American Airlines Pilots Fret About Pension Delay Measures

October 27, 2003 (PLANSPONSOR.com) - Measures working their way through the United States Congress that would delay certain airline pension payments may prove a boon to cash-strapped air carriers, but the whole notion has many pilots up in arms.

Many American Airlines pilots, for example, could potentially lose hundreds of thousands of dollars in lost pension payouts if the measures get final Congressional approval and a Presidential signature.  By giving certain cash-strapped airlines a three to five-year delay in when they had to make the pension payments (See  Fitch: Pension Bills Could be Big Help for Airlines ), the pilots at the Fort Worth-based American, are worried that could ultimately lead to less overall in the fund – and a lower payout upon retirement, the Dallas Morning News reported.

“These companies didn’t fund the plans in the good times to avoid this during the lean times, and now they’re asking for a bailout on the backs of employees,” said Captain Steve Blankenship, chairman of the communications committee for the Allied Pilots Association, which represents 12,000 American pilots.

For their part, American executives say the company will still be good to its word to fund the pension play no matter what happens in Washington. “We want to fully fund all of our pension plans,” chief executive Gerard Arpey told the Morning News. “But we want to do it at a pace that we have the resources to do without jeopardizing the company’s future.”

According to the Morning News, the pilots’ union is concerned that if the pension contribution waiver lasts too long, American might not build up the plan when its finances improve. American’s pension deficit is now about $3 billion, and making up that liability could affect its prospects for recovery. American’s parent company, AMR Corp., reported a tiny profit last week but is expected to be in the red in the current quarter and may not turn burst into the black during 2004, analysts say.

American has contributed $300 million to its employees’ pension plans this year. The obligation will be around $600 million next year and will be “significantly” higher in 2005, according to AMR’s US Securities and Exchange Commission (SEC) filings. AMR has about $3.3 billion in the bank, but that money has lots of mouths to feed beyond pensions. The company has almost $1.6 billion in debt payments due each year, and American must budget for new planes and capital projects, analysts note.

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