AMR Bankruptcy Judge Postpones Labor Ruling Until June 29

American Cuts Pilot-Concession Goal 15% in Bid for Contract
An American Airlines Inc. plane sits on the tarmac at Ronald Reagan National Airport in Washington, D.C. Photographer: Andrew Harrer/Bloomberg

AMR Corp.’s American Airlines reduced the value of concessions sought from its pilots union by 15 percent, to $315 million, to help speed its exit from bankruptcy as an independent carrier.

Those terms are part of talks continuing today as the two sides take advantage of additional time granted by a judge to reach an agreement. U.S. Bankruptcy Judge Sean Lane had been set to rule today on Fort Worth, Texas-based AMR’s request to void union contracts in a plan to cut labor costs by $1.25 billion.

Spending cuts are central to AMR’s bid to win creditor support for its plan to exit Chapter 11, and voluntary accords would lock in savings now that have eluded the carrier in more than five years of talks. Potential suitor US Airways Group Inc. has reached tentative contracts with American’s unions, contingent on a merger.

“The creditors committee wants to see a business plan laid out with contractual terms for labor so they can evaluate two plans side by side,” Hunter Keay, a Wolfe Trahan & Co. analyst, said in an interview.

“If American is unable to execute a deal with labor, they are unable to give the creditors that option,” he said. “That makes the creditors unhappy, and the last thing American wants is an unhappy creditors committee.”

Exit Goal

American Chief Executive Officer Tom Horton has set a goal of exiting bankruptcy near the end of 2012, and has said securing new labor accords is the greatest threat to that plan.

Agreements between American and its unions also could help US Airways because it would preserve the labor groups’ claims in bankruptcy and their status as creditors, he said. The Allied Pilots Association, Association of Professional Flight Attendants and the Transport Workers Union hold seats on AMR’s nine-member creditors committee, which has a say in major decisions made during the restructuring.

US Airways fell 2.2 percent to $13.17 at the close of trading in New York, the biggest drop among the 10 carriers in the Bloomberg U.S. Airlines Index. The shares have more than doubled since Jan. 24, the day before the Tempe, Arizona-based airline said that it was studying a merger bid.

AMR’s 6.25 percent convertible notes due in October 2014 were unchanged at 60.5 cents on the dollar at 11:49 a.m. in New York, according to Trace, the bond-price reporting service of the Financial Industry Regulatory Authority.

Savings Target

American has been emphasizing consensual agreements throughout negotiations, Denise Lynn, senior vice president for labor, said in a letter to employees.

“It was that focus, and the additional benefit of our recent revenue improvements, that allowed us to put forward a proposal to APA that adjusts the savings target while still achieving the goals of our business plan,” Lynn said.

American will extend the same reduction in the value of concessions to five work groups represented by the Transport Workers Union that earlier reached agreements with the carrier as well as to nonunion customer service and reservations agents, Bruce Hicks, an airline spokesman, said today.

The TWU has said its accords included guarantees that members would receive any improvements gained by other labor groups in talks. The union didn’t immediately comment today on the status of talks for its mechanics and aircraft stock clerks.

Flight attendants union leaders are “carefully assessing the situation,” Leslie Mayo, a spokeswoman, said in an interview. The union has said that its members wouldn’t approve any agreement that included the full $230 million in cost reductions sought by American.

Union Vote

American and the pilots union plan to use the extra week to clarify proposals the APA said were too vague when its board decided June 20 not to send the airline’s latest proposal to its members for a vote. The board will decide by the end of business June 27 whether to let pilots vote on the carrier’s final offer, the union said.

Hicks couldn’t immediately quantify the change in total annual labor savings from American’s original target of $1.25 billion, which included $990 million from unions.

“The sooner we get agreements, the sooner we can begin to achieve the cost savings we must have,” he said. “Labor agreements allow us to keep moving the restructuring forward.”

Among other items, American’s last offer to pilots would provide a 14.8 percent compounded pay increase over the six-year plan and a 13.5 percent stake in the reorganized airline, while avoiding furloughs, according to an e-mail to pilots from John Hale, the carrier’s vice president of flight.

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