American Airlines has announced it will seek bankruptcy court approval to terminate its DB pension plans and switch to a 401(k) plan. The airline will also seek to discontinue subsidizing future retiree medical coverage for current employees, but will offer access to these plans if employees choose to pay for them.
“These are painful decisions,” American’s chairman and chief executive officer, Tim Horton, said in a statement. “But they are essential to American’s future. We will emerge from our restructuring process as a leaner organization with fewer people, but we will also preserve tens of thousands of jobs that would have been lost if we had not embarked on this path—and that’s a goal worth fighting for. By reinvesting savings back into our business, we will support job growth, including growth at our suppliers and partners over the long run. Only a successful, profitable and growing American Airlines can provide stability and opportunity for our people.”
According to the airline’s website, terminating the plans will cover part of American’s proposed $2 billion cost-savings target.
The U.S. Pension Benefit Guaranty Corp. (PGBC) has been warning for weeks that it will oppose an effort to end the pension plans, unless the company proves it can’t survive any other way. If the airline terminates the plans, it will dump obligations for paying benefits on the PBGC.