American Airlines' Pension Battle Begins

The head of the PBGC, John Gotbaum, said the airline must show that terminating its pension plans is the only way it can reorganize.

American Airlines' leadership met with union chiefs Wednesday to share how the airline plans to cut costs through its Chapter 11 reorganization. CEO Tom Horton sent a letter to all employees summarizing the company's plan to achieve $3 billion in cost savings per year, and he pledged that "all workgroups will have total costs reduced by 20 percent, including management."

A statement posted on the airline's website the same day confirms the company plans to terminate its pension plans. The federal Pension Benefit Guaranty Corporation's director, Josh Gotbaum, said in a statement on the PGBC website that American's plans are underfunded by about $10 billion.

American's retirees would lose at least $1 billion in benefits if the plans end, according to PBGC, and under federal law, to end its pension plans, a company in bankruptcy must demonstrate that terminating them is the only way it can reorganize.

"Before American takes such a drastic action as killing the pension plans of 130,000 employees and retirees, it needs to show there is no better alternative. Thus far, they have failed to provide even the most basic information to decide that," Gotbaum said.

In a letter to employees, Horton said the airline plans to invest an average of about $2 billion per year in aircraft "so that by 2017 American's mainline jet fleet will be the youngest in North America, with the versatility to match aircraft size to the markets we serve."

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