American Airlines, Inc. said today that its parent company, AMR Corporation, and other United States-based subsidiaries voluntarily filed for Chapter 11 reorganization. In a statement, American said it wants to achieve a cost and debt structure that is competitive in the airline industry. American will lose more than $1 billion this year and has been averaging billion dollar a year loses for the past decade.
American Airlines has four traditional pension plans that cover almost 130,000 participants. As of today, the plans collectively had only about $8.3 billion in assets to cover about $18.5 billion in benefits, according to the Pension Benefit Guaranty Corporation. 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 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,” said PBGC Director Josh Gotbaum.
A termination would also weaken the financial health of PBGC, which has a record $26 billion deficit as a result of failed plans the agency has already assumed.
American said it expects to continue normal business operations throughout the reorganization process, and the business will continue to be operated by the Company’s management. The United States Chapter 11 reorganization process enables a company to maintain normal business operations while it reorganizes.
American’s main competitors, United and Delta have used bankruptcy and mergers with Continental and Northwest respectively, to trim costs as fuel prices have soared. Even though American has obtained contract concessions from its unions, its costs still remain far higher than competitors.