL's $700 million) plus AA kicked in another $613 million on top of the legally required minimum. Sensible, given that times are currently good and there's plenty of extra cash to add to the pensions.

The pension funding delay law passed in 2006 gave DL reduced funding requirements for 17 years, while AA got only 10 years. AA did get to use a more favorable/optimistic interest rate assumption but its reduced funding requirements end in 2017. AA simply wants an extra seven years (just like DL has) and AA wants to keep the more optimistic interest rate assumption which will also be available to Delta if the law is changed. DL got 17 years of reduced minimum contributions and AA got just 10. AA wants the same 17 just in case things go bad between 2017 and 2024. Without a change in the law, AA's minimum funding requirements balloon in 2018 while DL's minimums stay reduced for an extra seven years. AA isn't seeking to cut its pension funding - it wants to keep the lower minimums for seven more years.

http://www.dallasnews.com/business/airline-industry/20141130-american-airline-asks-to-extend-deferral-on-pensions.ece

 
except how would Delta get back the ten years of higher interest they paid compared to AA?  

 

[WorldTraveler]

dawg,
interest rate assumptions are used to calculate the level of funding necessary for the plans.

a more 'favorable' interest rate from the perspective of the funding company means lower contributions to the plan with the assumption that interest rates long term will be better than what they are now.

given that nearly all developed world central banks are virtually loaning money at no cost - the US, EU, and Japan - because their economies are too weak to justify higher interest rates - long-term investments such as what underlie pension plans have to assume high levels of contributions by the company because the assets of the plan are seeing low returns on their investments.

AA wants the same type of interest rates as DL has had.

the questions Congress will have to answer are

1. Is it necessary or will it create more risk to the pension system to allow AA to reduce its payments?
2. Can AA pay its pension obligations now and likely in the future - again the industry is in a very different position now vs. where it was when DL and NW were allowed to change their level of pension contributions?
3. Is it good public policy to be creating a single employer exception esp. in light of the two questions above. remember CO also had pensions like AA's that were not terminated and CO was not in BK. I do not know UA's position on this issue but they have pension plans that were inherited from CO and that are similarly treated.

 

[FWAAA]

dawg,
interest rate assumptions are used to calculate the level of funding necessary for the plans.

a more 'favorable' interest rate from the perspective of the funding company means lower contributions to the plan with the assumption that interest rates long term will be better than what they are now.

Exactly. The higher assumed interest or discount rate available to AA has permitted AA to assume that it will earn more on the plan investments, reducing the annual cash contributions.
 

AA wants the same type of interest rates as DL has had.

No, other way around. AA got to use a higher assumed rate of return than did DL - that was the bone thrown to AA because its relief lasts only 10 years. Delta will understandably want to use the same higher rate if AA is successful in its lobbying efforts. AA wants the extra 7 years plus it wants to keep using the favorable high assumed rates. That way, there's something in it for DL as well as AA, maybe generating support from DL for these changes.

I don't predict that AA will succeed in getting the extra 7 years of flexibility but it has a decent argument given the fluctuations in fuel prices and uncertainty about how long the current profitable good times will last. AA's history in contributing extra amounts above the legal minimums also argue in its favor - it's clear that AA isn't shirking its responsibilities to fund the pensions when it's flush with extra cash. AA merely wants the option to enjoy the lower legal minimums if things go upside down again.

True about UA's (CO's) frozen pensions also. UA got the same higher assumed rate as AA along with the 10 year (not 17 year) relief. Smisek may want the same flexibility as Parker, and if all three get on board, I see swift passage by Congress.

 

[WorldTraveler]

The industry was profitable before oil went down so it is even harder to argue that the legislation is needed.

As fair or unfair as the current situation may be, the primary consideration will likely be whether any further delays put add'l stress on the pension system and whether airlines can pay their pensions either way.

If the answer is that the airlines will likely be able to pay even without the relief, then the chances are that nothing will be changed.

IF AA is seeing strong profits now, that should be an incentive to accelerate payments.

if things fall apart down the road, then there is still time for further pension relief but the most likely scenario is to encourage airlines to fix their pension deficits as quickly as possible.

Strong profits now are the best time to do that.

 

[FWAAA]

IF AA is seeing strong profits now, that should be an incentive to accelerate payments.

AA has been accelerating its contributions during these good times. This year, AA is adding an extra $600 million, while DL is adding an extra $250 million. Despite your (and others') incorrect postings, this isn't about reducing contributions. It's about having the option to make small minimum contributions in the future. In effect, DL has a 17 year interest-only mortgage while UA and AA have 10 year interest-only mortgages. All are free to pay extra when they have the extra cash, but UA and AA see huge mandatory minimum contributions on the near-term horizon without a change in law, while DL enjoys seven extra years of low minimum payments.

As a DL cheerleader, it's natural for you to champion that benefit that only DL enjoys post-2017. But since you often talk about level playing fields, one would think you'd agree on a level playing field.

if things fall apart down the road, then there is still time for further pension relief but the most likely scenario is to encourage airlines to fix their pension deficits as quickly as possible.

You're right - why take advantage of what might be a currently favorable political climate to get the change accomplished now, when AA could always wait until the next Great Recession to go hat in hand to Congress and beg for relief?

 

[WorldTraveler]

DL has actually made $750 million in accelerated/additional payments.

and yes it is about wanting the ability to reduce contributions in the future. doesn't mean they will but they want the freedom to do so.

AA chose not to file when the rest of the industry did. That act had benefits and liabilities. DL began its restructuring much more aggressively than other carriers - ala trading CVG and MEM for LGA/JFK and SEA - and that has had benefits and liabilities.

it isn't a question of fair vs. not fair.

I don't have any qualms in saying everyone should get the same treatment.

but that is not the way the question will be answered by those who will make or change the rules.

The primary factors will be who can pay and if they can why should the rules be changed and will allowing AA in the future to potentially reduce its pension payments add stress to the pension system.

My bet is that no changes to current airline pension funding rules will be allowed in light of the current high profitability of the industry and the continued concern about pension system stability in the future.

 

[FWAAA]

DL has actually made $750 million in accelerated/additional payments.

Over three years, yes. $250 million a year, just like I posted.

From the Investor Day presentation, page 45:
 

• Pension funding remains manageable, with
required funding levels at ~$700 million per year
– Expect to contribute incremental $250
million in 2015, which will bring total
incremental contributions to $750 million
since 2013

You aren't even conversant in the basic facts of the discussion. As I posted yesterday, you might benefit from additional reading and research and less posting. That way, you might be correct more often on the facts.

Your posts in this thread would, if they were submitted by my students, earn a C- at best due to your lack of familiarity with the facts.

 

[WorldTraveler]

Someone is ticked that AA will be "stuck" with the non-BK terms of their pension funding requirements. and that AA's fuel hedge gains aren't really gains at all.

Let me know what level of additional funding A will have made by the time that DL has made its $750M in additional funding.

if AA was half as concerned about the level of pension funding they might have to make later in this decade, they might start figuring out how to keep their M80s in operating condition instead of spending money on new aircraft that could require more than $500 million / year in additional interest payments.

or is that DL is near the top of the industry in service rankings while AA still grovels around in the basement?

what is it? or is it just your typical AArrogance.

you don't have the personal maturity to debate facts of the industry so instead you turn everything into a personal pi78ing contest.

clearly part of the AA culture involves turning business issues into efforts to slam someone else.

 

[Force Majeure]

Someone is ticked that AA will be "stuck" with the non-BK terms of their pension funding requirements. and that AA's fuel hedge gains aren't really gains at all.
 

 
It has been a while since I have visited this forum. Now I remember why. What a juvenile delinquent. I cannot believe those who run this forum still allow this guy to stay around. 
 
It is very clear that the number of people who post here has dwindled down to a handful. 
 
I will come back when the "world traveler" delta obsessive guy is gone. It is clear why they paid him to leave the industry, and they pay the rest of us to stay. Good luck to all of you who are willing to put up with him.