Takeover of American Airlines' pensions would be biggest PBGC loss

WASHINGTON—If the Pension Benefit Guaranty Corp. takes over four massively underfunded American Airlines Inc. pension plans, the federal pension insurance agency would be hit with its biggest loss ever.

The four plans, which cover nearly 130,000 participants, have about $8.3 billion in assets and about $18.5 billion in promised benefits. The PBGC said Tuesday that if the plans fold, the agency would be liable for about $17 billion in benefits, resulting in an $8.7 billion loss to the agency.

That loss would be the PBGC's largest and eclipse the $7.4 billion loss it sustained in its 2005 takeover of four United Airlines pension plans.

The possibility of a PBGC takeover of the American pension plans increased Tuesday with the Chapter 11 bankruptcy filing of AMR Corp., American's parent company.

AMR officials did not say whether or not they would seek to terminate their plans. But Thomas Horton, AMR's president and CEO, said the airline needs to reduce its labor costs to achieve a competitive cost structure.

Aside from United, US Airways Inc. no longer offers defined benefit plans, while the PBGC in 2007 took over a hugely underfunded pension plan Delta Air Lines Inc. offered to its pilots.

Termination of American Airlines' pension plans would weaken the PBGC's financial condition, which earlier this month reported a record $26 billion deficit.

PBGC Director Josuha Gotbaum said in a statement that the agency will encourage American to fix its financial problems “and still keep its pension plans.”