April 23 (Bloomberg) -- American Airlines told a judge it must void labor agreements to emerge successfully from bankruptcy as workers protested the planned cuts and backed a takeover by US Airways Group Inc.
American began a hearing today in U.S. Bankruptcy Court in Manhattan on rejecting union contracts, saying it can’t survive without securing its proposed cuts of $1.25 billion in annual labor costs.
“This hearing is the single most important step to date in this bankruptcy case,” John Gallagher, an attorney for the airline, told U.S. Bankruptcy Judge Sean Lane at the start of the hearing.
American’s parent, AMR Corp., is in court after US Airways moved closer to a merger with the carrier. US Airways said last week it had reached agreements on contract terms with American’s major unions contingent on a merger. AMR has said it intends to emerge from bankruptcy as a standalone company.
Edgar James, an attorney for the pilots’ union, said at the hearing that American should consider merging with another airline to make the company stronger and produce a better outcome for workers.
“We see no other choice if this company is going to succeed,” he told the judge.
Union workers from American held a rally before the hearing in Battery Park in lower Manhattan, then marched to the courthouse carrying signs and chanting, “Enough is enough.”
Arla Phenicie, a flight attendant at the protest, said a merger with US Airways would save union jobs and provide buyouts to employees. American’s management wants “to take all their costs from labor,” she said.
Peter Gerard, an aircraft maintenance crew chief for American, also backs a deal with US Airways. The Transport Workers Union and other unions at American agreed to wage and benefit cuts in 2003 to help the airline, and management “squandered” the savings, the 49-year-old said.
“They keep taking everything from us to offset their management,” he said. “There’s no more to give.”
American’s effort to reject contracts with the TWU and unions for pilots and flight attendants comes after the airline filed for bankruptcy in November, making it the last of the U.S. industry’s full-service carriers to seek to restructure in bankruptcy.
AMR is seeking $1.25 billion in annual labor savings under a plan announced earlier this year to reduce annual operating costs by $2 billion and increase revenue by $1 billion a year. The Fort Worth, Texas-based airline says it has the highest labor costs in the industry.
Every employee workgroup, including management, must reduce salary and benefit costs by 20 percent, it has said. American is also pursuing work-rule changes that it says will make it more efficient.
American Chief Executive Officer Tom Horton said in a letter to employees today that AMR is proceeding with its restructuring plans and the actions by US Airways aren’t binding on the company or unions. Any decision by American to do a merger “will be determined by the facts in a disciplined manner and process,” he said.
“We must be mindful of other parties who don’t have our best interests at heart and who are working their own agendas at our expense,” he wrote.
A merger with US Airways would create the largest airline in the world by passenger traffic, surpassing United Continental Holdings Inc. American is the third-biggest in the U.S., while US Airways is No. 5.
The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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