With the Chapter 11 filing of American Airlines, the airline claims, for passengers, everything will be as it was, hunky-dory; not so for its workers. Now, the Director of the Pension Benefit Guaranty Corporation (PBGC), the government safety net for corporate pension programs, publicly states that AA should not look to the agency as a place to toss their commitments to their employees.
AA is attempting to put lipstick on this bankruptcy pig. the airline has followed a pattern of mistreating suppliers, distributors, passengers and its unions ever since its management decided to ride out the economic storm following 9/11 on the back of concessions from its workers. Almost in disbelief, workers who conceded salaries saw their sacrifices go the pockets of executives making six-figure salaries as bonuses. Now that the employees have been balking, the board of directors has opted for bankruptcy protection as a means to squeeze their unions a bit more. It hasn’t been pretty.
Besides ratcheting up the pressure on its labor groups, AA, it seems, has tried to sue everyone in the world. They even have dragged the Consumer Travel Alliance into their nonsensical antitrust suit against a major part of its distribution system as a third-party witness forcing a consumer advocacy organization to spend thousands of dollars to comply with its demands for years of emails and letters between the organization and other industry associations and policy watchdogs.
AA still plans on moving forward with one of the largest aircraft purchases in recent memory, with money lent to them by bankers and investors who plan on the airline jettisoning their defined benefits plans, breaking leases for other uneconomic aircraft, dropping money-losing routes and breaking contract after contract.
It is in this light that the director of PBGC, Josh Gotbaum, issued a pointed press release warning AA that his agency will not make life easy for AA executives planning to trash the airline’s benefits program.
When American Airlines filed for bankruptcy they took great pains to say to their customers that nothing will change, that they will still have their frequent flyer miles and service will continue. But they didn’t make the same promises to their employees about the future of their pensions.
Recent comments by the company’s bankruptcy counsel, Harvey Miller, suggest that American wants to back out of its retirement commitments. For that to happen, American will have to prove it can’t successfully reorganize if the pensions continue.
Mr. Miller also said that traditional pensions no longer work because of unpredictable market conditions. That may come as a surprise to the 60 million Americans that have them. Traditional pensions remain the best option for a secure retirement for most people. Those who have moved into 401K-type plans are discovering that investing is hard, the results are far from guaranteed, and they may end up having to work longer than expected. A defined benefit is always there, you can’t outlive it, and it gives people real retirement security.
PBGC has helped dozens of companies in bankruptcy keep their pensions, so their employees and retirees get the benefits they worked for.• For instance, Visteon, the former Ford Motor Co. auto-parts subsidiary, initially planned to terminate three of its pension plans in bankruptcy. We showed Visteon they could reorganize successfully without terminating their employees’ plans. Today, the company’s 23,000 workers and retirees continue to receive all the benefits they’ve earned.
• Contrary to Mr. Miller’s comments, airlines have reorganized successfully without damaging the retirement security of workers and retirees. In the most recent airline bankruptcies, Northwest Airlines emerged without terminating its plans. Delta terminated its pilots plan, but reorganized with its other plans intact.PBGC is a pension safety net, not a convenient option for companies that want to sidestep their retirement commitments. We step in when we have to and pay all benefits the law allows. When the agency assumed airline plans in the past, many people’s pensions were cut, in some cases dramatically. That’s why PBGC always tries first to preserve plans. We will continue to encourage American to fix its financial problems and still keep its pension plans.
About PBGC
PBGC protects the pension benefits of 44 million Americans in 27,500 private-sector pension plans. The agency is directly responsible for paying the benefits of more than 1.5 million people in failed pension plans. PBGC receives no taxpayer dollars and never has. Its operations are financed by insurance premiums and with assets and recoveries from failed plans.
The Consumer Travel Alliance applauds this upfront and clear statement from the Director of the PBGC and urges the airline and its creditors to keep in mind the flying public and the airline’s main interface with its customers, their flight attendants, pilots, gate agents, reservationists and customer service personnel during this corporate reorganization under bankruptcy protection.
Charlie Leocha is the President of Travelers United. He has been working in Washington, DC, for the past 14 years with Congress, the Department of Transportation, and industry stakeholders on travel issues. He was the first consumer representative to the Advisory Committee for Aviation Consumer Protections appointed by the Secretary of Transportation from 2012 through 2018.
