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Judge: AA Can’t End Retiree Benefits Yet

A federal judge has rejected an attempt by American Airlines to quickly cut off benefits for many of its retirees.

American wants retirees who wish to keep their benefits to pay all the cost. Now the dispute could go to negotiations or a trial.

On Friday, U.S. Bankruptcy Court Judge Sean Lane in New York rejected a request made by American’s former parent, AMR Corp., for the right to immediately eliminate retiree benefits for former pilots, flight attendants and other union workers. Lane granted AMR’s request for a group of nonunion workers.

The company had 46,930 retirees when it filed for bankruptcy protection in 2011.

American was left to ponder its next move.

“American will review his ruling and consider next steps related to the retiree health and life insurance benefits,” American spokesman Casey Norton said in an emailed statement. “We always remain open to productive discussions to finally resolve this matter.”

Catherine Steege, a lawyer for the committee representing the retirees, said the ruling should cause American to stop trying to terminate the benefits.

AMR emerged from Chapter 11 protection last December as American Airlines Group Inc. after merging with US Airways. Creditors were repaid in full and AMR shareholders received stock in the new company – both unusual events in a bankruptcy case.

Steege said that while the judge didn’t consider the successful reorganization in his ruling, “morally it ought to make a difference. These people worked long and hard and loyally for American Airlines and they made it into the airline it has become,” she said in an interview. “They should share in the prosperity.”

American pays about $10 million a month in health and life insurance benefits for retirees. The financial impact of the judge’s decision wasn’t immediately clear, however, because of the mixed ruling and the fact that the eventual outcome is uncertain.

AMR argued that it could change health and life insurance benefits for retirees even though the company didn’t reserve the right to do so in the language of the benefit plans.

Lane wrote that the decision before him was whether the retiree benefit plans could be interpreted “as a promise to provide benefits for life.” The judge ruled that in most cases, they could be interpreted that way, and plan documents didn’t spell out AMR’s right to stop contributions to the retirees’ benefits.

While Lane’s ruling was a win for former union workers, it was a setback for nonunion retirees who made monthly contributions to their benefit plans while they were still working.

American used bankruptcy protection to renegotiate aircraft leases and other debt and tried to break contracts with union workers. Eventually it negotiated agreements in which all three of its unions accepted cost-cutting moves.

The lawsuit is case 12-01744, filed in U.S. District Court in the Southern District of New York.

American Airlines plane
American Airlines plane. (Joe Raedle, Getty Images)

 

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