Bloomberg News

American Pursued ‘Limp-Along’ Strategy Before Bankruptcy

April 26, 2012

AMR Corp. (AAMRQ:US)’s American Airlines pursued a “limp-along” strategy before filing for bankruptcy as it sought to cut costs and turn around the carrier, an executive for the company said in court.

American’s earlier negotiations with unions were driven by what the company thought would be accepted by labor and not what “would get us all the way to being a successful enterprise,” Jeffrey Brundage, senior vice president of human resources, testified in court today.

“My goal pre-bankruptcy was to get whatever might be possible to move forward,” he said. “Post-bankruptcy it was what do we absolutely need to restructure?”

American, which filed for bankruptcy in November, is seeking $1.25 billion in annual labor savings as part of its restructuring. It’s in court this week seeking permission to void labor contracts with unions for pilots, flight attendants and the Transport Workers Union, which includes mechanics and baggage handlers.

In union negotiations that began in 2006, American sought $600 million to $800 million in annual labor savings, Bruce Hicks, a spokesman for Fort Wroth, Texas-based AMR, said after today’s hearing. If the company had reached agreements then on new contracts, American would have ended up in bankruptcy in “short order,” he said.

“The saving would not have been nearly enough,” Hicks said.

Of the $1.25 billion in labor cost reductions American is seeking in its bankruptcy reorganization, $990 million would come from workers represented by the three unions, according to court papers.

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: David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net


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