Retiree Info – 1114

Section 1114 Update – 10.5.12

On May 3, 2012, the United States Bankruptcy Court overseeing American Airlines chapter 11 bankruptcy case approved the appointment of a committee to represent all of American’s 40,000 plus retirees.  Under Section 1114 of the Bankruptcy Code, the Committee’s role is to represent individuals who retired from American Airlines before November 29, 2011 with respect to their medical, dental and life insurance benefits.  American Airlines has indicated that it wants to expand the size of the Section 1114-protected group to include individuals who retire prior to November 1, 2012. Section 1114 establishes certain procedures that a debtor in bankruptcy, like American Airlines, must follow before it changes or eliminates the medical and life benefits it provides to its retirees.  Section 1114 also recognizes that if benefits are changed or eliminated, retirees would have a claim against American Airlines for the value of the benefits that are lost.

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 Airlines has stated that it is advancing this motion solely for purposes of determining whether the retirees will have a claim against American Airlines for damages if retiree benefits are terminated or changed.   American Airlines has not asked the Court to find that American Airlines can terminate these benefits without going through the Section 1114 process and has stated that it will comply with Section 1114 before it changes retiree benefits.   Section 1114 requires American Airlines to negotiate in good faith with the Retiree Committee about changes to the retiree benefits and prove, among other things, that changes to retiree benefits are necessary to permit American Airlines to reorganize, that it is fair and equitable to change retiree benefits and that the Retiree Committee’s decision not to agree to the proposed modifications is made without good cause.  The Retiree Committee intends to oppose this summary judgment motion and will file its written response on November 9, 2012.   The Court will hear argument on the motion in late December or early January.  Our expectation is that the Bankruptcy Court will reject American Airlines’ summary judgment motion and find that the retiree benefits are in fact vested.   If the motion is denied, the matter will be set for trial thereafter.

Currently, the Retiree Committee is in the process of obtaining information from American Airlines, both  through the discovery process and informally, to defend against American Airlines’ lawsuit and to understand American Airlines’ position on the continuation of retiree benefits.  The Retiree Committee also has met and will continue to meet with American Airlines in an effort to resolve the dispute over continued retiree 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 and the Section 1114 process are resolved.