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Wednesday, September 5, 2012

Judge Says AMR Can Reject Pacts With Pilots

Per the Wall Street Journal

September 4, 2012, 11:26 p.m. ET

NEW YORK—A judge said Tuesday that AMR Corp. can reject labor agreements with its pilots union, 20 days after he forced the American Airlines’ parent to make changes to the 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 the company pursues its standalone restructuring plan alongside a possible merger with US Airways Group Inc.
Pilot leaders said the move ushered in a period of uncertainty and said they wouldn’t help to implement “unilateral changes” to work rules and procedures, though they maintained they still had leverage over the third-largest U.S. carrier by traffic.
“Management won’t be able to restructure successfully without first reaching a consensual agreement with us,” said new pilots’ union President Keith Wilson in a message to members.
Mr. Wilson said union leaders will convene on Sept. 10 to determine their next steps.
AMR’s pilots are isolated after flight attendants and most of the ground staff voted in favor of new contracts that are part of the airline’s efforts to cut costs and boost revenue through more flexible work practices. All three major unions back a deal with US Airways.

Lost Altitude

See a timeline of key dates in AMR Corp.’s history.
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 he agreements. 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.
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.
Mike Fuentes/Bloomberg News
American Airlines pilot and flight attendant unions march at the AMR Corp. headquarters in Fort Worth, Texas, in May.
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—down from 20% 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, an AMR lawyer, said that while AMR 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 reexamine 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 standalone 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.
After Ms. Goulet’s testimony Tuesday, Judge Lane thanked her for coming to court: She wasn’t expecting to testify.
Said Ms. Goulet, who wore a casual green jacket, “I would have dressed a little differently.”
Write to Joseph Checkler at joseph.checkler@dowjones.com

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