Section 1114 Update – 2.17.13
On January 23, 2013, the Bankruptcy Court heard argument on American’s motion for a partial summary judgment on the adversary complaint (lawsuit) that American filed against the Section 1114 Committee last July.
In that motion, American asked the Judge to rule, without even needing a trial, (for a summary determination that as a matter of law) that American is not contractually obligated to provide retiree benefits (health and life insurance) to its retirees. (Are the benefits “vested”?)
If the Court denies the motion for even one of the various groups of retirees, for example those who:
- were members of a union,
- retired under an early out program,
- were former TWA employees, or
- were hired prior to 1999 when American did not reserve the right to terminate retiree benefits, then the Court will conduct a full trial and hear evidence on the vesting question. Following the January 23, 2013, argument on that motion, the Court took the matter under consideration and has not set a date for when it will rule.
The Court has not been asked at this time to address the other part of the adversary complaint which asks for a determination that the requirements of 11 U.S.C. 1114 do not apply in this case. Section 1114 restricts a debtor’s ability to terminate or modify retiree benefits unless the debtor can show, among other things, that it bargained in good faith with the Retiree Committee about the changes and that it has proposed only those changes necessary to permit it to reorganize. If the Court determines that Section 1114 does apply, which it could do even if it determines that some or all of the various retiree groups do not have vested benefits, American would not be able to modify or terminate retiree benefits without satisfying these requirements of Section 1114 and receiving a Bankruptcy Court Order allowing it to terminate or modify the benefits.
While these matters are pending in the Court, American continues to be legally obligated to provide retiree benefits. The just-announced proposed merger does not change American’s obligations to its retirees.
AmericanAirlines + US Airways
“On Our Way”
APFA Retirement Specialist