Summary of January 23, 2013 Bankruptcy Court Hearing Regarding Retiree Benefits Issues
The bankruptcy court heard argument at a hearing held on January 23, 2013 at 2:00 p.m., to consider American Airline's ("AA") motion (the "Motion") for summary judgment for a declaration that AA has the unilateral right to modify or terminate "retiree benefits" for all its retirees because the benefits were not legally "vested." It should be noted that the term "Retiree Benefits" does not refer to pension plan payments. It refers to payments by a company for retired employees and their spouses and dependents for medical, surgical, or hospital care benefits, or insurance benefits in the event of sickness, accident, disability or death.
AA takes the position that the company's various written "Benefit Guides" are the only documents that should be considered by the court to determine whether AA retained the unilateral right to modify or terminate retiree benefits and that those documents allegedly contain language that preserved AA's right to modify or terminate such benefits. AA takes the position that the language of the Benefit Guides is so clear and unambiguous that the only reasonably conclusion that the court can make is that AA retained the right to unilaterally modify or terminate retiree benefits. It should be noted that during oral argument AA's counsel indicated that the company intends to modify the retiree benefits not terminate them.
On the other hand, the Official Committee of Retirees (the "Retiree Committee"), which has been appointed by the Office of the United States Trustee and which represents the interests of the retirees, opposes the Motion on the grounds that the Benefit Guides are not the only relevant and governing documents that the court can consider. The Retiree Committee argues that when other documents are considered, such as collective bargaining agreements, there is a material factual issue as to whether AA can modify or terminate retiree benefits. Therefore, the Retiree Committee argues that the court must conduct a full trial on the issue and cannot decide the issue by a motion for summary judgment.
After nearly three hours of arguments, the bankruptcy judge did not rule on the Motion. Instead he reserved decision and indicated that he will attempt to rule on the Motion as quickly as possible but did not state when the decision will be issued.
Summary of Bankruptcy Court Hearing on January 23, 2013
This morning the bankruptcy court approved four motions filed by American Airlines to assume, as modified, four prepetition aircraft purchase agreements with Airbus, Boeing, GE and Rolls Royce. These agreements, as modified, include agreements to fix the amount of claims to be allowed in favor of the four aircraft vendors as well as releases in favor vendors. Counsel for Creditors Committee represented to the court that the Committee supports each motion. On a related motion, the court also approved placing the aircraft purchase agreements under seal due to the extremely confidential nature of the agreements.
In addition, the court approved motions to allow American to enter into an agreement with the Port Authority of New York and New Jersey which provides for the assumption of certain gates at Newark Airport and the rejection of others that it no longer needs. On a related matter, the court approved American's agreement to reject sublease agreements with United Airlines and Porter Airlines and to enter into a sublease agreement with Virgin Air.
The court also approved the Creditor's Committee's application to pay certain fees and expenses of members of the official committee of unsecured creditors
and the final fee application of Boston Consulting Group ("BCG") in the amount of $11.7 million. BCG was retained by American to provide consulting services with respect to the restructuring and reduction of wages and benefits for the company's non-union employees.
Finally, the court approved two motions to extend the deadline to assume or reject two leases of non-residential real property to April 3, 2013.
Orders reflecting the court's rulings should be entered later today or tomorrow.
The court will hold a hearing later today at 2:00 p.m. (ET) in connection with American's motion for summary judgment seeking an order determining that American can unilaterally modify retiree benefits for current and future retirees. A report with respect to the outcome of that motion will be provided at the conclusion of that hearing.
Lowenstein Sandler LLP
Sharon Levine, Esq.
Paul Kizel, Esq.