AMR Bid for Concessions Falters as Pilots Reject Contract

American Airlines pilots’ rejection of a final cost-cutting contract opened the way to let parent AMR Corp. (AAMRQ) seek deeper concessions in bankruptcy court as it fends off potential suitor US Airways Group Inc. (LCC)

While mechanics and aircraft stock clerks represented by the Transport Workers Union ratified new accords yesterday, the Allied Pilots Association turned down a proposed agreement that had been sweetened with promises of an equity stake in a restructured AMR and the elimination of 400 planned furloughs.

Givebacks by pilots, the TWU and flight attendants, who are still casting ballots, are a pillar of AMR’s strategy to exit Chapter 11 as a stand-alone carrier. The pilot dispute now goes back to U.S. Bankruptcy Judge Sean Lane in New York, who has said he will rule by Aug. 15 on AMR’s bid to void its current labor deals and impose new terms.

“It potentially lengthens the bankruptcy process,” Fred Lowrance, an Avondale Partners LLC analyst in Nashville, Tennessee, said in an interview. “It’s a strong statement from the pilots union that they are 100 percent behind a merger.”

US Airways rose 4.6 percent yesterday, the most since June 13, to $10.40 in New York. Fort Worth, Texas-based AMR’s 6.25 percent convertible notes due October 2014 fell 1.5 cents to 63 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Demands Reduced

AMR had pared demands in its latest proposals to unions because reaching consensual accords would reap savings faster than making its case in court. It coupled the amended offers with a pledge to revert to earlier, broader cutbacks if labor groups didn’t accept. The pilot contract still failed, with 61 percent of the vote against the accord.

“We are disappointed with the outcome,” Bruce Hicks, an American spokesman, said yesterday. “We must now await a ruling by Judge Lane that will allow the company to implement the changes necessary to move forward in our restructuring.”

US Airways declined to comment on the pilot vote, said Todd Lehmacher, a spokesman for the Tempe, Arizona-based airline. Chief Executive Officer Doug Parker has been working to win support from AMR bondholders and labor groups, and has reached contract agreements with pilots, attendants and the TWU.

Even if Lane agrees to let AMR CEO Tom Horton dictate new terms on the more than 8,000 pilots at American, the airline would still need to strike a long-term deal with APA. Pilots are considered a bellwether work group in airline labor negotiations because they are the highest-paid union employees.

‘Hard Time’

Many APA members “had a hard time” voting for the contract because they perceived it as a show of support for Horton, even though an accord would have produced “the shortest route to a US Airways merger,” Tom Hoban, a union spokesman, said in an interview.

Mechanics accepted their contract with 50.3 percent of the vote, and aircraft stock clerks voted 79 percent for their accord, according to the TWU. American has about 11,000 mechanics and 1,200 clerks who restock planes.

“Nobody is happy with a concessionary agreement, and our members are still waiting to see a business plan that instills confidence,” TWU International President Jim Little said in a statement. “But this result is a lot better than what our members would have faced with a court-imposed solution.”

Flight attendants will finish voting Aug. 19 on American’s last offer, while five other TWU groups including baggage handlers and other airport ground workers approved contracts on May 15.

Labor Discord

The pilot rejection builds on American’s history of union- management discord, which includes a failure to reach a contract agreement in more than five years of negotiations that preceded AMR’s Nov. 29 bankruptcy filing.

“It all comes down to just the absolute toxic nature of the relationship with management,” said Robert Mann, a former American executive who is now president of consultant R.W. Mann & Co. in Port Washington, New York. “It has a lot to say about the ultimate success of a stand-alone plan with that degree of discord with the front line.”

Under the proposal voted down by pilots, union members would have received a 13.5 percent equity stake in AMR after its restructuring and not faced any furloughs, instead of the 400 once planned by the third-largest U.S. airline.

“It’s a combination of things, and a lot of it has to do with the anger and frustration that’s really been pent up since the 2003 near-bankruptcy contract,” APA’s Hoban said. American won $1.6 billion in concessions from union employees that year to avoid a Chapter 11 filing only to end up in court in 2011.

‘Not Willing’

“You’ve got a group that’s simply not willing to give any more in that regard,” Hoban said.

The agreement ratified by the TWU’s mechanics reduced concessions made by that work group to $156 million from $210 million, while givebacks for aircraft clerks fell by $4.5 million to $13.6 million.

Mechanics will get a 3 percent pay increase when the six- year contract is signed. Clerks will receive a 3.5 percent boost.

AMR won a separate labor boost yesterday when the American Eagle regional carrier and its pilots reached an agreement in principle on a new contract.

Leaders of the Air Line Pilots Association unit at Eagle will vote on whether to send the accord out for ratification once it is put into final contract language, the union said in a message to members. That process will take about two weeks.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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