Bloomberg News

AMR Can Reject Labor Contract With Pilots, Judge Says

September 05, 2012

AMR Corp.’s American Airlines won court approval to throw out its labor agreement with pilots, capping the airline’s campaign to force cost cuts on the lone union it couldn’t reach a deal with on concessions.

U.S. Bankruptcy Judge Sean Lane in Manhattan yesterday granted American’s request to reject the pilots’ contract, saying proposed changes to the agreement are necessary for the airline’s restructuring.

“I have a lot of sympathy for the employees and the pilots,” Lane said. “It’s a set of circumstances that nobody is happy about.”

The decision is a victory for AMR, which blamed its November bankruptcy filing on labor costs that it said exceeded competitors’ by as much as $800 million a year. The Fort Worth, Texas-based airline has reached cost-cutting agreements with unions for flight attendants, mechanics and baggage handlers. The pilots voted down a contract proposal in August.

“There is no sense of accomplishment in this outcome,” Bruce Hicks, a spokesman for American, said in a statement. “We worked very hard to reach a consensual deal with our pilots, just as we did with each represented employee group. However, the pilots rejected the tentative agreement on Aug. 8, so it is time to move forward.”

American’s goal is to reach a consensual agreement with the pilots, Hicks said.

‘Greatly Exceeds’

The Allied Pilots Association argued that American’s demand for $370 million in cost savings from the pilots “greatly exceeds” the amount required to reorganize. The airline has said it only needs $315 million, the union said.

Imposing new contract terms alone won’t be enough for AMR to successfully restructure in bankruptcy, Tom Hoban, a spokesman for the pilots’ union, said yesterday. The carrier still needs a long-term labor agreement, a view expressed earlier in the hearing by an attorney for creditors, he said.

Lane’s ruling is “really unfortunate,” Hoban said in a telephone interview. “But it’s representative of the toxic employee-relations culture we’ve seen here for many, many years.”

Pilots expect to meet with American in the next several days to learn details about how the new terms will be put in place, Hoban said.

Contract ‘Burden’

In August, after the pilots union voted down the proposed contract, Lane issued a decision denying American’s request to void the labor agreement and impose cuts.

Although Lane agreed at the time that rejection was necessary for American’s reorganization and that the contract was a “burden,” he said that American didn’t establish that it needed plans for lifting restrictions on furloughing pilots and code-sharing with airlines.

Furloughed workers are those who have been laid off and are offered their jobs back before new employees are hired. Code- sharing is the industry practice of agreements between airlines to put each other’s codes on flights and book passengers on those planes.

The revised proposal withdraws the prior plan to change pilot-furlough protections, leaving current contract terms in place, and proposes “substantially less” code-sharing, according to Hicks.

The case is In re AMR Corp. (AAMRQ:US), 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: Stephen Farr at sfarr@bloomberg.net


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