Pensions
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jimntx
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Because the Wall Street folk who do that financing could care even less about you and me than AMR does...despite the seeming impossibility of that feat. And, the fact is that the PBGC's valiant efforts will come to naught. Usually in BK court, the company (whoever that may be) gets what it want, and the employees get instructions to bend over and grab their ankles.
(FWAAA and E: Before you chime in, I know that the role of the WAll Street people is not to care. That still doesn't make it moral or ethical.)
I've talked with friends recently who used to work for Pan AM, Eastern, and Braniff. They all (like Elvira) say, "Wow! It's like deja vu all over again." AMR's executives are not doing anything different from the execs at those late, lamented airlines. Their only business plan is to cut employee positions, wages, and benefits. "The root cause of our problems could NOT possibly be the result of decisions made by us. Our decisions were/are perfect. The problem is that we pay the employees too much. Otherwise, ORD-DEL wouldn't have lost $45 million/year. Yeah, that's the ticket. We pay the employees too much. We deserve a round of bonusses for figuring that out."
I doubt that American Airlines will be around in a few years. If the US Airways, Delta, and United are smart, they will do as American did during the demise of the above-mentioned airlines--stand on the sidelines, wait for AA to die, then go to the yard sale after the funeral and pick up some real bargains in airlines, routes, and people.
(FWAAA and E: Before you chime in, I know that the role of the WAll Street people is not to care. That still doesn't make it moral or ethical.)
I've talked with friends recently who used to work for Pan AM, Eastern, and Braniff. They all (like Elvira) say, "Wow! It's like deja vu all over again." AMR's executives are not doing anything different from the execs at those late, lamented airlines. Their only business plan is to cut employee positions, wages, and benefits. "The root cause of our problems could NOT possibly be the result of decisions made by us. Our decisions were/are perfect. The problem is that we pay the employees too much. Otherwise, ORD-DEL wouldn't have lost $45 million/year. Yeah, that's the ticket. We pay the employees too much. We deserve a round of bonusses for figuring that out."
I doubt that American Airlines will be around in a few years. If the US Airways, Delta, and United are smart, they will do as American did during the demise of the above-mentioned airlines--stand on the sidelines, wait for AA to die, then go to the yard sale after the funeral and pick up some real bargains in airlines, routes, and people.
BoeingBoy
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The same place US will find the $2+ billion to pay for the next A332's that are delivered. Like about every airline of any size including US, AA will do a sale/leaseback or mortgage (EETC). There is no shortage of sources for either type of transaction - a sale/leaseback leaves the lessor owning the plane and the EETC uses the plane as collateral. Once the paperwork shuffle is done, AA will have very little money tied up in new airplanes but will have lease/EETC payments.
Each new 737 that replaces an MD80 will almost pay for itself in fuel savings anyway.
Jim
BoeingBoy hit a homerun with the bolded portion below.
In addition to all the new A330s since US filed for bankruptcy, didn't US take delivery of a bunch of A320s and A321s?
Same thing at NW, which took delivery of new A330s during and following its bankruptcy, which it used to replace its DC-10s.
Bankruptcy is all about getting out from under old debts, liabilities and obligations so the debtor can continue its business. Even if employees suffer.
eolesen
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Just to add to Jim and FWAAA's comments... Financing an asset is easy, because if the airline fails, those airplanes can be repo'd and placed fairly easily at other airlines. You won't find too many financial institutions willing to lend money just to give to the employees or pay down retirement obligations....
You won't find many taxpayers willing to accept responsibility for another 60,000 pensions either. Or pay for a government bailout of the PBGC. It's time for the government and airlines to work together to return this industry to a business model that can support itself and its workers .....
eolesen
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Those taxpayers who keep sending the same idiots back to DC year after year apparently had no problem with providing up to 99 weeks of jobless benefits for 5 million people who filed for unemployed last year, or providing some $78B in food stamps for 45 million people (15% of the total population).
Compared to all that, especially considering the PBGC is currently funded by companies with pensions, not tax dollars, the potential tax burden for a 60,000 pensions probably isn't going to get a lot of notice...
FrequentFlierCA
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There's also an aspect of competitive pressure to this.
Most of AA's rivals dumped their pensions on the PBGC last decade during their own bankruptcies. As AA doesn't have much fare pricing power, they can't increase their revenue much without losing business. So if there's a big cost difference in input labor costs (like a pension plan) it would put AA at a serious competitive disadvantage.
I know it seems ridiculous that AA can buy all these new planes and has to dump the pension plans, but that is the unfortunate reality. The new planes will also partially pay for themselves in fuel and maintenance savings.
Most of AA's rivals dumped their pensions on the PBGC last decade during their own bankruptcies. As AA doesn't have much fare pricing power, they can't increase their revenue much without losing business. So if there's a big cost difference in input labor costs (like a pension plan) it would put AA at a serious competitive disadvantage.
I know it seems ridiculous that AA can buy all these new planes and has to dump the pension plans, but that is the unfortunate reality. The new planes will also partially pay for themselves in fuel and maintenance savings.
eolesen
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Yep. There's something wrong all right.
First of all, most of the "hard working class" in America doesn't have a traditional pension. It's a minority, predominantly workers from unionized industries, plus public sector workers. In total, it's something around 20% of the population has a pension as their primary retirement vehicle vs. a 401K. The fact that there has to be a safety net for just that 20% sorta begs the question of why 4 out of 5 people should be responsible for underwriting something they can't possibly benefit from.
Second of all, it's not a widespread issue. Some 75% of the liability for the PBGC comes from a dozen companies in the auto, airline and steel industries, all predominantly closed shop environments that were slow to respond to changes in the marketplace and didn't get their costs under control. Steel and auto had to contend with pricing pressures from offshore producers, and both auto & airlines had to contend with new entrants who ran under different business models...
Management deserves half the blame for agreeing to continue promising benefits they couldn't deliver, and labor deserves half the blame for not having realized what they were expecting wasn't sustainable.
Had airlines converted to 401K's in the 70's or 80's, its unlikely that we'd be having this discussion. PBGC would have still wound up with the TW & PA failures. Not quite so certain that they'd have wound up with the AA, DL, US, or UA terminations.
And it wasn't for a lack of trying to freeze pensions... AA closed out new participation in the management & agent pension plans some 12 years before the bankruptcy filing.
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If the pension goes to the PBGC, then at least for the mechanic and related, will no longer have their negotiated 1.667 multiplier therefore should not have their wages reduced because of a better pension than the competitors.
Didn't happen in the auto industry last go round, leaders have finally realized what they are doing to middle class retirees and to the national debt. So they blocked wall street three years ago in that industry.
Yes, steel and textile lead the way. The PBGC is the welfare line many wound up in after their job was outsourced to Japan first, China second and eventually anywhere child labor was legal or anywhere there were no environmental laws to worry with. The government thought cheap warm socks were worth more than some good US jobs. Wall street jumped at the new opportunity! Industries started falling like domino's. Outsourcing to third world cheap labor became the only way to stay in business in the USA ... What seem like a great idea in the 80's is now leading us toward "default". A hand full of some-what wealth men became "super wealthy" while the rest of us look for work at Walmart at $7.00 an hr selling cheap socks from Indonesia .... lol lol!
Something has to change or as the commercial says, "The End of America 12.com" will be here before you know it? Good luck to all!!!! You'll need it when you wake up one morning and find out the US has defaulted and the dollar is worthless!!!! .... lol lol!
Exactly. Yesterday, President Obama submitted a proposed budget calling for $3.8 trillion in spending this coming fiscal year - that's 3,800 billion dollars. If the PBGC runs out of money sometime in the future, politicians of all stripes may make a scene (like the Republicans last summer over the debt ceiling increase) but in the end, the PBGC will get money to make sure its checks don't bounce.
It gets worse: the President, just like his predecessor, wants even higher taxes on air travel:
http://www.reuters.com/article/2012/02/13/usa-budget-transport-idUSL2E8DD7CC20120213?feedType=RSS&feedName=marketsNews&rpc=43
What they should do with some of the $3.8 trillion is bailout the airline industry .... make the airlines use the money to properly fund the pension again ... then pass laws requiring them to keep the funds up ... or next times it's chapter 7.
American Airlines Pensions: Get the Facts
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.
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.
