Prior to the tech bubble burst, AA pensions were in fact overfunded."Unintentionally overfunding pensions".
OP
The Goose
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History in the making
A post by FWAA that one can agree with
That part I read about the executives having to present a job offer from another company to the judge in order to be granted a retention bonus was really a trip. The judge is just as likely (hopefully) to tell the blasted yuppie to go. (speculation from the WSJ).
Unless our lovely Congress and Senate sneak in some changes to these revamped laws (similar to the manner NAFTA was passed by the Senate in a midnight session, Bob Dole presiding), I've read speculation a chapter 7 filing is more likely to be filed after the chapter 11 filing.
As stated, 18 months - then the case is given to the creditors. It seems the judge will have no discretion as before. No more Uniteds. It's about time.
Wretched Wrench
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- Apr 21, 2003
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Here is the Wall Street Journal's take on the pension underfunding:
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When Congress passed a broad pension reform last year prodding companies to get their retirement programs in order, it seemed too good to be true. Now we know it was.
That's the lesson of an amazing bit of corporate welfare the Senate tucked into the Iraq war supplemental last week. Last year's bill included a hard-fought political compromise: Carriers that agreed to a "hard freeze" of their pension plans would be allowed to use a higher interest rate in calculating their plans -- which would reduce their net liabilities. The idea was to discourage airlines from buying union peace by running up their pension tabs, which they might later dump on taxpayers. A few airlines, such as Northwest and Delta, took this medicine.
Their competitors, namely American and Continental, headed back to the Beltway and last week their lobbying blew apart last year's compromise. Under the Senate's backroom fix, the airlines can use a higher interest rate even if they promise higher pension benefits. The airlines claim this is about "leveling the playing field," which makes little sense because American and Continental could have accepted the same rules all along. This is about giving those two a competitive advantage over other airlines that have already agreed to play by the reform rules.
The taxpayer-backed Pension Benefit Guaranty Corp. is obliged to bail out any company that can't meet its pension obligations, so there is once again little reason for these airlines to practice any pension restraint. The PBGC conservatively estimates that this airline fixeroo will result in an additional $2 billion in underfunded pension obligations over the next 10 years.
No Senator is taking credit for this pension earmark, though we'd note that both Continental and American hail from the great state of Texas. Meanwhile, the architects of the provision were nothing if not clever; by including this in a war supplemental, they made it veto proof.
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There was no need to make it veto proof. Bush would never veto something described as "corporate welfare".
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When Congress passed a broad pension reform last year prodding companies to get their retirement programs in order, it seemed too good to be true. Now we know it was.
That's the lesson of an amazing bit of corporate welfare the Senate tucked into the Iraq war supplemental last week. Last year's bill included a hard-fought political compromise: Carriers that agreed to a "hard freeze" of their pension plans would be allowed to use a higher interest rate in calculating their plans -- which would reduce their net liabilities. The idea was to discourage airlines from buying union peace by running up their pension tabs, which they might later dump on taxpayers. A few airlines, such as Northwest and Delta, took this medicine.
Their competitors, namely American and Continental, headed back to the Beltway and last week their lobbying blew apart last year's compromise. Under the Senate's backroom fix, the airlines can use a higher interest rate even if they promise higher pension benefits. The airlines claim this is about "leveling the playing field," which makes little sense because American and Continental could have accepted the same rules all along. This is about giving those two a competitive advantage over other airlines that have already agreed to play by the reform rules.
The taxpayer-backed Pension Benefit Guaranty Corp. is obliged to bail out any company that can't meet its pension obligations, so there is once again little reason for these airlines to practice any pension restraint. The PBGC conservatively estimates that this airline fixeroo will result in an additional $2 billion in underfunded pension obligations over the next 10 years.
No Senator is taking credit for this pension earmark, though we'd note that both Continental and American hail from the great state of Texas. Meanwhile, the architects of the provision were nothing if not clever; by including this in a war supplemental, they made it veto proof.
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There was no need to make it veto proof. Bush would never veto something described as "corporate welfare".
AA execs have a long history of spinning phrases like "level playing field", "win-win", "pull together-win together". Thye try to make it sound like they are asking for things to be fair when in fact its quite the opposite. What I find remarkable is the silence from those who are adversely affected.
eolesen
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- Jul 23, 2003
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Silence from the adversely affected?... Are you smoking crack?
YOU got the best of both worlds here, Bob. You got your pension, unfrozen, and it's still able to be modified in your favor. And now you have the same interest calculation offered to those who really gave it to their employees up the @$$.
The ones adversely affected were the saps at UAL, US, NWA and DAL who had their pensions frozen and/or distress terminated and given to the PBGC. The 2005 legislation stopped the bleeding, but punished the fiscally responsible airlines (CO, AS, AA) who didn't pull retirement benefits away from their employees.
YOU got the best of both worlds here, Bob. You got your pension, unfrozen, and it's still able to be modified in your favor. And now you have the same interest calculation offered to those who really gave it to their employees up the @$$.
The ones adversely affected were the saps at UAL, US, NWA and DAL who had their pensions frozen and/or distress terminated and given to the PBGC. The 2005 legislation stopped the bleeding, but punished the fiscally responsible airlines (CO, AS, AA) who didn't pull retirement benefits away from their employees.
Hopeful
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- Dec 21, 2002
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MODIFIED IN OUR FAVOR????????? Who's smoking crack now?
Are you guaranteeing our pension is going to remain unfrozen?
What do you think, we have executive privilege?
eolesen
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- Jul 23, 2003
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However unlikely you think they are, at least you have those options available to you, Hopeful, which is something the guys whose plans were frozen don't have.
If AA were really intent on freezing the plans, they could have done so and hid behind the 2005 legislation. They didn't.
If AA were really intent on freezing the plans, they could have done so and hid behind the 2005 legislation. They didn't.
OP
The Goose
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I believe they'll present that (DB pension freeze) to the TWU membership in some form during the contract negotiations due to start later in the year. The carrot would be getting a great deal, if not all of the give-backs restored to April 2003 levels while moving to a defined contribution plan (Super Saver Plus ilk) with a healthy company match.
While the restoration would be expensive, it would pale compared to the savings from taking more the time to fund the defined benefit pension plans, which, if I understood the legislation correctly, would get AA double the time (10 or 12 years extra - I don't recall) to bring their DB pension balances up to snuff.
This is what I remember re: the airline legislation but not really sure. Can anyone expand on this or correct me if I'm wrong?
Hopeful
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- Dec 21, 2002
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They can keep reminding us how fortunate we are to still have our pension plans intact. They are going to remind us even more vehemently come contract time. They will keep reminding us so they don't have to give us back what they took!
Maybe the executives figured that once they file Ch. 11 there stock is worthless...
I'm a conservative, having voted primarily for Republicans for many years. I've subscribed to the WSJ since I was in college.
Sometimes Republicans be really stupid.
Yes, AA retains the option of negotiating more generous pensions with its unions. So the suddenly fiscally conservative Republicans in Congress get on their high horse about how AA might "buy labor peace" by jacking up the pension benefits and then later filing for Ch 11 and screwing the PBGC (and indirectly, eventually, the taxpayers). What claptrap.
It's time for a reality check. What are the odds that Arpey is gonna make the DB plans more generous? What are the odds that "Avoid Ch 11 at Any Price" Arpey is gonna file for Ch 11 now, after paying down billions of debt and contributing over a billion to the pension plans?
These idiot Republican Congressmen essentially wanted to force AA to hard freeze its plans (stop all accrual of benefits) in exchange for more time to fully fund the shortfall. At the same time, they criticise the idiots in charge of UA, US, and DL for terminating their plans - terminations that (at least at US and UA) were forced because the companies didn't have the billions of cash that the plans requried.
For all of his faults, Arpey is obsessed (to the consternation of many conservatives/Republicans) with keeping the DB plans intact. Hate him for everything else he does - this is one area where he wants to preserve the benefit plan promises made years ago. And he's a bad guy for wanting to fulfill those obligations?
I'm certain that Arpey's intentions are not to make the plans more generous. All he wants to do is preserve the status quo (permit accrual of benefits) but he wants sufficient time to make up the funding shortfall so his company doesn't find itself in a UAL-style cash crunch.
And before anyone lectures me on it - I realize that the 2003 concessions exacted a huge pension cut. Too bad the idiot Congressional Reps and Senators don't realize that.
I also think The Goose is cooked. No way will Arpey propose a pension freeze, and no way will the TWU see any significant restoration of the concession paycuts. The money just ain't there. The pilots aren't gonna get their 30% raise, the TWU won't get whatever percentage it would take to restore the cuts and neither will the FAs.
Sometimes Republicans be really stupid.
Yes, AA retains the option of negotiating more generous pensions with its unions. So the suddenly fiscally conservative Republicans in Congress get on their high horse about how AA might "buy labor peace" by jacking up the pension benefits and then later filing for Ch 11 and screwing the PBGC (and indirectly, eventually, the taxpayers). What claptrap.
It's time for a reality check. What are the odds that Arpey is gonna make the DB plans more generous? What are the odds that "Avoid Ch 11 at Any Price" Arpey is gonna file for Ch 11 now, after paying down billions of debt and contributing over a billion to the pension plans?
These idiot Republican Congressmen essentially wanted to force AA to hard freeze its plans (stop all accrual of benefits) in exchange for more time to fully fund the shortfall. At the same time, they criticise the idiots in charge of UA, US, and DL for terminating their plans - terminations that (at least at US and UA) were forced because the companies didn't have the billions of cash that the plans requried.
For all of his faults, Arpey is obsessed (to the consternation of many conservatives/Republicans) with keeping the DB plans intact. Hate him for everything else he does - this is one area where he wants to preserve the benefit plan promises made years ago. And he's a bad guy for wanting to fulfill those obligations?
I'm certain that Arpey's intentions are not to make the plans more generous. All he wants to do is preserve the status quo (permit accrual of benefits) but he wants sufficient time to make up the funding shortfall so his company doesn't find itself in a UAL-style cash crunch.
And before anyone lectures me on it - I realize that the 2003 concessions exacted a huge pension cut. Too bad the idiot Congressional Reps and Senators don't realize that.
I also think The Goose is cooked. No way will Arpey propose a pension freeze, and no way will the TWU see any significant restoration of the concession paycuts. The money just ain't there. The pilots aren't gonna get their 30% raise, the TWU won't get whatever percentage it would take to restore the cuts and neither will the FAs.
OP
The Goose
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I believe you took my comments out of context.
Arpey won't propose anything - he's the one hired to be a face for the BOD.
Because of the potential savings to AA, I'm sure it will be tried. Arpey doesn't care a whit about the workers or what they think about corporate shenanigans. What he says and what he'll do are two entirely different things. This was proven when he tried to justify how the top (mis)management deserved their bonuses. Besides, I believe Arpey and minions have nothing to do with offers to workers - that comes down with blessings from the BOD and bean counters.
If(big if)any proposal of this nature is made, it will, without a doubt, be immediately deep-sixed. Probably won't hear a word about it on the floor, but business-wise, the company would be foolish not to stick their toe in the water. Then again, ...
As far as what will actually happen, any agreement will probably be some manner of contract that barely won't pass, then will be sweetened enough to pass by aiming any changes at whichever demographic group offered the most resistance. Yes, I know - the TWU isn't supposed to share this info with the company.
Do I really think the TWU would pass/consider something as I've outlined? Absolutely non-PC to do so. Good Lord, man - we're not supposed to be smoking that stuff in safety-sensitive positions. At least, I don't. Haven't drank for years, either.
We all understand that any monies and benefits paid to the workers is money not available for management's benefit.
Maybe I'm totally incorrect - this wouldn't be the first time. Reality tells me though that any agreement that's negotiated will be quite marginal in value to the TWU represented workers as you said. Just letting my imagination run wild.
Hopeful
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- Dec 21, 2002
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"Money just ain't there.!"
It always seems to be available for the executive payouts, isn't it!
OP
The Goose
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Let's not get confused - relatively speaking, the company had little in the stock handed to the execs except for the registration fees. I recall it was new issue according to the SEC website. They filed to issue more shares a while back.
The money itself came from the shareholders when the stock was sold - ie, the dilution it caused when the devils sold their shares for the cash-out. That's why the drop in price soon afterwards.
That was stock, Hopeful. Not cash.
Even if it had been cash, the two-year total is now about $255 million to the fortunate 874 or so. Chump change.
The TWU members, on the other hand, gave up $620 million a year (by the company's numbers - and some TWU members will probably claim double that). The income statement doesn't contain $620 million to restore the TWU concessions. It doesn't contain an extra $1.62 billion a year to restore all the non-management concessions.
If you disagree, could you please point out for everyone where I've overlooked over a billion and a half? Thanks in advance.
The Goose said:
I apologize for that.
Over the past couple years, my somewhat simplistic analysis has confirmed (at least to my satisfaction) that the AA DB plans are relatively cheap for AA, hence one big reason AA seems so strongly committed to them.
Here's a thread from earlier this year comparing AA's DB plan contributions to WN's DC plan expenses:
http://www.usaviation.com/forums/index.php?showtopic=33911
WN spends a much higher percentage of its revenue and employee compensation each year on its DC plans than AA contributes to its DB plans. This legislation just made the DB contributions even cheaper each year for AA. I don't see anyone in management beating a drum to replace the relatively cheap DB plans anytime soon. Well, maybe if the employees offer to cut their pay in exchange for a pension freeze plus a WN-type DC plan. Like that'd happen.
IIRC, UAL's new DC plan contributions are also kinda expensive compared to AA's DB contributions. So why did UA terminate its DB plans? It didn't have the multiple billions of required contributions back in 2002-03. So instead, it may have saddled itself with higher annual expenses because it couldn't afford to keep its DB plans.
Not unlike the poor saps who rent their furniture and appliances for their whole life because they never have quite enough money (or sufficient low-interest credit) to just buy those items.
