Seen As Critical Move For Emerging From Bankruptcy

The U.S. Bankruptcy Court in Manhattan, NY, has approved a new collective bargaining agreement reached between American Airlines and its pilots' union. The plan eliminated lump-sum payments of retirement benefits for the pilots, which the airline said could hurt the company financially if a large number of pilots chose to retire shortly after it emerged from reorganization.

In a news release, AA said that along with the additional approval, the airline recently received from the Pension Benefit Guaranty Corporation (PBGC), the company is now able to take the final steps that will allow it to maintain the freeze of the pilot A Plan rather than pursue a termination.

American said that when the pension plan freeze was proposed, it knew the lump-sum option available under the pilot A Plan presented a unique operational challenge that needed to be addressed. To avoid this risk, the airline said it worked collaboratively with the APA, PBGC and the UCC on a solution that would allow it to maintain the freeze of the pilot A Plan, Wednesday, the Court ruled that removal of these benefit options is necessary to avoid termination of the A Plan.

The ruling has no impact on pension freezes for other employee groups, as this ruling was specific to the lump-sum distribution and installment option that was part of the pilot A Plan.

Reuters reports that while Judge Sean Lane seemed to empathize with the pilots, there was a reality to the situation that could not be denied. "Bankruptcy brings with it many hardships. The sacrifices of the other employees are one of those hardships," he said in ruling on the plan.

The move was opposed by a small group of former TWA pilots who said that the ruling changed the agreement they had made when American bought TWA out of bankruptcy years ago.

While AMR wants to emerge from its financial difficulties as a stand-alone airline, the pilots' union has made no secret that it wants the carrier to merge with US Airways.

The court on Wednesday also approved American's and the Unsecured Creditors' Committee's (UCC) joint request to extend exclusivity for AMR to file its Plan of Reorganization to March 11, 2013.

FMI: www.aa.com