Published 17 Dec, 2014
A Rejection of Commitments American Airlines Made to Labor to Support Merger with US Airways When Exiting Bankruptcy
American Airlines’ commitment to future payments of employee pensions was key to gain support of the merger by TWU and other unions.
- In November 2012, American Airlines’ employee pension plans were frozen during bankruptcy restructuring.
- Later, US Airway’s merger with American Airlines was endorsed by unions at the airline, without which the merger would not have occurred.
- TWU and other unions’ support was gained in part by a bankruptcy exit plan in which new management team agreed to a set schedule of future pension contributions to ensure the solvency of the newly frozen pension plans.
- The agreed-to payment schedule included a one-time large contribution in 2017 that was the result of American’s previous pension payment deferrals starting in 2006.
American Airlines’ new management was completely aware of its employee pension obligations and agreed to a funding schedule when it exited bankruptcy.
- In its official restructuring plan American unconditionally guaranteed a funding schedule of its pension payment obligation that it is now trying to amend.
“Pension Plan Required Contribution. On the Effective Date, the Reorganized Debtors shall assume and continue the Pension Plans and shall pay Cash and any aggregate unpaid (i) minimum required funding contributions under 26 U.S.C. 412 and 430 and 29 U.S.C. 1082 and 1083 and (ii) all required PBGC premiums in accordance under 29 U.S.C. 1306 and 1307.”
Source: American’s Business Plan (First Amended Joint Chapter 11 Plans, 6/1/2013) pp. 85
- Despite their legal and binding commitment to a pension funding schedule in their exit plan, American now seeks “relief” from these commitments during a period of unprecedented profitability less than a year from exiting bankruptcy and agreeing to these funding terms.
Recent events strongly suggest American Airlines does not need relief from its pension obligations.
- A resurgence in airline industry profitability in 2014 has caused American Airlines stock price to more than triple from a year ago.
- In 2014, American has posted record profits in every quarter.
- The recent dramatic drop in oil prices will cut American Airlines’ annual fuel bill by over $3.5 billion and greatly enhance profitability.
- Between 2015 and 2017, Wall Street now expects American’s pre-tax profits to be surge to over $6 billion, which is $2 billion higher than its business plan forecast one year ago (source: Hunter Keay, Wolfe Research).
- American has $9 billion in cash and short-term investments and is:
- Repurchasing $1 billion of its shares by the end of 2015,
- Paying its shareholders their first dividend since 1980, and
- Spending $2 billion on refurbishing its fleet.
American Airlines’ profitability is now forecast to be billions above its business plan.
American Airlines’ stock price has more than quadrupled over the past two years.
