AMR Faces Union Stalemate in Bid for $800 Million Labor Savings

[WorldTraveler]

The point of discussing DL's pension obligations from my perspective is that it is indeed possible to keep pensions even w/ high levels of underfunding... not sure what FWAAA's point was but it is not a given that pension termination is necessary in BK. But it also is true that AMR's creditors are not likely to allow AA to keep its current pension plans open to new members - which seems to agree w/ reports that AA is seeking to hire new employees into 401K type programs... .but it is also true that AMR COULD choose to terminate the plans in BK, esp. if creditors see an excessive risk to AA's future if they are retained. The fact that DL has $11B of pension obligations also does away w/ the notion that all airlines dumped their pension benefits in BK... UA and US did; DL and NW in the 2nd wave of BKs in the 2000s largely retained their obligations on a frozen basis.
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No, Bob, operationally and financially the NW merger has been very successful. There is no need to go very in-depth other than to say that the representation issues are not resolved because the unions and the government have not agreed to conclude the process. The employees have voted and the company has frequently said it is willing to move on. It has been months since the last votes were cast and resolution is nowhere in sight.

 

[Boomer]

"...Finally, Bob, in your railing against AA's terminal expenditures you somehow manage to forget - or don't mention - that AA/AMR has $8B of unfunded pension liabilities on its books - a very real expenditure to the company and one that far exceeds all the money they have or will spend on terminals in your lifetime as a pensioner. Even if AA defaults on those obligations, you will receive the vast majority of what you were promised; if AA fails to pay the leases on its terminals or planes, they will be repossessed..."

WT,

I've never really understood the whole concept of PBGC notification to a plan participant for, "underfunding," their DBP pension plan for the following three reasons:
1) From what I have read, a defined benefit pension plan, (DBP), is only considered, "underfunded," when the plan balances fall below 80% of the total plan liabilities; and,
2) The DBP plan sponsor is allowed to assume a rate of return for the balance of Retirement Fund investments each and every year and then include those assumed returns whether or not they were actually realized: ergo, AMR could legally assume and record returns of 8% for each and every plan year on the funds held for their defined benefit pension plans, but, only realize 5% return on DBP assets; and,
3) By Federal Law, Plan Participants are prevented from legally forcing a DBP Plan Sponsor to disgorge the actual timing of investments and placement of investments: thereby preventing a true accounting of the true funded status of any particular defined benefit pension plan.

You state that AMR has $8B of unfunded pension liabilities on its' books: is that $8B unfunded pension liabilities of 100% DBP total plan liabilities, for PBGC purposes, using the real or assumed rate of return on plan assets; or, $8B unfunded pension liabilities of 80% DBP total plan liabilities, for PBGC purposes, using the real or assumed rate of return on plan assets?

Guidance?

 

[Kev3188]

It only went well because the Employees are not allowed to say anything to the contrary, arent the NW people still operating under their old contracts?

Yes. Fleet, stores, customer service, and res all are still covered by our CBA's.

There is no need to go very in-depth other than to say that the representation issues are not resolved because the unions and the government have not agreed to conclude the process.

No, the unions are advocating on behalf of the members that feel the company engaged in carrier interference. The government is fulfilling it's duty in investigating the same..

The employees have voted and the company has frequently said it is willing to move on. It has been months since the last votes were cast and resolution is nowhere in sight.

Actually, it is in sight. The NMB has concluded most all of it's on site investigations.

 

[Bob Owens]

No, the unions are advocating on behalf of the members that feel the company engaged in carrier interference.

Delta would never do such a thing!

We have a couple of mechanics in NY who left Delta to come to AA because it was such a miserable place to work.

 

[Bob Owens]

Finally, Bob, in your railing against AA's terminal expenditures you somehow manage to forget - or don't mention - that AA/AMR has $8B of unfunded pension liabilities on its books - a very real expenditure to the company and one that far exceeds all the money they have or will spend on terminals in your lifetime as a pensioner. Even if AA defaults on those obligations, you will receive the vast majority of what you were promised; if AA fails to pay the leases on its terminals or planes, they will be repossessed.
You might want to consider both sides of the coin before making a judgment about what AA has done with its spending.

Nice try, we all know that $8 billion figure is not a very real expenditure, it's an estimated liability. it could be more or it could be less depending on many variables. If the economy turned around around it could disappear without AA contributing a penny, not likely but possible. Unlike rents which are paid no matter what, like the rents AA is paying for facilities that it no longer operates from AA has had several years where they contributed zero to the pension. One as recently as 2009. During the 90 s they even withdrew money from the fund because returns exceed expectations, perhaps if they just contributed a fixed amount regardless of how the funds investments performed they would not have any liability.

 

[commavia]

Nice try, we all know that $8 billion figure is not a very real expenditure, it's an estimated liability. it could be more or it could be less depending on many variables. If the economy turned around around it could disappear without AA contributing a penny, not likely but possible. Unlike rents which are paid no matter what, like the rents AA is paying for facilities that it no longer operates from AA has had several years where they contributed zero to the pension. One as recently as 2009.

That's what makes it a defined benefit plan - AA is responsible for delivering a predetermined benefit to a retiree in the future, and must contribute today to the fund whatever is necessary for the fund to have sufficient assets to pay out said predetermined benefits to said retirees in the future. Thus, when the stock market is doing well and delivering above-average returns, AA's cash contribution goes down, and vice versa when the stock market is under-performing.

During the 90 s they even withdrew money from the fund because returns exceed expectations,

I would love to learn more about this - I was under the impression that the defined benefit pension plans were funded through trusts not actually owned or controlled by the company, and thus the company couldn't just take money out whenever they wanted. I was always told that AMR's cash contributions to the pension funds were one-way transactions - i.e., cash went from AMR into the fund, but couldn't come out. Any "over-funding" would simply serve to reduce AMR's future cash contributions, but the pension fund never served as AMR's personally piggy bank.

perhaps if they just contributed a fixed amount regardless of how the funds investments performed they would not have any liability.

You're describing a defined contribution or 401(k) plan - the future liability shifts to the employee, not the employer.

 

[southwind]

Delta would never do such a thing!

We have a couple of mechanics in NY who left Delta to come to AA because it was such a miserable place to work.

Need to introduce them to me , because they would be the only 2 who feel that way !

 

[Bob Owens]

That's what makes it a defined benefit plan - AA is responsible for delivering a predetermined benefit to a retiree in the future, and must contribute today to the fund whatever is necessary for the fund to have sufficient assets to pay out said predetermined benefits to said retirees in the future. Thus, when the stock market is doing well and delivering above-average returns, AA's cash contribution goes down, and vice versa when the stock market is under-performing.

Yes the company can make out when the market performs well but if they have over optimistic assumptions they could be left with a big liability. With DB they pay as they go. Companies sold DB because they saw an opportunity to save money, how many would die without collecting a penny, workers agreeing to work for less over a 40 year period in exchange for security during their final 15 or so, if they make it, and once the plan had a decent base amount it would self fund through investments.

I would love to learn more about this - I was under the impression that the defined benefit pension plans were funded through trusts not actually owned or controlled by the company, and thus the company couldn't just take money out whenever they wanted. I was always told that AMR's cash contributions to the pension funds were one-way transactions - i.e., cash went from AMR into the fund, but couldn't come out. Any "over-funding" would simply serve to reduce AMR's future cash contributions, but the pension fund never served as AMR's personally piggy bank.

well we were told different back in the 90s. especially around 1997 when the pilots were going to go on strike. We were told that we should not allow the companys huge profits to raise our expectations because much of the profits were from the pension plan performing above expectations and excess funds were added to the bottom line.

You're describing a defined contribution or 401(k) plan - the future liability shifts to the employee, not the employer.

Whats stopping the company from adopting a more realistic assumed ROI, say 3% and funding the plan properly so they dont end up with such a big liability when the economy turns south? I recall the company asked us to help them lobby for more flexibility on funding the plan. Didnt that contribute to making the number as big as it is now?

 

[Kev3188]

Need to introduce them to me , because they would be the only 2 who feel that way !

Um, no.

Despite what the company would like you to believe, it's not all wine and roses at the Widget.

In my station alone, we've had 3 people leave for other carriers in the last few months, including 2 going to regional carriers.

If you're looking to meet everyone who's left due to the work conditions, you better clear your calendar now...

 

[Frank Szabo]

... snip

Whats stopping the company from adopting a more realistic assumed ROI, say 3% and funding the plan properly so they dont end up with such a big liability when the economy turns south? I recall the company asked us to help them lobby for more flexibility on funding the plan. Didnt that contribute to making the number as big as it is now?

I remember that also and I remember the union steward in my shop getting mad as hell at me when I asked why we should help the company insure our pension is underfunded.

 

[commavia]

Yes the company can make out when the market performs well but if they have over optimistic assumptions they could be left with a big liability. With DB they pay as they go. Companies sold DB because they saw an opportunity to save money, how many would die without collecting a penny, workers agreeing to work for less over a 40 year period in exchange for security during their final 15 or so, if they make it, and once the plan had a decent base amount it would self fund through investments.

Actually AMR was historically far better at setting realistic assumptions for the plan's return on assets, and funding accordingly, than many other airlines, which is precisely why several years back (before other legacy carriers starting filing for bankruptcy and either freezing or dumping their plans), AA's was actually pretty much the best-funded of the bunch.

well we were told different back in the 90s. especially around 1997 when the pilots were going to go on strike. We were told that we should not allow the companys huge profits to raise our expectations because much of the profits were from the pension plan performing above expectations and excess funds were added to the bottom line.

Well, respectfully, I'm not sure if the union is necessarily the most dispassionate, unbiased source for information on the company's finances - nor, for that matter, is the company, necessarily, when it comes to the messages they communicate to organized labor.

Perhaps AA was taking money out of the pension plans, but rather the massive spike in the stock market in the 1996-1999 period meant that AA's cash contribution during those years was effectively nothing, and the liability carried on its balance sheet would have decreased, which of course would have had a positive impact on the company's finances. In other words: it's obvious that when the stock market goes up, AA's defined benefit pension liability goes down, and that does of course have a positive impact on the company's finances, but I still don't know that that necessarily means AMR was actually going into the pension fund and removing assets.

Whats stopping the company from adopting a more realistic assumed ROI, say 3% and funding the plan properly so they dont end up with such a big liability when the economy turns south? I recall the company asked us to help them lobby for more flexibility on funding the plan. Didnt that contribute to making the number as big as it is now?

Again - AA actually has, traditionally, made fairly realistic assumptions about long-term returns for the pension fund's assets. The problem is that those assumptions about funding are predicated on payouts to beneficiaries far in the future, whereas the funding requirements are established by ERISA legislation based at least partially on the here and now, based on today's stock market performance and thus today's performance of fund assets.

AA's return assumptions may be somewhat optimistic, but either way the larger problem here isn't AA's assumption about the return on plan assets over the 10-, 20- or 30-year time horizons that are relevant for pension funds, but rather the atrocious performance of the stock market over the last 18-24 months, which AMR could not accurately predict nor do anything to improve. The funds' trustees simply have to try and adjust the plan's portfolio as best as possible, but in an economic situation like the U.S. (and world) is in right now, there aren't too many great places to park your money, whether you're an individual or a pension fund. And thus, when - due largely to the general horrible state of the U.S. and global economy - the fund's assets to not meet their necessary returns for the year, AA must make up that difference through cash contributions to the pension fund. That's major, major money.

In 2010, the company assumed an overall return on plan assets of 8.5%; the annualized 10-year rate of return as of 12/31/10 was 7.74%.

 

[Frank Szabo]

... snip

We have a couple of mechanics in NY who left Delta to come to AA because it was such a miserable place to work.

What they really meant was "the mean non-union company made us do our jobs every day instead of letting us sit on our arses when we felt like it so we hired on at an airline with a union where doing one's job is optional".

 

[southwind]

Um, no.

Despite what the company would like you to believe, it's not all wine and roses at the Widget.

In my station alone, we've had 3 people leave for other carriers in the last few months, including 2 going to regional carriers.

If you're looking to meet everyone who's left due to the work conditions, you better clear your calendar now...

Err, were talking mechanics here Kev, not ramp.

 

[WorldTraveler]

What they really meant was "the mean non-union company made us do our jobs every day instead of letting us sit on our arses when we felt like it so we hired on at an airline with a union where doing one's job is optional".

and then the company had the nerve to pay out industry leading profit sharing. Oh the nerve of those greed mgmt types! Bribing employees with more money in order to do more work.
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It is not possible to divert funds from DB plans for general corporate purposes. In the heydays of the late 90s, many DB plans generated high enough returns from investments that the companies didn't have to provde any additional funding but nothing came out of those plans.
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Kev,
you might hold onto your expectations that the DL representation issues will be resolved anytime soon. Since the DL/NW merger became the focus of an effort to make statements from both sides, the issue probably will not be resolved until a moving van moves up to the White House and airline labor relations are "depoliticized" again.

 

[Kev3188]

Err, were talking mechanics here Kev, not ramp.

And?

My point stands.

If you really want to get technical, I'm willing to bet Bob was referring to AMT's, and not GSE mechanics like yourself.

Kev,
you might hold onto your expectations that the DL representation issues will be resolved anytime soon. Since the DL/NW merger became the focus of an effort to make statements from both sides, the issue probably will not be resolved until a moving van moves up to the White House and airline labor relations are "depoliticized" again.

The NMB investigation is wrapping up, so there's movement. We were told to expect a decision one way or the other w/in 3 weeks or so. I expect the ultimate resolution in short order thereafter.

I couldn't care less if it drags on past 2012; I'm in no hurry.