Posted by: pizzainmotion | March 9, 2012

More News on AA Union Negotiations

I was a little surprised to see this article in the WSJ this morning.

Very soon after American filed for bankruptcy it announced that it would have to terminate the pension plans for it’s workforce.  When something like this happens, the Pension Benefit Guaranty Corporation steps in.  Assuming the company meets all the criteria, the PBGC takes over the plan and administers benefits to the company’s eligible employees and retirees.

The PBGC will tell you they don’t get their revenues from the general taxes you pay, but IMO it’s still a tax.  Your employer pays a fee to the PBGC as part of it’s obligations.  So, if they didn’t have to pay that, they would in theory have more money available for employee benefits (or profit).  Anyway, I digress.

So, it was a bit surprising to me to see AA announce they were not terminating three of their pensions.  There’s no doubt in my mind this should go a long way to some sort of ultimate resolution as it relates to reducing overall employee compensation.  This move will either spur the unions to start negotiating in good faith or lead to the eventual step of AA asking for (and receiving) permission from the bankruptcy judge to void it’s union contracts.

I think the possibility exists that AA doesn’t get the same sort of deep concessions in bankruptcy as previous airline participants.  Though I’ve not read anything to support that, it strikes me that other airlines have shed a ton of weight in bankruptcy, and that future participants may have a higher burden of proof in some areas.  At a minimum, the PBGC’s public comments chastising AA seem to be a step further than they’ve gone with previous airline reorganizations.

The decision by AA to try and retain it’s pension plans in some form or fashion will most likely be a costly one for them.  But, if it get’s them out of bankruptcy quickly and flying as a more profitable company it may be a good decision in the long run.


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