American Airlines Seeks to Cut Retiree Benefits

AMR Corporation, the parent of American Airlines, has sought court permission to reduce retiree health benefits and impose out-of-pocket costs for access to certain other health coverage.  The Airline announced that it would discontinue retiree life insurance and would end medical coverage for those over the age of 65.  The over-65 group would, instead, have access to a Medicare supplement at their own cost.  Retirees under the age of 65 would still have access to the company plans, but at their own expense as well.

AMR asked a bankruptcy judge to declare that it has the right to alter company funded retiree benefits because they were never vested.  AMR’s retiree health plans cover more than  40,000 people.  Earlier discussions regarding AMR’s bankruptcy can be seen in other submissions (i.e., AMR to Grow Out of Bankruptcy and AMR Preserves Exclusive Rights) to this blog.

American Airlines MD-80 flight 577.

Pursuant to section 1114 of the Bankruptcy Code, a chapter 11 debtor may modify retiree benefits if such modification is necessary to permit the debtor’s reorganization and the debtor has made a reasonable proposal to retirees ahead of time and such proposal has been rejected.  Section 1114 contains other protections for retirees, including requiring the appointment of a committee of retirees to evaluate proposals made by the debtor and requiring the debtor to provide the retirees with relevant information to evaluate any proposal.

The retiree benefits covered by section 1114 include medical, surgical or healthcare benefits, or benefits in the event of sickness, accident, disability, or death under any plan, fund, or program maintained by the debtor prior to its bankruptcy filing.

Over the last decade, bankrupt airlines have used section 1114 to cut retiree benefits in varying degrees.  In the Delta and Northwest bankruptcy cases, retirees were estimated to recovery between 60 and 80%, whereas in the United Airline and US Air cases, retirees recovered anywhere from 3 to 17%.

It remains to be seen how significant the cuts will be in AMR’s case.



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1 reply

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