AMR Creditor Panel Risks Split Over Labor With Unions Holding Three Seats

American Airlines’ disputes with its three largest unions may resurface in bankruptcy after the labor groups won seats on the creditors committee for parent AMR Corp.

Unions for the carrier’s pilots, flight attendants and mechanics join the panel after failing to reach new contract agreements with American in negotiations that began as far back as 2006. American parent AMR Corp. singled out industry-leading labor costs as one reason for its Nov. 29 bankruptcy filing.

The unsecured creditors committee, which also includes Boeing Co. (BA) and banks acting for bondholders, represents those owed money by American when it sought court protection. It will have a say in major decisions made by American outside of normal business while the carrier is in bankruptcy, including whether to shrink in size, terminate its pensions or merge with another airline.

“I find it surprising that all three unions made it on a nine-person committee,” said Eric Smith, an attorney with Schnader Harrison Segal & Lewis LLP in Pittsburgh who has taken part in previous airline bankruptcy cases. “The driving force behind this filing is the labor issues.”

Labor is “a critical component of every airline,” Smith said. “That’s the calculus the trustee went through in putting them on the committee. You don’t want some major union left out.”

Bankruptcy Monitor

The nine-member creditors committee was named by the U.S. Trustee, a Justice Department unit that monitors bankruptcy proceedings.

“An American Airlines with an industry competitive cost and debt structure is in the best interests of the unsecured creditors represented by the committee and all of the company’s stakeholders,” said American’s spokesman, Sean Collins, in an e-mailed statement.

The Allied Pilots Association, Association of Professional Flight Attendants and Transport Workers Union represent more than 48,800 workers at Fort Worth, Texas-based American, or about 73 percent of the total. Some employees at AMR’s regional carrier, American Eagle, also are TWU members.

American is expected to seek to change its existing labor agreements to lower costs and boost productivity, and may try to terminate its pensions and turn them over to the Pension Benefit Guaranty Corp. The U.S. agency, created to protect private retirement benefits, earlier estimated employees may lose about $1 billion in pension benefits if the plans are ended.

Union Job

“We’re going to do our job as a union, to fight like hell so that frontline workers don’t pay an unfair price for management’s failings,” Jim Little, international president of the TWU, said in a statement of the union’s role on the committee. “This will be a long and difficult process.”

AMR filed for bankruptcy two weeks after Allied Pilots Association leaders declined to send American’s last contract offer to its members for a vote, saying it “clearly” would be rejected. The airline, which was headed for a fourth straight yearly loss, has said it has an $800 million annual labor cost disadvantage to its peers.

The creditors committee also would play a critical role in any potential takeover of American. US Airways Group Inc. (LCC) withdrew its $9.75 billion hostile takeover bid for bankrupt Delta Air Lines Inc. (DAL) in January 2007 after its creditors committee refused to support the move. Delta management convinced the panel the carrier would be stronger if it emerged from bankruptcy independent.

Delta Pilots

“Clearly the Delta pilots found significant value in being on that creditors committee,” Howie Schack, a pilots union spokesman, said in an interview. “We have to be a part of that committee to steer the company toward building the airline as opposed to alternatives that aren’t of interest to our pilots.”

US Airways has been named by analysts as a potential partner for American, which fell from being the world’s biggest airline when Delta bought Northwest Airlines Corp. and United Airlines (UAL) parent UAL Corp. merged with Continental Airlines.

The other members of the creditors committee are Wilmington Trust Co., Manufacturers and Traders Trust Co., Bank of New York Mellon (BK) Corp., the PBGC and Hewlett-Packard Enterprise Services LLC. The law firm of Skadden, Arps, Slate, Meagher & Flom LLP was named to represent it during bankruptcy.

Moelis & Co., the investment bank founded by Kenneth Moelis, was named as the financial adviser for the creditors committee, said a person familiar with the matter who wasn’t authorized to discuss it publicly and didn’t want to be identified.

Andrea Hurst, a spokeswoman for New York-based Moelis, declined to comment.

Airing Conflicts

Disagreements aren’t unusual on such panels because they have to represent a broad range of interests, said David Carlson, a law professor at the Benjamin N. Cardozo School of Law at Yeshiva University whose specialties include bankruptcy.

“Creditors committees aren’t designed to avoid conflicts, but to bring them forth so they can be aired out,” Carlson said in an interview. “This is what Chapter 11 committees are about.”

The case is In re AMR Corp. (AMR), 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; John Pickering at jpickering@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.