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AMR Says Judge’s Contracts Decision Delayed by Pilot Vote

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June 28 (Bloomberg) -- American Airlines unions won’t face an immediate court ruling on whether their contracts can be discarded after pilot leaders decided to let members vote on a proposal that pared concessions sought by the bankrupt carrier.

Allied Pilots Association leaders agreed yesterday to hold the balloting. That prompted U.S. Bankruptcy Judge Sean Lane in New York to delay a decision set for tomorrow on whether to permit wage and work-rule changes that would help carve $1.25 billion from annual labor spending, AMR Corp.’s American said.

American’s 8,000 pilots will vote on a contract offer for the first time since 2003, when they agreed to givebacks to avert a bankruptcy filing. Union approval of the $315 million in yearly cost cuts would move American closer to its goal of exiting Chapter 11 as an independent carrier.

“The tentative agreement represents a form of insurance that limits our downside risk while ensuring that we have a significant voice in the direction of American Airlines going forward,” union President David Bates said in a message to members.

The proposal should make APA the largest stakeholder in a restructured AMR and allow the union to influence decisions by the creditors committee for the Fort Worth, Texas-based company, he said.

“We are confident our pilots will carefully consider the tentative agreement,” Bruce Hicks, an American spokesman, said in a statement. “This is a critical step in American’s restructuring.”

US Airways

In the background is US Airways Group Inc., whose interest in a merger with AMR has led to provisional contract agreements with pilots, the Transport Workers Union and the Association of Professional Flight Attendants. AMR has resisted those overtures, though it has agreed to consider alternatives to its stand-alone plan. Tempe, Arizona-based US Airways hasn’t made a formal bid.

US Airways fell 0.7 percent to $13.40 at the close of trading in New York. The shares have more than doubled this year for the biggest advance in the 10-carrier Bloomberg U.S. Airlines Index, buoyed by speculation that a merger would be successful.

AMR’s 6.25 percent bonds due October 2014 rose 6.5 cents to 61 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Decision Postponed

Two Transport Workers Union groups representing mechanics and aircraft stock clerks, along with the pilots’ and flight attendants’ unions, have not accepted demands from AMR, which earlier asked Lane to cancel its existing agreements.

The judge approved new labor agreements today between American and five other TWU groups, including baggage handlers. Those workers and the carrier also agreed on a $37 million reduction in concessions to match the lower amount sought from pilots, the TWU said. Improvements included elimination of a pay cut for some workers, wage increases over the six-year contract and reduced employee medical costs.

Lane will postpone his decision “on all the unions’ contracts” pending the pilot vote, until Aug. 15, Hicks said. “We must use the additional time wisely to reach agreements” with the TWU and the flight attendants, he said.

The APA board agreed by a 9-7 vote to offer the proposal to rank-and-file balloting, according to a union e-mail.

AMR’s offer to pilots includes a 15 percent reduction in the value of concessions originally sought by the airline. It also contains furlough protections, a 14.8 percent compounded pay raise over a six-year term and a 13.5 percent stake in the reorganized carrier.

Immediate Effect

American would gain a more liberal policy to enter marketing agreements with other carriers, a new method of linking pay and aircraft flown, and the ability to use additional small jets.

A decision by Lane to void current contracts would let American change wages and work rules immediately and would put the unions’ bankruptcy claims at risk. The airline and labor groups still would have to negotiate for longer-term contracts that would remain in place once the carrier leaves court protection.

A pilots’ contract never has been abrogated by a U.S. bankruptcy court, said Tom Hoban, a pilots’ union spokesman.

Flight attendants and TWU-represented mechanics and aircraft stock clerks are set to resume talks with American next week.

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

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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