Bloomberg News

AMR’s American Seeks Court Approval to Void Union Contracts

March 27, 2012

AMR Corp. (AMR:US)’s American Airlines, the third-largest U.S. airline, asked a bankruptcy judge to let it void labor contracts with union workers after failing to reach agreements on $1.25 billion in annual cost reductions.

American began negotiations shortly after outlining plans for 13,000 job cuts and other concessions on Feb. 1. The airline says it needs the savings to help stem monthly losses, along with other contract changes that it says will add $1 billion a year in revenue.

“With losses mounting and oil prices rising, there is growing urgency to move more quickly,” American Chief Executive Officer Tom Horton told employees in a letter today.

The request filed in U.S. Bankruptcy Court in Manhattan seeks to reject collective-bargaining agreements with the Allied Pilots Association, the Association of Professional Flight Attendants and the Transport Workers Union.

“I don’t see how they have a choice,” Anthony Sabino, an attorney and professor at St. John’s University in Queens, New York, said about the move. “They’ve been negotiating a long time, and the unions are sticking to their guns. This is the next step.”

Rejecting the contracts may put American at risk of takeover attempts as suitors offer workers less-drastic terms.

US Airways

US Airways Group Inc. (LCC:US) already has met with advisers for some members of AMR’s unsecured creditors’ committee, people familiar with the matter have said. The panel, which includes three unions, has a voice in major decisions made by the company in bankruptcy.

TPG Capital and Delta Air Lines Inc. also are assessing possible bids for AMR, people with knowledge of the matter have said.

Failure to reach consensual agreements on the airline’s concession plans echoes American’s inability to negotiate new contracts in talks that began as far back as 2006 with the unions. The unions represent nine work groups at the carrier.

A company in bankruptcy can seek to reject labor contracts to cut costs if it can’t reach a consensual deal with unions. Bargaining can continue even after today’s filing.

The unions said they would fight American’s plan to void the contracts. Laura Glading, president of the flight attendants’ union, accused American of “overreaching” and said the union will use “every available resource” to preserve wages and benefits, according to a statement.

‘Draconian Demands’

“The company can succeed only if it convinces the judge that the contract changes it seeks are necessary, fair and equitable,” she said. “In reality, its Draconian demands are none of those things.”

Tom Hoban, spokesman for the Allied Pilots Association, accused American of a “complete failure” to commit to the collective-bargaining process.

“It’s pretty clear the intent is to steamroll the pilots and the other groups too,” he said. “The agenda is to cram this down our throats.”

The Transport Workers Union told members that it’s ready to defend its contracts and challenge American’s rejection effort, according to a statement on its website.

“Our negotiators are still at the table in Dallas trying to work out an agreement with AMR,” said Jim Little, international president of the TWU.

The motion filed today doesn’t cover workers at American Eagle, AMR’s regional carrier.

Facing Risks

Both sides face risks if the request to reject the contracts leads to a prolonged battle in court, said Sabino, who predicted American and its unions will reach a deal.

“Both sides are pointing a loaded gun at each other,” he said. “They realize the risks and once they realize that they could bump each other off, they’re going to lower their weapons, and they’re going to make a deal.”

AMR, based in Fort Worth, Texas, filed for Chapter 11 protection in November after annual losses that began in 2008, making it the last of the U.S. industry’s full-service carriers to seek to restructure in bankruptcy.

Labor was the biggest chunk of $2 billion in proposed expense cuts in the Feb. 1 plan, which would eliminate the jobs of about 18 percent of American’s 73,800 employees.

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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