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American Renews Court Request to Void Pilots’ Contract

AMR Corp. (AAMRQ)’s American Airlines again asked a court to cancel its contract with pilots and impose cost cuts, revising a proposal that a bankruptcy judge rejected earlier this week.

American filed a motion in U.S. Bankruptcy Court in Manhattan yesterday seeking permission to void the labor agreement after Judge Sean Lane on Aug. 15 said two elements of American’s plan to reduce expenses weren’t justified.

American’s request extends the Fort Worth, Texas-based airline’s effort to reduce labor costs as part of its restructuring. American blamed its November bankruptcy on labor costs that it said exceeded competitors’ by as much as $800 million a year.

The airline said in a statement it filed the motion “to keep moving forward to achieve the savings and flexibility needed for our successful restructuring.”

American’s flight attendants are scheduled to finish voting on a new contract with the airline on Aug. 19. If they reject the agreement, Lane will rule on whether American can impose new terms on the union. The Transport Workers Union, which represents mechanics, baggage handlers and other ground workers at American, has ratified new contracts.

Pilots’ Union

Lane’s ruling against American’s plan to impose cost- cutting on pilots came after the Allied Pilots Association on Aug. 8 turned down a sweetened offer that would have eliminated furloughs and given them a 13.5 percent stake in AMR after it emerged from bankruptcy.

Even if Lane allows AMR to void the contract, the company would have to negotiate a long-term deal. The judge scheduled a hearing on American’s request for Sept. 4.

“If you want to have the irrevocable anger of 8,000 pilots, this is the path to go down,” Tom Hoban, a union spokesman, said in an interview. “It doesn’t appear to be a wise strategy.”

The union is hoping American will consider returning to negotiations before Lane rules, he said.

The committee representing unsecured creditors said it “reluctantly” supports equity stakes for the three unions when American emerges from bankruptcy as long as consensual labor agreements “are reached promptly.”

“The committee will not support equity stakes or claims for any labor organization that does not ratify a collective bargaining agreement nor will the committee support any further economic value to labor organizations beyond the current proposals,” the committee said in an Aug. 16 statement.

Potential Mergers

The wrangling over labor contracts comes as American Chief Executive Officer Tom Horton weighs potential mergers for the company’s reorganization. American’s three unions have reached tentative labor deals with US Airways Group Inc. (LCC), which backs a tie-up with American.

In his decision, the judge agreed that “significant changes” must be made to the pilots’ contract for American to reorganize. Lane said American’s plan to lift restrictions on code-sharing and pilot furloughs wasn’t justified. He invited the airline to make changes and file a new request to reject the contract.

Furloughed workers are those who have been laid off and are offered their jobs back before new employees are hired. Code- sharing is the industry practice of agreements between airlines to put each other’s codes on flights and book passengers on those planes.

Workforce Reductions

American originally said it would cut 13,000 jobs, or about 18 percent of its workforce, under a plan to reduce annual operating expense by $2 billion. Labor made up $1.25 billion of the total, including $990 million sought from union workers.

The airline later modified its demands, agreeing to freeze rather than terminate employee pensions and lowering total cost reductions sought to 17 percent from 20 percent for each work group.

American has dropped any provision on possible pilot furloughs from its revised proposal. The airline will retain existing limits in its current contract, which provides furlough protection to 77 percent of pilots, said Bruce Hicks, an American spokesman.

American said in its court filing that it “materially circumscribed” the circumstances under which it would be permitted to engage in code-sharing.

“American has taken heed of the court’s decision as to deficiencies of its previously open-ended domestic code-sharing proposal and has made a revised proposal that imposes real limits,” the company said.

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

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

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

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