OAKLAND, CA - NOVEMBER 02: An American Airlines plane parks at the termial after arriving at the Oakland International Airport November 2, 2007 in Oakland, California. American Airlines is raising the price of domestic round-trip airfares $20 in an attempt to recover the cost of rising fuel prices. Delta Airlines is also raising fares on many of its domestic routes as oil prices near the $100 per barrell mark. (Photo by Justin Sullivan/Getty Images)
American Airlines is dropping its long-standing health insurance plan for retired executives and support staff over 65 as the company battles rising medical costs and a decline in revenue.
American officials said Tuesday that letters went out to 5,500 retirees last week. The insurance plan will end Dec. 31, leaving retirees with the option of paying the full cost of their own coverage to supplement Medicare.
Nonunion retirees under 65 will continue to receive company-subsidized health insurance until they turn 65 and become eligible for Medicare, American said.
The changes do not affect American's union employees, including pilots, flight attendants and mechanics. But American has made a similar proposal in contract talks with the airline's three unions.
American officials said that among the other major U.S. airlines, only United also offers retiree health benefits to those over 65.
"This is just another measure to get us in line with our other competitors," said Missy Latham, a spokeswoman for American. "It's clearly the direction we're going."
An American Airlines personnel executive, David Levine, made the same point in letters to retirees.
Levine wrote that the company had aggressively cut costs in many areas.
"Unfortunately, we still need to do more," he wrote. "Our retiree medical costs continue to greatly exceed those of our competitors."
The change will affect retirees differently depending on their age, when they retired and whether they contributed as workers to their retiree health benefits.
Latham said employees who retired after April 2003 have been paying about 25 percent of their health insurance costs with the company picking up the rest. Those who retired before 1990 contributed nothing to their coverage, she said.
American is locked in drawn-out contract negotiations with its three unions, which want to keep health insurance benefits for their thousands of retirees and future retirees.
"It's an important issue," said Gregg Overman, spokesman for the Allied Pilots Association. "We have workers who had long careers and were loyal to the airline. They expected this would be there for them when they retired."
American's parent, Fort Worth-based AMR Corp., lost $765 million in the first half of this year as traffic slumped, with an especially sharp decline in high-fare business travelers.
This summer, analysts began sounding alarms that AMR could run short of cash by winter and be forced to file for bankruptcy protection.
AMR has moved quickly to squelch the bankruptcy talk. It raised $2.9 billion cash last week by selling aircraft, which it will lease back, and miles in its frequent-flier program. On Monday, it announced plans to issue new stock and debt, a move that could raise more than $500 million as AMR heads into the slower fall and winter travel season.
To compete better for travelers, American is shifting more flying into key hubs such as Chicago, Miami and Dallas while reducing flights in other places, notably St. Louis.
AMR's shares fell 59 cents, or 6.5 percent, to $8.44 on Tuesday.