American Airlines' Bankruptcy May Cost You

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As part of its bankruptcy reorganization, American Airlines could announce plans next week to lay off more than 13,000 workers and eliminate pension plans, or, warns one analyst, the end of the airline could be near. "American made promises to pilots" about "pay, benefits, retirement and employment," that in many cases "are not going to be kept," according to Glenn MacDonald, an economics professor at Olin Business School at Washington University, St. Louis. MacDonald believes the airline is not positioned to compete and generate sufficient profits to sustain operations without "significant reduction" in what it provides to employees. According to MacDonald, without those reductions, American "will soon be gone, not just reorganized," with pieces bought up by competitors. Whether that proves prescient or propagandist, pilots' pensions appear to be in the crosshairs and you (the taxpayer) may be on the hook for something.

If American does eliminate pension plans, the federal government's Pension Benefit Guaranty Corporation (PBGC) could add a $9 billion loss to its current $23 billion operating deficit as it covers some portion of the plans. Perhaps aiming to have the government take over the pension plans, American last month announced it would contribute $6.5 million of the $97 million contribution needed to maintain funding for pensions. PBGC reacted by putting liens on $91 million worth of assets held by the airline outside of bankruptcy proceedings. For its part, American plans to meet Wednesday with employee unions, including the Allied Pilots Association, to seek concessions. The head of the PBGC, Joshua Gotbaum, warned that "companies in bankruptcy often try to do things that they don't need to do." American filed for bankruptcy on Nov. 29. An article in The New York Times said of the situation that in bankruptcies, some courts have allowed pensions to be treated as pre-bankruptcy debt. And that debt does not have to be paid so long as bankruptcy proceedings continue.