As American Airlines moves towards an exit from bankruptcy, there is still the issue of the Retiree Medical for current retirees. AA has proposed making modifications to the Retiree Medical Plan by shifting 100% of the cost of maintaining the plan to the current retirees.
On January 23, 2013, Judge Lane heard arguments in connection with AA’s adversary proceeding (the “Retiree Adversary Proceeding”) in which AA argued that it is entitled to unilaterally modify/eliminate all retiree benefits without meeting the requirements of section 1114 (g) of the bankruptcy code, including the requirement of demonstrating that the modifications are necessary to permit reorganization.
Judge Lane has not given his decision on whether the Court would allow AA to unilaterally make the proposed modifications or whether the changes they seek would need to be argued as part of a motion under section 1114 of the bankruptcy code to modify/terminate retiree benefits. As part of a 1114 motion, AA would be required to prove, among other things, that modifying or terminating retiree benefits is “necessary to permit reorganization.”
That is where we sit today, waiting for the Judge to make his decision in order to know how this part of the case would proceed.
If the Judge does not give his decision before AA is allowed to exit bankruptcy, the issue with the Retiree Medical does not necessarily go away. The Retiree Adversary Proceeding dealing with the retiree medical may continue after bankruptcy and remain under the jurisdiction of the Bankruptcy Court. As a matter of fact, within the Plan of Reorganization and Disclosure Statement filed by AA, the company clearly states its intention to move forward with the proposal to modify the Retiree Medical Plan. In the event AA moves forward with its effort to modify/terminate retiree benefits after AA exits bankruptcy, the Retiree Committee will remain in place and be in a position to continue to oppose any such efforts.