Bloomberg News

AMR Creditor Lawyer Said to Warn Pilots on Contract Vote

December 07, 2012

The lawyer for AMR Corp. (AAMRQ:US)’s unsecured creditors committee warned American Airlines pilots of the risks of rejecting a tentative contract that would allow the carrier’s post-bankruptcy plan to be weighed against a US Airways Group Inc. (LCC:US) merger, three people familiar with the matter said.

Jack Butler of Skadden, Arps, Slate, Meagher & Flom LLP told members of the Allied Pilots Association in meetings in three cities that pilots would lose a 13.5 percent stake in a restructured AMR if the deal isn’t approved, said the people, who asked not to be identified because the talks were private.

A successful vote would help the creditors panel evaluate AMR’s preferred strategy to leave bankruptcy on its own and US Airways’ takeover push. Fort Worth, Texas-based AMR needs a contract with the pilots, the only union without a new accord, to determine its future costs.

Voting by American’s 8,000 active pilots ends at noon local time today. Since reaching the tentative agreement on Nov. 9, the union has urged ratification in meetings in eight cities that began Dec. 1, according to the APA’s website.

The sessions to which Butler was invited included a forum Dec. 5 near the airline’s headquarters, the APA said in a message to members on its website.

“I hope every member in good standing takes the opportunity to cast a vote in this critically important contract ratification,” APA President Keith Wilson said yesterday in a message posted on the site. “The stakes are too high for anyone to remain on the sidelines.”

Bruce Hicks, a spokesman for American, said the company had no comment about the union meetings.

Creditors Committee

The APA has a seat on AMR’s nine-member unsecured creditors committee, as do two other unions -- one representing flight attendants, and the other mechanics and ground workers. Union members’ stake is part of the tentative contract now out for a vote.

Negotiations have ground on since 2006 without a final agreement, even as AMR warned of bankruptcy before filing for court protection on Nov. 29, 2011. A tentative accord calling for union concessions failed in August when 61 percent of pilots voted it down, prompting American to throw out their existing contract and begin imposing terms to lower costs.

Labor Agreements

The APA joined other American unions in April in accepting tentative contract terms with Tempe, Arizona-based US Airways. A combination of American, the third-largest U.S. airline, with No. 5 US Airways would pass United Continental Holdings Inc. (UAL:US) as the world’s biggest airline by passenger traffic.

American has said it prefers to emerge from bankruptcy on its own and then assess potential mergers.

The airline blamed industry-leading labor costs for helping push it into court protection. American sought to cut expenses 17 percent for each work group, including $315 million a year from pilots. It is doing away with 10,000 positions, with all but 1,800 eliminated through steps such as buyouts and attrition.

Pilots’ pending six-year agreement provides a 4 percent pay raise when it’s signed, followed by annual increases of 2 percent except in the third year, when pay is to be adjusted to the industry average.

It establishes “pay bands” linked to the size of aircraft flown, requires pilots to fly more hours each month, freezes their pension and reduces company contributions to health care. The contract allows larger aircraft to be flown by regional partners and permits marketing agreements known as code-sharing on domestic routes.

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: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; David McLaughlin in New York at dmclaughlin9@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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