American Airlines stock fell to 26 cents after it filed for bankruptcy yesterday, while AA employees' and retirees' morale fell even further. But fear not -- your frequent flier miles are safe, the airline hastened to assure its customers.
"Today American Airlines' parent company filed for bankruptcy. When this happens employees and retirees worry — and they should," said Pension Benefit Guaranty Corporation (PBGC) Director Josh Gotbaum.
"In past bankruptcies, workers and retirees have lost their healthcare and seen their pensions cut. Based on our estimates American Airlines employees could lose a billion dollars in pension benefits if American terminates their plans," Gotbaum said.
Taxpayers at risk
Such a termination would be a financial hardship not only for AA workers but also for taxpayers. The PBGC currently has a record $26 billion deficit, thanks to previous corporate bankruptcies.
Workers are often big losers in bankruptcies, even when PBGC steps in to take over their pensions.
"This is true even if PBGC becomes responsible for those plans, because Congress has limited the size of the pensions we can pay. Unfortunately, when the agency assumed airline plans in the past, many people's pensions were cut, in some cases dramatically," Gotbaum said. "That's why PBGC always tries first to preserve plans, even after companies enter bankruptcy. As we did with Visteon, and with some plans at Delta and Northwest Airlines, we will encourage American to fix its financial problems and still keep its pension plans."
American Airlines sponsors four traditional pension plans that cover almost 130,000 participants. As of today, the plans collectively had about $8.3 billion in assets to cover about $18.5 billion in benefits. If American Airlines were to end their plans, the agency would be responsible for paying about $17 billion in benefits; about $1 billion in benefits would be lost.
In cases where plans cannot be saved, PBGC steps in and pays benefits. Currently, the agency is responsible for about 1.5 million people in more than 4,300 failed plans. Each month, on average, PBGC pays about $460 million to more than 870,000 retirees and is responsible for future payments to 628,000 people who haven't retired.
Now you might think that American employees would be glum and grouchy given the news that their pay, benefits and pensions were in for another round of drastic surgery.
But no, AA assured its customers in a perkily upbeat email. "More than 80,000 people at American appreciate your loyalty and look forward to continuing to serve you," the email enthused breathlessly.
"We want to assure you that your AAdvantage miles are secure. The AAdvantage miles that you've earned are yours and will stay yours, subject to usual policies, until you choose to redeem them for a great award with us. Likewise, your elite qualifying miles and your elite status, including lifetime status granted under the Million Milerprogram is secure and remains intact," it continued.
However, cheery greetings aside, in other airline bankruptcies, consumers have found it more difficult to redeem miles as the carriers slash routes and substitute smaller aircraft, and as more fliers try to redeem their miles, fearing that the airline may not survive.
Capt. Dave Bates, the president of the Allied Pilots Association, which represents AA pilots, called it "disappointing that we find ourselves working for an airline that has lost its way" and said the pilots have tried to accommodate the company's needs.
"In 2003 American Airlines’ pilots provided management with significant cost savings that were characterized as essential to avoiding bankruptcy at that time. We agreed to sacrifice based on the expectation that our airline would regain its leadership position. What has transpired since has been nothing short of a 'perfect storm,' Bates said in a voicemail to union members.
Many AA employees, not just pilots, remain bitter about giving up $1.8 billion in concessions in 2003 to help the airline avoid bankruptcy then, only to see executives award themselves big bonuses later in the year.
Another message from the union noted that it's too late for pilots to bail out with their benefits.
"Please be aware that [the] Chapter 11 bankruptcy filing by AMR will block the A Plan lump sum option for pilots retiring today or thereafter," the message said.
And what about CEO Gerard Arpey, who announced his retirement as the bankruptcy action was filed.
The company insists that Arpey, who had long tried to avoid a bankruptcy filing, isn't leaving the company with a "golden parachute." AMR said he will not receive a severance or an exit bonus since he voluntarily decided to retire.
Arpey, 53, has accrued $4.7 million in pension benefits which, the company noted, will be vulnerable during the bankruptcy process. He will be eligible to begin drawing whatever remains of that pension when he reaches age 55, the company said.
Succeeding Arpey is Thomas Horton, a 22-year AA employee. Horton said he had no plans for a wholesale slashing of jobs and routes.
American Airlines stock fell to 26 cents after it filed for bankruptcy yesterday, while AA employees and retirees' morale fell even further."Today Americ...