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May 29, 2013

On March 23, 2012, the U.S. Trustee appointed a retiree committee (the “Retiree Committee”) pursuant to section 1114 of the Bankruptcy Code to represent the interests of retired persons in the AMR chapter 11 cases. Ringtone Gary Puckett ringtones to phones

Section 1114 provides that a debtor may not modify or terminate certain retiree benefits unless the debtor can show, among other things, that such modifications are necessary to permit the reorganization of the debtor. The “retiree benefits” entitled to the protection of section 1114 include payments by a debtor for the purpose of providing or reimbursing payments for retired employees and their spouses and dependents for medical, surgical or hospital case or benefits in the event of sickness, accident, disability or death under any plan, fund or program (including through the purchase of insurance).

At the start of these chapter 11 cases back in November 2011, the Debtors provided certain medical and life insurance benefits to various groups of retired employees.

On July 6, 2012, the Debtors commenced a law suit in the bankruptcy court (the “Retiree Adversary Proceeding”) against the Retiree Committee seeking a determination that, among other things, the retiree health and welfare benefits are unvested benefits and that therefore the Debtors may unilaterally modify such benefits under the applicable governing documents and without compliance with the provisions of section 1114 of the Bankruptcy Code. On August 15, 2012, the Debtors filed a motion in the Retiree Adversary Proceeding asking the Bankruptcy Court to find that as a matter of law the retiree health and welfare benefits are unvested benefits because (i) the governing plan documents reserved the Debtors’ rights to modify the benefits, and/or (ii) such documents did not contain a promise of lifetime benefits. The Retiree Committee objected to the Debtors’ motion for partial summary judgment, arguing, to the contrary that (i) the governing documents did not reserve the Debtors’ right to modify benefits and/or (ii) the documents did contain a promise of lifetime benefits. On January 23, 2013, the Bankruptcy Court heard argument on the Debtors’ motion for partial summary judgment, but the Bankruptcy Court has not yet ruled on the motion.

On April 15, 2013, the Debtors filed the Joint Chapter 11 Plan (the “Plan”) and the related proposed disclosure statement (the “Disclosure Statement”). In the Disclosure Statement, the Debtors state that they intend to continue to prosecute the Retiree Adversary Proceeding. The Retiree Committee will continue to defend and will continue to exist after confirmation of the Plan for this purpose. Therefore, if the Debtors win the Retiree Adversary Proceeding, the Debtors can unilaterally modify the retiree benefit plans. It is not clear what the Debtors will choose to do if they lose the Retiree Adversary Proceeding. In the disclosure statement, the Debtors say that if they lose they will satisfy section 1129(a)(13), which they must do to have a confirmable plan. Section 1129(a)(13) says that a confirmable plan must comply with section 1114(e), which provides for modification of retiree benefits with consent, or 1114(g), which provides for modification of retiree benefits after a debtor meets the necessity and other 1113 type tests. So, although the Debtors do not explicitly say what they will do if they lose the Retiree Adversary Proceeding, but they do reserve the right to proceed under section 1114 proceeding for authority to modify or terminate the retiree medical and life insurance benefits.

Fraternally,

Robert Gless
Deputy Director Air Transport Division
AA System Coordinator