American Airlines DB takeover talks 'premature': PBGC

Hazel Bradford, Pensions & Investments

It’s “premature to comment” on whether the Pension Benefit Guaranty Corp. will have to assume control of American Airlines Inc.’s defined benefit plans, according to an agency spokesman.

Even when a company goes into Chapter 11 bankruptcy protection, the fate of its pension plans depends on how the reorganization is handled, the PBGC spokesman said in an interview.

When Atlanta-based Delta Air Lines Inc. reorganized under Chapter 11 in 2006, the airline kept one defined benefit plan, and PBGC took over only the pilots’ pension plan, becoming liable for $920 million of the $3 billion underfunding.

PBGC’s largest bankruptcy claim was in 2005, when the agency took over all four of United Airlines’ defined benefit plans. The agency guaranteed $6.6 billion of the $9.8 billion in underfunding but required United to start making payments to PBGC once it reached a $3.5 billion profitability threshold, which it did in July.

American has four defined benefit plans, according to PBGC figures. The plans had total assets of $7.8 billion as of Sept. 30, 2010, according to Pensions & Investments magazine, a sister publication of Business Insurance. The Fort Worth, Texas-based company had $10.1 billion in defined contribution plan assets, none of which was invested in company stock, according to Pensions & Investments.

Speculation about American Airlines’ future filing for Chapter 11 is just that, an American Airlines spokesman said in a statement. “We know we need to improve our results. We are keenly focused on that.”

The subject has not come up in ongoing labor talks, either, a spokesman for the Allied Pilots Assn., which represents 10,000 American pilots. ALA is leading the union talks, which will include the Assn. of Professional Flight Attendants and Transport Workers Union.

“The company is not proceeding along the track towards bankruptcy,” the spokesman said in an interview.

Those unions agreed to wage and benefit concessions in 2003, averting a Chapter 11 filing for American.

The pilots union spokesman attributed the speculation over American to a spike in the number of pilots retiring recently, following the raising of the retirement age to 65 from 60 in 2007. With more than 500 pilots now over age 60, and many of them now hitting 65, the average of 15 retirements a month jumped to 111 in September and 129 as of Oct. 1.

“It’s more driven by the age factor and the (stock) market. If there were a legitimate fear of American going bankrupt, I think you’d see a much larger rush toward the door,” the spokesman said.

American said in a statement that it remains committed to its DB plans, to which it has contributed $2.1 billion since 2002.

Hazel Bradford is a reporter for Pensions & Investments, a sister publication of Business Insurance.