American Airlines asks court to eliminate lump sum payout option

American Airlines filed a motion in U.S. Bankruptcy Court on Friday that would eliminate the option for pilots to take their pensions in a lump sum payout instead of monthly payments.

In the motion, AMR Corporation and American Airlines, Inc. stated that eliminating the lump sum payout was “necessary to avoid a termination of the plan.”

Because the company filed for Chapter 11 reorganization, pilots have not been able to take advantage of this clause in their agreement, but once the company emerges from bankruptcy, sometime in 2013, American Airlines expects many pilots to take advantage of the clause and retire from the company, causing a pilot shortage.

“These retirements would create a pilot shortage which, in turn, would result in an operational crisis involving the wholesale cancellation of flights and the grounding of airplanes, with a corresponding devastating reduction in revenue and profitability,” American Airlines stated in its memorandum of law in support of the motion.

“In short, if American cannot eliminate the principal motivation for this wave of retirements and preserve its ability to meet its business plan by enacting the amendment, it will have no choice but to terminate the Pilot Plan,” American said in the memorandum.

According to a story in The Dallas Morning News, American Airlines has been working on a solution to avoid terminating the plan and dumping it on the Pension Benefit Guaranty Corporation. The company’s pension plan is underfunded, but eliminating the lump sum option would keep the plan afloat, if the U.S. Bankruptcy Court gives its approval.

In its bankruptcy filing in November 2011, American Airlines pointed out that before it filed for bankruptcy, the airline was averaging about 33 retirements per month and 99 percent of those chose the lump sum distribution option. Once bankruptcy proceedings started and pilots were unable to take the lump sum option, the number of pilot retirements dropped to about 16 per month.

“Many [pilots] undoubtedly would seek the certainty associated with securing a lump sum benefit promptly rather than deferring retirement and relying on continued monthly payments in a plan that would be subject to the risks attendant to the vagaries of the airline business and the economy in general,” according to the filing.

The company’s request will be heard on Dec. 19 and objections to the motion are due by Dec. 12.


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