American Airlines filed for bankruptcy yesterday. American hopes to reorganize — that is, cut costs to creditors, including, probably pensioners — and then emerge.
American has $4 billion in cash, the Journal reports. Because the company is not destitute, this is a strategic bankruptcy. And the result could be government aid. The federal Pension Benefit Guaranty Corp (PBGC) could end up spending $9 billion “of its own money” (in the Journal’s phrasing) to help make good on promised benefits to workers and retirees.
How is this situation different from when home borrowers strategically stop paying their mortgages on their underwater properties, hoping to get a principal reduction? After all, if American can’t run its business profitably with the costs that it has voluntarily incurred, shouldn’t it just liquidate and let someone else have a go?
People get mad when other people walk away from their homes, or even when those other people just sort of wonder gingerly why borrowers, not lenders, should shoulder the entire burden of bubble-era home valuations. But people don’t seem particularly angry at American Airlines today.
— Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.