RockBottom

Judge Says AMR Can Reject Pacts With Pilots
By JOSEPH CHECKLER, WSJ

NEW YORK—A federal judge said Tuesday that AMR Corp. can reject labor agreements in place with its pilots union, 20 days after he forced the American Airlines parent to make changes to its latest contract proposal.

The decision by Judge Sean H. Lane of U.S. Bankruptcy Court in Manhattan places new urgency on AMR and the Allied Pilots Association to reach a settlement on new contracts as AMR's merger talks escalate with US Airways Group Inc. The pilots have said they support a merger with US Airways.

Last month, the judge forced AMR to change provisions in its labor proposal that he thought gave it too much discretion to enforce employee furloughs and forge code-sharing agreements with other airlines. AMR made those changes in a filing late last month.

"Having addressed the two problematic items," Judge Lane said, he would allow AMR to reject the agreements already in place. The judge later said he sympathizes with the pilots and that he hopes a settlement will come soon.

After the hearing, American Airlines spokesman Bruce Hicks said the company has worked "very hard" to reach a deal with the pilots and that it would communicate details of its new plan in the coming days.

"Our goal remains to reach a consensual agreement with our pilots," Mr. Hicks added. A spokesman for the APA didn't immediately respond to a request for comment.

In court on Tuesday, a lawyer for the pilots union said AMR's financial condition has improved since a three-week trial over labor contracts earlier this year, and that a new trial should be held.

The disagreement centered on what the meaning of the phrase "business plan" is—specifically whether AMR's latest offer of a 17% cut in labor costs related to the pilots, compared with a 20% cut in its prior offer, constituted evidence of a new business plan and necessitated another trial. The pilots said the change, which came after AMR offered similar concessions in settlements with its mechanics and flight attendants, was part of a new plan. But Judge Lane said the 17% offer came in confidential contract negotiations, not in bankruptcy court, and thus wasn't something he could consider.

Paul Hastings LLP's Neal D. Mollen, a lawyer for AMR, said that while the airline is in the process of changing its business plan, nothing has been finalized. On the witness stand, AMR Chief Restructuring Officer Beverly K. Goulet concurred, saying the original business plan has been "updated" to reflect settlements with other unions but that no new plan has been presented.

A lawyer for the union, James & Hoffman PC's Kathy Krieger, asked Ms. Goulet whether the proposal for a 17% labor-cost savings related to pilots was part of a larger change to the company's plan. "We did not go back and re-examine the other components of the business plan," Ms. Goulet said.

Judge Lane last month issued a 106-page ruling that said AMR couldn't reject its current labor proposals with the pilots because its latest labor offer forced pilots to take furloughs—or unpaid days off—and because it was too aggressive in implementing code-sharing agreements that would allow AMR to share routes with other airlines at a cost savings to the airline. AMR removed the furloughs and adjusted the code-sharing provisions and resubmitted its proposal to Judge Lane, who had supported most of AMR's other original arguments.

Such labor trials have become common in bankruptcy court: Companies must get a judge's approval to reject labor contracts so it can impose its own working conditions on unions. Often, the company ends up compromising with the workers, as AMR did with its other unions, including those representing its mechanics and flight attendants.

AMR has explored the possibility of exiting its 10-month-old bankruptcy as a stand-alone company, but recently has warmed up to a merger with another airline or airlines. Its most likely merger partner is longtime suitor US Airways, which AMR announced last week has signed a nondisclosure agreement so the two sides can share confidential information.

eaglefly

Exclusivity for AMR ends at the end of the year. I'll bet the UCC won't support extention beyond that and barring an acceptable deal for AA pilots, Parker could be in drivers seat by January with 3 CBA's in his pocket. To merge the 2 carriers post BK, he'll need another deal. As conditions likely deteriorate for AA pilots, so will any interest in greasing the skids for the current players.

lakehouse

Or just keep running the separate like at United/CAL.....take whichever of the 3 takes the lowest pay rates and give them the new airplanes. That is one thing I do not get, why the AA pilots think Parker is some savior. He is going to screw you guys worst, and whip saw three mainline groups against each other. He doesnt want you, he just wants the international part of AA. New airplanes can go wherever he wants.

ForeverFO

You have to understand the depths of our raw hatred for AMR and the officers of the last decade to understand how we can view anybody, Parker included, as somewhat of a savior.

If there is another way to get rid of our management team, I am all ears. Most of the guys I fly with would prefer to go it alone as #3 or #4 carrier in the USA, but the way things are these days, it doesn't seem likely.

lakehouse

Your trading an apple for an apple, maybe even a more rotten one, in my very young dumb opinion. It just opens you guys up for bigger problems is all I am trying to point out. Like how legacy United is getting hosed, and stalled on a new JCBA. It seems that may become the new trend, merge legacy airlines, then leave their bankruptcy contracts in place as long as possible, and run the airlines separate. Put the new airplanes at whoever is playing nicer and is cheaper. I just dont see how Parker works out good for AA. It will result is a massive amount of shrinking, as USAIR brings a dismal amount of international flying to the table. What you will have is American Domestic and American International real fast, with American Domestic having an East and West coast side. I foresee massive cutbacks, and hub closures.

jacjetlag

The revenue figures will fall off because the airline performance will suffer. The UCC will begin to feel the pain and pressure Horton. I promise you, he will regret this day.

eaglefly

Anything is possible, but that sounds like a recipe for disaster. But the U CLA has a no furlough clause and barring force majure (which your scenario is NOT), I don't see how he can make your hypothetical scenario realistically work. If AA and U merge prior to BK, the U CLA is binding. The U pilots have no furlough protection as far as I know and the CLA has arguably the most favorable costs of the 3 pilot groups.

But yes, he could operate 3 carriers for years as he's operated 2 for half a decade.

lakehouse

Well the upcoming retirements can offset any need to furlough at U. However AA is prime picking off the bat, its why I dont get why you guys want it so bad. Park all the MD80s right off the bat, and start picking and choosing which parts of the upcoming airplane orders he REALLY wants. The scary part starts coming when retirements happen, and new airplane orders happen, one place could get all the planes while the other sit in a pile of their own stagnation for a decade. That is starting to become the scary thought at United right now (legacy UAL), no airplanes on order, and a JCBA held so far over their head they feel like a small child jumping up trying to get a toy. Just trying to throw it out there that the USAIR deal might be a terrible alternative. Well, unless you block AMR from getting any bonuses from this Ch11 process and force a USAIR takeover, then at least you get the joy of blocking millions to Horton and CO, but at the expense of being at the mercy of Parker, and giving him whatever bonuses he gets.

I guess the big problem is corporate America is the new Mafia, ripping people off. Your picking Tony Soprano to save you from Johnny Sacks.

HSLD

Except for the 100 737-Max, 50 737-900ER recently announced. Oh yeah, the UAL pre-merger 25 787 and 25 A350 order (with options for 25 more of each). Plus all the pre-merger CAL jets on order.
Aside from that, UAL has no aircraft on order.

eaglefly

AFAIK, only the East side is slated for a large number of retirements at U and that will still take years. I don't see mass parking of the -80's anytime soon as that would result in a massive and permanent loss of revenue. It seems you've got AA with no furloughs and theoretically little attrition parking all the -80's and all the new orders going elsewhere..........well, I suppose Parker could staff the AA side at 500% on reserves. The failed TA provided for the outsourcing of the junior half of the pilots jobs anyway, so even in your draconian scenario, Parker wouldn't be any worse then that term sheet and as stated, the CLA throws a lot of wrenches in that plan.

Rick, this whole dance isn't going to go on for more then a few months at most (personally, I can't see it getting too far into the holiday travel season). The UCC cannot.........no, WILL not (by their own admission) sign on to AA exiting BK without a pilots CBA and that will either happen one of 2 ways. Either A. AMR and the APA negotiate something palatable to the pilot GROUP and that will have to be BETTER then U's CLA for the price of tolerating this management any further -or- B. a merger will be consummated within C11 and that triggers the U CLA, which may occur as a result of AMR's faliure to come to a consenual deal and the UCC acts to terminate exclusivity or perhaps before any deal as a result of AMR's acceptance of US Airways's submitting a POR to the court.

The judge has now given AMR a bigger bat to hit us with, but the faster and harder they swing it at our heads, the more determined we'll be to take the whacks until the UCC says time has run out and takes the bat away. That's my take on it anyway. AMR has stated they intend to impliment most of the 1113 provisions and has threatened to eliminate any pension including 401(k) contributions as a punitive measure, but we shall see. At any rate, in the very near term look for the following;

- Pay rate adjustments per the 1113.
- No sequence protection or minimum guarantee.
- 1113 adjustments to RSV system and reduction of pay credits.
- Loss of all E,F,G time and Int'l override.
- Loss of pay protection for fatigue.
- Changes to sick leave policy, including reduced compensation and requirement for 3rd party approval of illness.
- Airport fleabag hotels with no APA input.
- LTD adjustments for the negative.
- Implimenting scope changes.
- Closing of domiciles with STL, BOS and DCA the top contenders for elimination/reduction.
- Possible furloughs.
- Freezing of the A-fund and termination of the B-fund (again possibly replaced with NOTHING, if the threat is acted upon).

PBS will take 6 to as long as 18 months to impliment, I've heard. Medical plans will be changed for 2013 and those are normally selected during October, so that would take effect for 2013 (it's my understanding medical benefits cannot be changed mid-term), so those two seem more longer term changes.