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Pilots Approve Six-Year Contract With American Airlines
Posted On: Dec 08, 2012

Terry Maxon--

American Airlines pilots approved a new contract Friday with the Fort Worth-based carrier, boosting American’s efforts to settle its affairs and emerge from bankruptcy court in the first part of 2013.

Several analysts also projected that settling the pilot contract may boost chances that American and its pursuer, US Airways Group Inc., will merge.

And with 74 percent of American’s pilots voting in favor of the deal, the approval should settle the nerves of holiday travelers worried that another spate of delays and cancellations might sabotage American’s December operations and their own trips.

Keith Wilson, president of the Allied Pilots Association, on Friday dismissed any likelihood of a repeat of American’s miserable operating performance in September, which occurred after pilots rejected an earlier proposed contract and management began imposing new terms of employment.

“I’m not concerned at all,” Wilson said.

Once American gets approval from U.S. Bankruptcy Judge Sean Lane, the carrier will have new six-year labor deals approved by all nine of its unionized bargaining units. It filed papers in bankruptcy court setting a Dec. 19 court hearing to confirm the pilot deal.

After the union announced the vote, Wilson told reporters the contract “recognizes the value of the profession.”

“It is going to take a few years to get that full value to the membership, but it does result in an industry-standard contract that recognizes the value to the membership in a very short period of time, in our opinion,” he said.

Denise Lynn, American’s senior vice president of people, called the pilot vote “an important step forward in our restructuring.”

“This agreement addresses the priorities identified by the APA during collaborative talks,” Lynn said. “Today’s ratification gives us the certainty we need for American to successfully restructure, providing opportunity and growth for all of our people and stakeholders,” she said.

Tom Horton, chairman and chief executive of American and parent AMR Corp., sent a letter to employees to mark the progress made by the companies, just over a year since the company and its subsidiaries filed for bankruptcy protection Nov. 29, 2011.

“It has not been easy, but much has been accomplished,” Horton wrote. He called the pilots’ vote a “milestone” in the reorganization.

Talks in 2006

American and its pilots began negotiations in summer 2006 to replace a concessionary contract signed in 2003, when the carrier warned that its financial problems and dwindling cash were about to force a trip to bankruptcy court — a trip it wound up making in 2011.

On Feb. 1, 2012, the carrier outlined $370 million in cost-cutting that it said it needed from its pilot contract. Then, in late March, American filed a motion in bankruptcy court seeking to throw out all its contracts with the pilots union as well as those of the Association of Professional Flight Attendants and seven bargaining units represented by the Transport Workers Union.

While the other groups eventually approved new deals, APA members rejected American’s “last, best and final offer” on Aug. 8.

On Sept. 4, Lane threw out the pilots’ contract, prompting American to impose new terms on Sept. 12, followed by the spike in flights delayed or canceled by mechanical problems. On many dates from Sept. 13 through early October, American saw 40 percent or more of its flights arrive at least 15 minutes late.

The new contract approved Friday imposes higher costs for benefits, requires greater productivity from pilots and allows American to increase outsourcing of flying to regional carriers or other major carriers through marketing deals.

But it also provides small annual pay increases and would put American’s pay rate for pilots on the same level as other major airlines’. While the union has long insisted on “industry-leading” pay rates in the contract, its negotiators eventually settled for “industry-standard” rates when the contract is adjusted in several years.

And pilots will receive 13.5 percent of AMR’s new equity shares when the airline emerges from bankruptcy, expected next spring, a stake that could be worth $1 billion or more.

American’s three unions in April endorsed a merger with US Airways, including the understanding that US Airways’ top executives would run the combined airlines.

Horton repeatedly has advocated that AMR and American emerge from bankruptcy before considering a merger. Nevertheless, on Aug. 31, AMR and US Airways signed a nondisclosure agreement to exchange information about a possible marriage.

The nondisclosure period originally expired Oct. 31 but was extended to Nov. 30 and again into January.

No word on merger

In his letter Friday, Horton acknowledged the merger discussions but gave no indication how American was leaning.

“As we bring our restructuring to a close, we are also completing our review of strategic alternatives,” he said. “While we are confident the new American will be very strong, we are evaluating whether such a combination could create value for our owners and positive outcome for our people and our customers. We expect to have a conclusion on this soon.”

APA spokesman Dennis Tajer said the pilots union still supports a merger.

“This ratified agreement should not in any way be viewed as support for the American stand-alone plan or for this current management team,” Tajer said. “We continue to support an American Airlines-US Airways merger as the best way to strengthen our airline and enhance our pilots’ long-term career prospects.”

JP Morgan Securities analyst Jamie Baker said the “ratification helps ease the way towards a potential merger.”

“Simply put, AMR needed a collective bargaining agreement to cement the economics of its stand-alone business plan. AMR creditors need a stand-alone business plan in order to consider the merits of a potential merger,” he wrote in a note to investors.

“A failure to ratify would have essentially stopped the clock, in our view, further dragging out an already complex process,” Baker wrote.

Maxim Group analyst Ray Neidl said that with the pilots’ vote complete, “American Airlines has mostly completed its reorganization. This was one of the last big hurdles to clear before the carrier and its creditors could focus on the big strategic question of what the new carrier should be and if American should pursue a merger with US Airways or remain independent.”

The new contract “gives the unsecured creditors the opportunity to value the future prospects of the company both as a stand-alone entity or in a merger with US Airways. We expect to see rapid movement,” Neidl wrote in his note to investors.

In her note to investors, Gimme Credit analyst Vicki Bryan said that “it is becoming increasingly apparent that AMR’s current leadership is losing control of its fate now that its workers and its creditors have become convinced that whatever happens, somebody else needs to run this company. A merger with US Airways seems inevitable.”

What’s next

American Airlines and parent AMR have a thousand and one items to wrap up before they can prepare to emerge from bankruptcy. Here are some of the hurdles:

American needs to get U.S. Bankruptcy Judge Sean Lane to approve the just-ratified pilots’ contract. That should be just a formality on Dec. 19.

Lane also will be asked to rule Dec. 19 on a request from AMR and the unsecured creditors committee to extend the period they have in which to file a plan of reorganization from Jan. 28 to March 11.

AMR still must spell out in court what cutbacks it wants to make in retirees’ benefits. Pensions are safe; health insurance premiums probably aren’t.

American must decide whether to keep or give up a number of leased or mortgaged aircraft it is flying.

The airline’s major creditors must decide if they would get more of their money back if American and US Airways merged.


     
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