American's proposals are in line with the industry

Discussion in 'American Airlines | AAdvantage' started by garyst16, Feb 6, 2012.  |  Print Topic

  1. garyst16
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    garyst16 Silver Member

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    Last year, American Airlines talked about closing an $800 million gap on labor costs. That's the premium paid in wages and benefits, after rivals had used bankruptcy to slash their expenses.
    Now that American has the same tool, it wants to cut labor costs more than twice as much -- $2 billion a year, including the savings from dumping workers' pensions. Even American's plan to increase revenue by $1 billion relies on contract changes that will mean fewer hires down the road.

     
  2. MrAOK
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    MrAOK Silver Member

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    Oh what a complicated answer.

    The bankruptcy law up to a point allows a company to restructure and reorganize to stay in business. But without going into a lot of details, a company just can't toss out all or most of its debts and start over. The idea of the restructuring is that it can restructure its debts sufficiently to have a chance of survival and to eventually pay off future and some past obligations.

    In a bankruptcy reorganization, a company can only fully dispose of debts if it shows it can't survive without doing so.

    The argument of the unions and the Pension Benefit Guarantee Corp. is that American is being overly aggressive in trying to discharge its debts, in part trying to saddle taxpayers (you and me) with costs for a pension plan it should be partly and mostly still bear while also cutting the amount employees will get from their pension by half or more.

    for more details, see this

    It's going to play out in the courts, but American could have trouble winning. It's competitors didnt have to go as far as American is trying to go.
     
  3. Pizzaman
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    Pizzaman Co-founder

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    And, let's not forget that many people's appetites have waned for things that could be perceived as a bailout. I'm not saying this is. I think it's reality. But it's possible they may find a less forgiving system because of previous airline entrants.
     
  4. MrAOK
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    MrAOK Silver Member

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    from Wall Street Journal today:

    "AMR's ability to jettison all of its pensions is questionable,"
     
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  5. autolycus

    autolycus Gold Member

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    PBGC is gonna fight them tooth and nail on that. With a bunch of cash sitting around and the full intention of staying in business long-term, AMR is gonna have to come up with something really clever to get out of those obligations.
     
  6. MrAOK
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    MrAOK Silver Member

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    As I hope they would. If American were allowed to dump the plans, taxpayers would have to pay about $7 billion of AA's bills. Besides being a lot more than baggage fees, it would set a really dangerous precedent for other companies to do the same.

    When all gets said and done, my suspicion is American made its bankruptcy based on an aggressive understanding of what it would be able to do that will prove to be very wrong.
     
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  7. autolycus

    autolycus Gold Member

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    Well, the main precedent in this area was probably already set by United. AMR is trying to push it a little farther, but I think they'll ultimately be unsuccesful in getting exactly what they want on the pension front, but it's a HUGE bargaining chip that they've played now.

    Maybe. I think they're making some aggressive plays in bankruptcy. We may never know whether they made the decision to file based on an assumption that the aggressive play would work, or if they're just trying to drive a hard bargain so their relaxed compromise position is better than if they'd gone in with a less aggressive position to start.
     
  8. garyst16
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    garyst16 Silver Member

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    When negotiating, always start the process with much more than you actually want to gain...that way you have more to discard along the way...win-win is the ultimate outcome...although a BK filing never is...
     
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  9. tassojunior
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    tassojunior Silver Member

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    $2B of the $4B cash AA is sitting on comes from taking money from it's pension fund.

    hmmm...
     
  10. Microwave
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    Microwave Silver Member

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    Please, please, please check your facts before posting.

    The PBGC is not funded by general tax revenues, so your statement that "taxpayers would have to pay $7 billion" is absolutely, unequivocally, completely and entirely false. Let me repeat this for effect: the PBGC is not funded by general tax revenues. If AMR were to terminate their defined benefit plans, US taxpayers wouldn't be out a dime.
     
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  11. autolycus

    autolycus Gold Member

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    Well, your correction is true to an extent. Premiums paid by participating plans and assets recovered from terminated plans do make up a large portion of PBGC's assets and operational funding. However, PBGC does receive funds from the US Gov't as well, and there is an implicit backstop in place to make sure that PBGC will continue to provide benefits even if it runs out of assets. For FY2011, PBGC received appropriations totaling $6.6 billion. As of 9/30/11, it had an asset deficit of $26 billion and had a net loss of $3 billion for FY2011. Taking on the AMR pensions would add an estimated $8.7 billion to that deficit ($17 billion in insured benefits offset by $8.3 billion in plan assets).

    So, while it is technically correct that taxpayers will not be on the hook for the asset deficiency, it is not realistically correct. The odds that Congress and the White House would allow PBGC to go under are somewhere slightly north of 0%, but south of 1%, IMO.
     
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  12. Microwave
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    Microwave Silver Member

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    From the pbgc.gov:

    If you need additional sources for this they're not hard to find (such as page 45 of their 2011 Annual Report), but suffice it to say that the PBGC operates without general tax revenue being allocated to it. In fact, it would require an amendment of ERISA for the PBGC not to be self-sufficient.

    Nobody is suggesting that the PBGC would be allowed to go under, but fortunately for the American taxpayer--and more importantly, those whose pensions are paid by the PBGC--additional revenue can be raised if necessary by increasing premiums without burdoning the taxpayer or the threat of PBGC insolvency. To suggest that an AMR plan termination would threaten PBGC solvency is inaccurate and not founded in fact.

    If there's going to be a discussion of AMR's desire to terminate its defined benefit plans, let's at least keep it factual. Is it ethical for AMR to seek plan termination? That's debatable. Is it financially imperative for AMR to terminate their plans in order to stay solvent? Not so sure about that. Does it saddle taxpayers with additional burden if they do? No.
     
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  13. autolycus

    autolycus Gold Member

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    Hmmm... My numbers were from their financial statements and from their proposal for appropriations from Congress. I guess I was misinterpreting what was being appropriated.


    We'll just have to agree to disagree on the last point. You're technically right, but it's not as simple as that, IMO. The politics of deals like this will be influenced by the threat that taxpayers will eventually be saddled with extra debt.
     
  14. MrAOK
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    MrAOK Silver Member

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    Yes it's false to say that there won't be taxpayers funding.

    While the PBGC in general is supposed to get money for its payout from a tax on employers, PBGC is currently very underfunded and taking over American's pension funds would dramatically increase the underfunding.

    In addition raising the tax as dramatically as would be needed to quickly make up the deficit could have other effects, prompting more employers to drop defined benefit plans.

    While the administration has asked to increase the tax a little, there has been speculation that PBGC at some point won't be able to pay its outstanding obligations and could be forced to go to Congress to make up the deficit at least temporarily .

    The administration has warned about the possibility PBGC may need taxpayer funding to pay its pension obligations. See this
     
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  15. Microwave
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    Microwave Silver Member

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    Could congress amend ERISA and decide to start directly funding the PBGC? Anything's possible.
    Could Horton win MegaMillions and give the winnings to the union bosses? See answer above.
    At this time, PBGC is self sufficient, and in looking at the financial statements I posted above, it doesn't look to me to need an infusion of taxpayer cash any time in the near future.
     
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  16. MrAOK
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    MrAOK Silver Member

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    Let's get one thing straight right now. He's not going to win Megamillions. I am. I have all my plans in place for that and the Powerball. This weekend I'll get my resignation letter written.
     
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  17. Photonerd71

    Photonerd71 Silver Member

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    Every time i read an internet message board i always leave more confused then when i started. Person A says this, Person B says person A is wrong and here are "facts" to back it up. Then person A comes back with their "facts" to prove person B's facts were wrong. And around and around we go. Then when both A and B get tired of yapping back and forth, nothing is settled and both sides are usually full of brown stuff.
     
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  18. DestinationDavid
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    DestinationDavid Milepoint Guide

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    How is that different than life in general? ;)
     
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  19. cwpfly

    cwpfly Silver Member

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    Yep - and we still keep coming back to watch! Of course, it also bears a striking resemblance to Thanksgiving dinner, but there the brown stuff is gravy!
     
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  20. retirementdreams

    retirementdreams Silver Member

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    After all, this is FT...oh...wait...
     
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  21. Photonerd71

    Photonerd71 Silver Member

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    If this was FT they would just delete posts. I've had at least 4 disappear in the last month alone. (No curse words or insults either, just tried to inject a little humor. Guess that's not allowed over there.) ;)
     
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  22. garyst16
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    garyst16 Silver Member

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    Yeah, TOBB has really taken a turn for the worse...glad Randy started MP!!!
     
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  23. kansaskeith

    kansaskeith Gold Member

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