Bankruptcy court OKs AMR's request to bar lump-sum benefits payments

A federal bankruptcy court judge in New York on Wednesday approved American Airlines Inc. parent AMR Corp.'s request for permission to allow the airline to amend its frozen pilots' pension plan so that retiring pilots cannot receive their accrued benefits as a lump sum.

In a previous filing with the bankruptcy court, AMR warned that the availability of the lump-sum option would lead to mass retirements of pilots.

Under one scenario outlined by AMR, a 50-year-old pilot, for example, “may conclude that he or she can have the best of both worlds by retiring from American with a substantial lump sum while continuing to fly the most prestigious aircraft at a top salary for a foreign airline.”

A surge in retirements “would create a pilot shortage which, in turn, would result in an operational crisis involving the wholesale cancellation of flights and the grounding of airplanes, with a corresponding devastating reduction in revenue and profitability,” AMR said in its filing.

To prevent that from happening, American would be forced to seek bankruptcy court approval to terminate the plan, AMR said. That would shift liability to pay the plan's promised but unfunded benefits from American to the Pension Benefit Guaranty Corp.

The PBGC said it would be hit with one of its biggest losses ever — $2.3 billion — if the plan was terminated and the agency was liable to pay plan participants' guaranteed but unfunded benefits.

The bankruptcy court approval of the elimination of the lump-sum benefit option, along with previous PBGC approval, will allow the airline to take the final steps to maintain the freeze of the pilots' plan rather than pursue a termination, an American Airlines spokesman said.