American Airlines Bankrupt??

[Dave Siciliano]

Here's a better explanation by the WSJ using the Pension Guaranty Corp as it's source. I hope this sheds a bit more light on it. There's also corporate PR in the article I didn't include below. It will be at the link if you read the entire article.

Best,

Dave
=================================================

AMR Corp. has about $8.3 billion in assets to cover $18.5 billion in pension benefits owed to active and retired employees, according to the Pension Benefit Guaranty Corp., the federal agency that insures pensions. Pension plans covering about 130,000 people, including 69,000 active employees, could be among the obligations on the chopping block as AMR goes through bankruptcy proceedings.

AMR's pension obligations are subject to complex accounting formulas. AMR pegs its pension exposure at roughly $8 billion.

Following AMR's filing, "employees and retirees worry—and they should," Josh Gotbaum, the PBGC's director, said in a statement. "Based on our estimates, American Airlines employees could lose a billion dollars in pension benefits if American terminates their plans."

If AMR terminated its pension plans, as United Airlines did during its 2005 stay in bankruptcy court, the PBGC would assume payments to its retirees. However, those monthly payments would be capped under federal law, so retirees could get less than they would normally expect, depending on their benefit plans.

On Tuesday, the PBGC said it would pay out about $17.5 billion in pension benefits if the carrier terminated its plans. It would use AMR's $8.5 billion in assets and spend an additional $9 billion of its own money.


http://tinyurl.com/77hfw2x

 

[maddog52]

.....
Many reforms to pension funding have been made over the years, and more are likely to come. The government agency has softened the blow to the affected employees to some extent, but it's still a sorry state of affairs for them.

Pension funding was reformed in the '90s. The new rules allowed companies to contribute less to the funds based on optimistic predictions of market growth. UAL, DAL and AA didn't even have to contribute to their pension funds for a number of years during high market growth and consequently showed larger profits. Unfortunately, when the markets shrink and the pension funds become underfunded, the companies don't want to or can't produce the money they owe.

Chapter 11 used to be a measure of last resort. Now it is just another accounting tool used by lazy, inept and greedy executives. The people making the decision to take companies into bankruptcy generally don't have to worry about their pension plans. Glenn Tilton had his retirement fund bought and fully funded so he could go to UAL as CEO and terminate the pensions there. Delta sold their fuel hedges to top off the retirement funds for senior executives. That literally cost them hundreds of millions when oil spiked. There are few negative consequences for the individuals responsible Chapter 11 filings.

The PBGC is a pseudo government agency. Corporations basically pay insurance premiums to the agency. The federal governmet underwrites the insurance and only pays if the PBGC becomes underfunded. The PBGC can and has returned some pension funds back to corporations after they become profitable. Except for UAL which secured the only agreement to date that the PBGC would never try to return their obligations.

 

[oldShar]

I figured that this was inevitable.
Whenever I fly, I have problems if legs are on American. Most of the rest of my family (my grandmother excluded -- who thought American was the best thing next to sliced toast) had similar experiences.

I acquired CONSIDERABLE frequent flyer miles on TWA. When American took over, the acquired miles went into File 11, so I'm not surprised (nor disturbed and expect my existing miles to go the way that TWA's did)

 

[Fearless Tower]

Chapter 11 used to be a measure of last resort. Now it is just another accounting tool used by lazy, inept and greedy executives.

Actually Ch 11 has been a management tool in the airline industry at least since the 1980s.

Just ask this guy:

 

[Dave Siciliano]

On another board it was posted that American actually tried to contribute excess funds to the pension fund when things were going better and government regulations wouldn't allow it. It would have lowered the corporations tax liability too much. I can get more details if anyone wants them. Maybe the contributions weren't deductible if made in excess.

I kind of have the same situation. I'm selling a business, but the government considers it ordinary income because it's lot development. When the lots are sold, the business is done. Because of this, I get a large income for a couple years; then, none. My retirement contributions are limited because everything seems to be geared to someone with a constant salary rather than very cyclical income or high income for a couple years with little or none afterwards; so, I can't adequately fund a retirement plan. Government needs the money too much to let me save for retirement responsibly.

Best,

Dave

 

[p1l0t]

Can't they just get a bailout? Or are they not too big to fail?

<---<^>--->

 

[Art VanDelay]

Can't they just get a bailout? Or are they not too big to fail?

<---<^>--->

No, UAL has already been picked as the Airline "Too Big To Fail". That's why Continental was FORCED to merge with them. AA will just have struggle.

 

[Wingsofglass]

That's the part you are missing. Their service is really no better or worse than every other airline that has been dealing with poor management. I haven't flown UAL or NWA in a couple years, but their employees were so ****ed at their quality of life that they routinely took it out on pax. AMR is no different.

I guess on this one we will have to disagree. I believe AA is in the lead on the race to the bottom and while they are all bad, AA just seems a little worse then the rest in my experience.

It's not just bad management. It's also a very broken business model that views each seat as its own entity so airlines try and maximize revenue for an individual seat and not from a customer. This results in massively overcharging their best customers, who hate them for it, and giving huge discounts to their worst while treating them all equally regardless of what they paid.

The other big problem is a flying public that refuses to pay extra for better service or increased safety. If Airline A charges more but has more spacing between flights resulting in a better on time record than Airline B, who charges $20 less per ticket, B gets the business and say goodbye to the pillow in coach and say hello to a FO who has less time then me.

True story. Boarded an MD80 not too long ago that had a cockpit filled with little round gauges and a pilot with a 496 in his hand.

 

[Fearless Tower]

The other big problem is a flying public that refuses to pay extra for better service or increased safety. If Airline A charges more but has more spacing between flights resulting in a better on time record than Airline B, who charges $20 less per ticket, B gets the business and say goodbye to the pillow in coach and say hello to a FO who has less time then me.

True story. Boarded an MD80 not too long ago that had a cockpit filled with little round gauges and a pilot with a 496 in his hand.

Exactly - but again, that is every major. If your flight was going through through ATL instead of say DFW you would have experienced the exact same thing (even same ancient aircraft) but with a different paint job on the outside.

 

[Gerhardt]

We all have our own airline to hate. As for me, I like AA but hope Delta goes down the tubes.

 

[hawksnest]

When TSA took all the fun out of flying commercial, it was just a matter of time.

 

[maddog52]

AMR's spin of making the unions out to be the bad guys is just their way of saying "We can't make payroll" , " We cannot meet our contractual obligations to you" ......... it is for all of you to take a pay cut and we have no idea when the pay rates will return" and "Oh and by the way, I am of course keeping my golden parachute".

I checked Airlinefinancials.com and found some interesting facts when comparing AA against the 7 largest airlines in the US. These are the latest numbers (2009) easily found.

American /Southwest

Unit cost/ASM 12.2 cents /10.3 cents

Labor cost/ASM 4.1 cents/ 3.5 cents (2 highest of the top 7
)
Pilot cost/ASM 0.74 cents 1.03 cents (highest of the top 7)

FA cost/ASM 0.5 cents /0.45 cents

Avg. Emp. wage $63,000/ $76,000 (highest of the top 7)

Avg. Emp benefit $30,000/ $24,000

Avg pilot wage $136,000/ $178,000 (highest of the top 7)

Avg FA wage $51,000 /$47,000

I know that comparing AA to UAL, DAL, CO, and US would be better. Keep in mind that all of those airlines have already undergone bankruptcy. I have a very hard time believing AA management when they say labor is the cause of their problems. And even though the pilots already make less than SWA, some executive weenie will cry that they have to compete with the low cost carriers and the pilots will take a largest pay cut.

 

[wabower]

Then why did a Continental guy rather than a UAL guy get the top job at the merged airline?

No, UAL has already been picked as the Airline "Too Big To Fail". That's why Continental was FORCED to merge with them. AA will just have struggle.

 

[denverpilot]

AMR's spin of making the unions out to be the bad guys is just their way of saying "We can't make payroll" , " We cannot meet our contractual obligations to you" . Imagine being a business school grad and having to come to your employees and essentially say "Gee, we've run this business so poorly the only way we can see to fix it is for all of you to take a pay cut and we have no idea when the pay rates will return" and "Oh and by the way, I am of course keeping my golden parachute".

Nailed it.

 

[Art VanDelay]

Then why did a Continental guy rather than a UAL guy get the top job at the merged airline?

Because the banks (the largest shareholders) wanted a winning management team. As predatory as it sounds it was always Continental's plan to wait until UAL went under (probably in about 18 months at the rate they were burning through cash) and then JUST buy the pieces and routes that made sense not the whole big sh*t sandwich. Now, they may have bitten off a lot more than they can chew. Comparatively speaking the integration is not going anywhere near as smoothly as the Northwest/Delta merger.

 

[bbchien]

Wayne, In this situation I am not privy. But I have seen a situation where a CEO did not want to merge (buy) but the board did. The board saw the acquired company's CEO as a asset and wanted him lock stock.....(this was a pharma merger)

The old CEO was parachuted, of course. A small parachute.

 

[Fearless Tower]

The old CEO was parachuted, of course. A small parachute.

Probably alot smaller than Arpey's.

 

[maddog52]

Because the banks (the largest shareholders) wanted a winning management team. As predatory as it sounds it was always Continental's plan to wait until UAL went under (probably in about 18 months at the rate they were burning through cash) and then JUST buy the pieces and routes that made sense not the whole big sh*t sandwich. Now, they may have bitten off a lot more than they can chew. Comparatively speaking the integration is not going anywhere near as smoothly as the Northwest/Delta merger.

Continental would have been waiting a long time. Actually, UAL had more unrestricted cash in the bank than CO and UAL still had an operating profit. CO's CEO told his stockholders that CO had to merge or face consequences. UAL's CEO has always pushed for industry consolidation because he couldn't think of a better way to increase his personal fortune. Co's CEO was a merger and aquisition attorney and disliked by most of his employees. UAL's CEO was a bankruptcy expert and despised by most of his employees. I'll agree CO management was probably margininaly better, but not by much or considering how poorly they are handling the integration, I should say they might be less inept.

 

[denverpilot]

Actually Ch 11 has been a management tool in the airline industry at least since the 1980s.

Just ask this guy:

You really need to link to the story for the kiddies.

Harvard Business School graduates gone wild. As usual.

Drove the CAL chairman to suicide. Lovely human being.

 

[denverpilot]

Oops then I forgot the link.

http://en.m.wikipedia.org/wiki/Frank_Lorenzo

 

[BellyUpFish]

Oops then I forgot the link.

http://en.m.wikipedia.org/wiki/Frank_Lorenzo

What a scumbag. I bet I was the only 2nd grader at my school with a "No Lorenzo" pin on my backpack.

 

[Art VanDelay]

Continental would have been waiting a long time. Actually, UAL had more unrestricted cash in the bank than CO. UAL was still very profitable and CO's CEO told his stockholders that CO had to merge or face consequences.

Your going to have to show me where you came up with that. UAL was doing so many things wrong it just wasn't even funny. UAL ran 767s on city pairings that everyone else ran 737s or A320s on and no they were not even close to being full. Their 777s had engines so small they couldn't even get DOD contracts for CRAF flying with them. The avionics packages that they equipped their aircraft with were state of the art - in 1977, hardly viable to run in NextGen airspace architecture and take advantage of the inherent fuel savings . And please don't tell me that you think Glenn Tilton was anywhere close to being capable of leading them out of the mess - onward thru the fog ! Did you happen to notice the official title that he was given at the start of the merger - "Chief NON-Executive Officer". What does that say ? It says "you, sit over there and don't say or touch an f ing thing".

 

[denverpilot]

It matters little who's in charge at the merged behemoth. They've got big cutting to do eventually. The bigger they are, the harder they fall... Unless our Uncle makes us pay for their mistakes. Again.

Whether they can hold off and do it by retirement attrition or if it'll start next year, I haven't decided yet. The numbers aren't that clear. They only say that costs are too high to survive long-term.

The UAL/CAL execs' compensation packages are published. Some pretty tasty treats in there. I read it. Looks very lucrative for a select few. As usual.

There's no way to oust them in an economy with a huge surplus of labor willing to work at any price.

 

[maddog52]

Your going to have to show me where you came up with that. UAL was doing so many things wrong it just wasn't even funny. UAL ran 767s on city pairings that everyone else ran 737s or A320s on and no they were not even close to being full. Their 777s had engines so small they couldn't even get DOD contracts for CRAF flying with them. The avionics packages that they equipped their aircraft with were state of the art - in 1977, hardly viable to run in NextGen airspace architecture and take advantage of the inherent fuel savings . And please don't tell me that you think Glenn Tilton was anywhere close to being capable of leading them out of the mess - onward thru the fog ! Did you happen to notice the official title that he was given at the start of the merger - "Chief NON-Executive Officer". What does that say ? It says "you, sit over there and don't say or touch an f ing thing".

Third quarter 2010 filings: UAL had $4.938 Billion in unrestricted cash, CO had $4.204 Billion. Source www.airlinefinancials.com.

As far as the 767s go, What city pairings are you talking about? Could they have been to position for follow on international segments? Considering UAL load factor was 86.8% and CAL was 86.6%, I don't see how a few near empty 767s could be considered indicative of a vast difference.

As far as the 777s missing out on CRAF flying go, you'll have to show me cause I know those guys were asked to sign up for CRAF. And since UAL flew ALOT of CRAF flights with the 747, I don't see how this is a valid indicator either.

Exactly what equipment is UAL lacking that prohibits it's aircraft from operating in NextGen airspace? I would really like to know.

And no, I definitely do not think Tilton was able to lead anybody anywhere. Unfortunately, Smisek has so far demonstrated the same leadership ability. In fact, calling these guys and what they do leadership is actually insulting to those of us who have actually studied and practiced leadership.

 

[p1l0t]

When TSA took all the fun out of flying commercial, it was just a matter of time.

^ This. Never in my short lifetime have I seen the government destroy an industry like this. I know there were other factors too like higher oil but let's be realistic adding two hours to the flight because of waiting in the airport kills it. That and being molested and all. The first class flyers (who they actuallly make a profit on) choose charter, and the rest drive instead if not for fear of violation or lack of time savings but because the cost has gone up so they can't afford it. I haven't taking a vacation further than I am willing to fly a piston single purely for the fact of avoiding the TSA. I'm sure telecommuting hasn't made it any better either.

<---<^>--->

 

[SCCutler]

What a scumbag. I bet I was the only 2nd grader at my school with a "No Lorenzo" pin on my backpack.

Frank Lorenzo was no saint, God knows, but the myth surrounding him has departed so far from reality, it's almost amusing.

Continental was a Dead Man Walking, and was only saved by virtue of being purchased by Texas Air, and merged into little ol' Texas International Airlines. Texas Air, and Francisco Lorenzo (who had previously revived Texas International from near-death to a sound and growing carrier) were woefully uninformed about Continental's financial condition when they bought it - it was much worse than anticipated. Nonetheless, they worked a set of deals to keep the airline out of bankruptcy (remember, this is within a year after Braniff's failure), and every union except one was on board, and that union (the IAM) forced the matter to the bankruptcy courts. The Board wisely opted to file the 11 before the airline was out of cash, and they survived.

The IAM later also managed to kill off Eastern, but it was dead from decades of ****-poor management before that point anyway.

 

[wabower]

Dude. Get a grip. Charter isn't an option for 90+% of first-class pax. The cost differential of charter vs airlines isn't incremental, it's and order of magnitude.

^ This. Never in my short lifetime have I seen the government destroy an industry like this. I know there were other factors too like higher oil but let's be realistic adding two hours to the flight because of waiting in the airport kills it. That and being molested and all. The first class flyers (who they actuallly make a profit on) choose charter, and the rest drive instead if not for fear of violation or lack of time savings but because the cost has gone up so they can't afford it. I haven't taking a vacation further than I am willing to fly a piston single purely for the fact of avoiding the TSA. I'm sure telecommuting hasn't made it any better either.

<---<^>--->

 

[weilke]

^ This. Never in my short lifetime have I seen the government destroy an industry like this. I know there were other factors too like higher oil but let's be realistic adding two hours to the flight because of waiting in the airport kills it.

I fly a lot. When travelling without the kids, I never arrive at the airport terminal 2 hrs prior, maybe 45 minutes to an hour.

That and being molested and all.

That part is really overblown. I had one of the intrusive 'special screening' pat-downs, was not amused and made a stink about it. They backed off from doing those for the most part pretty soon after. Since then, I have no physical contact with them in about 9/10 boardings. The remaining times it's maybe a single pat to check out some wrinkled shirt part after the microwave scan.

The first class flyers (who they actuallly make a profit on) choose charter, and the rest drive instead if not for fear of violation or lack of time savings but because the cost has gone up so they can't afford it.

WHAT ?

From DCA to MSP it is about $800 in first. The cheapest charter would be about 12k. It is a 19 hr drive vs. 2:05 in the ATD.

 

[BellyUpFish]

...but because the cost has gone up so they can't afford it.

Airline travel should cost more.. Traveling by aircraft is not a right, but the airlines wanted the Greyhound crowd and they got it..

 

[Everskyward]

Airline travel should cost more.. Traveling by aircraft is not a right, but the airlines wanted the Greyhound crowd and they got it..

So what is your solution? No one forces the airlines to charge what they charge. If the "Greyhound crowd" stopped flying there would be far fewer jobs.

 

[BellyUpFish]

So what is your solution? No one forces the airlines to charge what they charge. If the "Greyhound crowd" stopped flying there would be far fewer jobs.

I don't have a solution. If I did, I'd be a wealthy man.

 

[wsuffa]

Meanwhile, I imagine SWA is downright giddy.

And USAirways is biding it's time to buy the airline out of bankruptcy. If you think things on AA are bad now....

Yes I agree going under and reorg are two very different things. My point is that all the talk of timing, 9/11 and bargaining leverage fails to mention that a big part of the problem is that this is a poorly run business with horrendous customer service that has only gotten worse with time. If the quality of their product is not addressed, no amount of stealing from employees, taxpayers, shareholders and creditors will save them in the long run.

I may be mistaken about the taxpayer comment but I thought under chap 11, some portion of a failed pension gets picked up by the government (PBGC).

IIRC, SOME of the pilots have made out OK (at least relatively). Those are the ones that retired recently. IIRC, there was a provision in the contract that allowed those that retired to cash out stock based on what it was valued a year ago. It's part of the reason that there's been a steady stream of retirements over the last few months - several times as many as were expected - and it's caused problems in AA's schedule.

It's definitely a race to the bottom among the major carriers. Some people promote bringing back regulation so as to make the end product more predictable and have some say in things like amount of legroom and amenities. Others say that if we did that no one would be able to afford to fly. I say the solution is probably somewhere in the middle because what we are doing now is certainly not working.

Re-regulation is unlikely to happen, but fares will have to go up. Reregulation would push fares much, much higher. If you look at the fare structures that some airlines are using on transatl and transpac services, you'll see a low base fare and an exceedingly high "YQ" fuel surcharge. I recently looked at a trip on a certain airline where the base fare was under $300 and the fuel surcahrge was on the order of $600.

The race to the bottom will (has?) included the same kind of unbundled pricing that companies such as cellphones and rental cars use (I was charged a "tire use fee" on one car rental....).

 

[p1l0t]

I fly a lot. When travelling without the kids, I never arrive at the airport terminal 2 hrs prior, maybe 45 minutes to an hour.



That part is really overblown. I had one of the intrusive 'special screening' pat-downs, was not amused and made a stink about it. They backed off from doing those for the most part pretty soon after. Since then, I have no physical contact with them in about 9/10 boardings. The remaining times it's maybe a single pat to check out some wrinkled shirt part after the microwave scan.



WHAT ?

From DCA to MSP it is about $800 in first. The cheapest charter would be about 12k. It is a 19 hr drive vs. 2:05 in the ATD.

One intrusive pat down and you were unamuzed.. I would have punched the guy in the face. I fly myself or I don't go because I don't want to go to jail over literally fighting over my 4th amendment right against unreasonable search and seizure. Lets waste billions of dollars so some scum bag with no chance of stopping a real terrorist can harass law abiding citizens... Only in America "Land of thr free" this country is such a lost cause.

<---<^>--->

 

[dmspilot]

Re-regulation is unlikely to happen, but fares will have to go up.

Regulation is alive and well. Just look at the DAL/LCC slot swap fiasco. Also the recent bill requiring airlines to check one bag for free.

 

[n20junkie]

So what is your solution? No one forces the airlines to charge what they charge. If the "Greyhound crowd" stopped flying there would be far fewer jobs.

Should quality seafood cost as much as it does? If it was cheaper they could hire more people.........

So what if fewer people work. Maybe the few people that do have jobs will earn a decent salary.

The greyhound group has removed and luxury from flying. Most dread it.

 

[BellyUpFish]

Should quality seafood cost as much as it does? If it was cheaper they could hire more people.........

So what if fewer people work. Maybe the few people that do have jobs will earn a decent salary.

The greyhound group has removed and luxury from flying. Most dread it.

+ eleventy billion..

 

[weilke]

One intrusive pat down and you were unamuzed.. I would have punched the guy in the face. I fly myself or I don't go because I don't want to go to jail over literally fighting over my 4th amendment right against unreasonable search and seizure.

No 4th amendment issue. They tell you that you have been selected for special screening, you can decline and leave the secured area.

Lets waste billions of dollars so some scum bag with no chance of stopping a real terrorist can harass law abiding citizens... Only in America "Land of thr free" this country is such a lost cause.

It would be most productive if you directed your anger at the politicians that brought us the TSA rather than at the individuals who took a goverment job with federal seniority and benefits.
Look at the BARR program. Political action by the GA caucus reversed a political decision made by the class warriors in the administration.

 

[Mason]

Actually Ch 11 has been a management tool in the airline industry at least since the 1980s.

Just ask this guy:

Or this one:

 

[Everskyward]

The greyhound group has removed and luxury from flying. Most dread it.

I consider myself part of the greyhound group. It's just transportation to me. I don't need luxury. I fly an airplane for the limo crowd but I certainly can't afford to be the one in back. I'm not sure I could justify the expense even if I could afford it.

 

[Keith Lane]

I consider myself part of the greyhound group. It's just transportation to me. I don't need luxury. I fly an airplane for the limo crowd but I certainly can't afford to be the one in back. I'm not sure I could justify the expense even if I could afford it.

+ two times eleventy billion.

Companies dictate we fly to places. And don't say, get another job. What I do requires travel, and at my age, looking for a homebound job really ain't in the cards. I fly coach, unless DAL upgrades me which they do about half the time.
We have a job in Singapore starting in February or March. Minimum of 28 hours travel (from ATL) with two stops. Think they are gonna spring for business class?
Bwahahahaha