American Airlines Loses A Battle In Court To End Benefits For Retirees

This might be a bit technical in nature for some, but the bottom line is that American Airlines was trying to terminate payments for benefit coverage for almost 50,000 currently retired employees.  The judge said no to almost all of their requests.

I’m usually pro-management when it comes to organized labor but I’m a bit surprised that American was pursuing this avenue through the bankruptcy process.  Essentially American was saying that they could change the benefits after these folks retired because current employees had agreed to new contracts.  But, that just doesn’t strike me as fair.  Before those employees retired, they were enticed into contracts that included retiree benefits, including having their medical and life insurance payments covered in whole or in part.  To change that after the fact just strikes me as disingenuous.  It appears the judge felt the same way:

“The Plaintiffs [American, parent AMR and other relative companies] contend that none of the operative documents can be read as a promise to provide benefits for life and that the documents reserve the right to modify the benefits,” Lane wrote.

“But for reasons set forth below, with limited exceptions, the Court denies the Motion because the relevant documents contain language reasonably susceptible to interpretation as a promise to vest benefits and lack language categorically reserving the Plaintiffs’ right to terminate their contributions to the retiree benefits,” the opinion stated.

American had argued that commitments to retirees provided in union contracts changed when the contracts changed. But Lane ruled that the collective bargaining agreement in place at the time of the employee’s retirement governed that retiree’s benefits, not any subsequent labor contracts approved after the person retired.

I can’t comment on American’s specific legal strategy here.  According to the judge’s written statements, American wasn’t allowed to toss out retiree benefits under Section 1113 of the bankruptcy code.  They could have asked by filing a Section 1114 motion but didn’t do so.  The difference, it seems, is that by asking the judge to allow them to stop making payments using Section 1113, the retirees themselves had no place in the legal process to defend themselves.

The payments American makes on behalf of retirees is estimated at roughly $10 million a month.  That’s not chump change and it’s understandable that new management doesn’t want to pay for old management’s sins decisions.

But a promise is a promise.  And, absent specific language saying they could terminate the payments for these benefits, the judge told American they needed to keep that promise.

Of all the scalar savings a merger could produce, this one just strikes me as the absolute wrong battle to fight.  If management is comfortable throwing out promises made to retired employees, why should current employees believe that management will keep the promises made to them?  And, with all the savings from the merger, this $10 million a month is only going to get smaller as these retirees ultimately pass away.  Current employees will be governed by existing agreements, assumedly ones that management will fine honoring.  Maybe.

I’m quick to pounce on labor unions for unrealistic expectations.  This time around it’s in American’s court to build a strong relationship with a divided employee base.  The judge said they’re not legally entitled to screw their retired employees stop payments for the benefit plans of existing employees.

Even if they were, this can’t be smart money to chase.