IMPORTANT UPDATE REGARDING THE 1114 AND RETIREES
November 5, 2013
On October 21, 2013, the United States Bankruptcy Court overseeing American Airlines chapter 11 bankruptcy case entered an order confirming American Airlines chapter 11 plan. There has been some confusion about what the confirmation order means for American’s 40,000 plus retirees and their benefits. The fact is that the entry of the confirmation order will not change all that much for retirees.
First, American is not out of bankruptcy yet and will not be able to emerge from bankruptcy unless and until its merger with US Airways is approved and the merger closes. If the merger is not approved, American’s confirmation order will be vacated and American will have to propose a different plan. Absent a settlement, the District Court handling the Government’s anti-trust suit is expected to start the trial over the merger on November 25, 2013 and the trial is expected to last through mid-December, 2013. Under the current schedule, the District Court will hear closing arguments on January 6, 2014 and rule thereafter. In the meantime, American must continue to comply 11 U.S.C. § 1114. Section 1114 prohibits American from making any changes to retiree benefits without the approval of the Bankruptcy Court. It also establishes certain procedures that a debtor in bankruptcy, like American, must follow before it changes or eliminates the medical and life benefits it provides to its retirees and the standards it must meet to do so. American cannot currently satisfy those standards, because they require, among other things, that American prove that it cannot confirm a plan without modifying retiree benefits. Because the Bankruptcy Court has already confirmed a plan for American, American cannot prove it cannot confirm a plan. Thus, the status quo will remain in place for the time being.
Second, the lawsuit that is pending against the Retiree Committee will continue. On July 6, 2012, American Airlines filed suit against its retirees, asking the Court to declare that it has the right to unilaterally take away the medical and life insurance benefits that retirees earned when they worked for American Airlines. On August 15, 2012, American Airlines filed a motion for partial summary judgment in that case, asking the Bankruptcy Court to rule that none of the American Airlines retirees has a “vested right” to the medical and life insurance benefits currently provided by American Airlines. American has argued that if the Court finds that retirees do not have a vested right to benefits then Section 1114 allegedly does not apply and American can supposedly terminate or modify the benefits without Court approval and without paying any damages to the retirees for the benefits they have lost. The Retiree Committee has opposed this motion. The Retiree Committee’s position is that the benefits are vested, that Section 1114 applies whether the benefits are vested or not, and that retirees will receive a claim whether the benefits are vested or not. If the Bankruptcy Court denied American’s motion, the case will be set for trial. If the motion is granted, in whole or in part, the Court will have to address the balance of the relief American requests, including whether and what to extent Section 1114 applies and whether retirees have a claim against the estate, still must be decided. American has, however, agreed in its Plan of Reorganization that if the final outcome of this lawsuit is that retirees are entitled to a claim against American for the value of any benefits that American eliminates, American will not eliminate the benefits and instead will continue to honor its contractual commitments to retirees to provide retiree benefits, meaning that retirees will continue to receive the benefits they were receiving when American filed for bankruptcy in November, 2011 and continue to receive today. The Bankruptcy Court has not stated when it will rule on the pending motion.
Third, under American’s confirmed plan, the Retiree Committee appointed by the United States Trustee to represent your interests remains in place. In April 2012, the United States Trustee appointed a five member committee representing each of American’s work groups to represent your interests and to work to keep your retiree medical and life insurance benefits in place. The Retiree Committee remains in place and to ensure it can do its job, American is required to continue to pay the Retiree Committee’s legal and other professional bills. Thus, the Retiree Committee will continue to defend the lawsuit and it will oppose any efforts by American to take away your medical and life benefits.
In the meantime, American Airlines is still providing medical and life insurance benefits to its retirees and has told the Committee through counsel that it will continue to do so until this litigation is resolved.
Captain James G. Sovich,
Chairman of the Section 1114 Committee