AMR Said to Ready Bankruptcy Court Bid to Dump Contracts
By David McLaughlin and Mary Schlangenstein – Mar 22, 2012 12:01 AM ET
AMR Corp.’s American Airlines (AMR) plans to start a bankruptcy-court process for rejecting union contracts by next week after failing to reach a deal to cut labor costs, two people familiar with the matter said.
AMR will probably ask for U.S. Bankruptcy Court approval within a week to void the contracts, barring last-minute agreements on union concessions, said the people, who declined to be identified because details are confidential. The motion, to be filed in Manhattan, will seek to cancel nine collective bargaining agreements, one person said.
The plan escalates AMR’s efforts to win lower labor costs in contract talks that began in 2006. AMR is now seeking $1.25 billion in annual labor savings, including 13,000 job cuts, as it reorganizes and is scheduled to present an update today on the negotiations to the judge overseeing the case in New York.
“A deadline will focus the union leadership teams,” said Jeff Straebler, an independent airline analyst in Stamford, Connecticut. “It will come down to their making a choice of getting the best deal in negotiations or rolling the dice with the judge.”
Bankruptcy law permits companies in court protection to seek permission to rework contracts to help them restructure. Bargaining can continue even after the filing of a motion to void labor accords at the third-largest U.S. airline.
‘Matter of Weeks’
“We must make major changes to our labor agreements,” Fort Worth, Texas-based American said in a statement reiterating the push for savings outlined in Chief Executive Officer Tom Horton’s Feb. 1 restructuring plan. “And we need those changes in a matter of weeks, not months.”
American’s stated aim has been to speed the expense cuts by winning agreements on work rules and other changes through union negotiations. That quest has proved difficult, with the labor- management discord spilling into the latest talks in a rerun of the tensions that preceded AMR’s Nov. 29 bankruptcy filing.
The Transport Workers Union, whose members include baggage handlers and mechanics, prefers to reach a consensual deal with American while standing ready to “defend our members” by going to court, President Jim Little said in an e-mailed statement regarding AMR’s plan to cancel contracts in court.
“The abrogation scenario is simply not going to fly,” Tom Hoban, a spokesman for the Allied Pilots Association, said in an interview. With the two sides far apart, AMR’s plan to void the agreements is “not entirely unexpected,” he said.
Largest Work Groups
The Association of Professional Flight Attendants didn’t immediately respond to requests seeking comment on AMR’s plan. The three unions are the biggest work groups at American, and the cancellation motion would cover contracts for pilots, flight attendants and seven work groups under the TWU.
AMR filed for Chapter 11 protection after annual losses that began in 2008, making it the last of the U.S. industry’s full-service carriers to seek to restructure in bankruptcy.
Labor was the biggest chunk of $2 billion in proposed expense cuts in the Feb. 1 plan, which would eliminate the jobs of about 18 percent of American’s 73,800 employees. Lower operating costs also will help AMR reap $1 billion more in annual revenue by 2017, CEO Horton has said.
A takeover of AMR looms as a possibility if the carrier can’t restructure successfully on its own. US Airways Group Inc. (LCC) has confirmed its interest in a possible bid, and TPG Capital and Delta Air Lines Inc. (DAL) also are evaluating bids, people familiar with the matter have said.
“We have disclosed that we have hired advisers to investigate the American situation,” US Airways CEO Doug Parker told reporters yesterday in Phoenix. “That work continues. I suspect it will for quite some time.”
While AMR retains exclusive negotiating rights with creditors and is scheduled to ask for an extension today until Sept. 28, from the end of this month, the company’s vulnerability to a takeover would increase with a successful bid to scrap labor contracts, said Straebler, the analyst.
“The unions would be open to a better deal from a third party like US Airways,” Straebler said in an interview.
AMR moved ahead yesterday with plans to reorganize its American Eagle regional unit, telling the carrier’s unions that annual spending must be trimmed by $75 million while paring as many as 600 jobs. The company didn’t detail plans for American Eagle when spelling out the savings sought at American on Feb. 1.
The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).