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American, pilots gain time for compromise

by Lou Whiteman | Published June 22, 2012 at 1:30 PM

A bankruptcy court judge late Thursday postponed a ruling on whether to terminate the contracts of unionized American Airlines Inc. workers, giving the parties an additional week to try to reach consensual agreements.

A ruling on the Section 1113 motion was expected Friday, but Judge Sean Lane of the U.S. Bankruptcy Court for the Southern District of New York put off the announcement until June 29 after sources said the union representing pilots requested a delay. American Air parent AMR Corp. filed for Chapter 11 protection in November in large part to bring down labor costs, and had hoped to extract upward of $1.25 billion in annual cost savings from employee groups.

American and the Allied Pilots Association have been at loggerheads for years leading up to the bankruptcy, but an industry source said Friday that in recent weeks progress has been made. The APA this week refused to send what American called its "last, best and final offer" to its membership because of a lack of specifics in some areas, but the group hopes to meet Lane's deadline to have pilots vote on a deal by June 27.

American appears to have softened its demands in recent negotiations. The company, when outlining its business plan in February, said it needed a 20% reduction in pilot costs. But Denise Lynn, senior vice president of People for American Airlines Inc., in a letter to workers late Thursday said the airline is now seeking a 17% reduction, and implied that it hoped to scale back demands of other groups as well.

"Throughout negotiations, our focus has been on reaching consensual agreements that allow us to succeed and win," Lynn wrote. "It was that focus, and the additional benefit of our recent revenue improvements, that allowed us to put forward a proposal to APA that adjusts the savings target while still achieving the goals of our business plan."

The negotiations over the coming days could be pivotal to whether AMR emerges from bankruptcy as an independent or is acquired by US Airways Group Inc. Tempe, Ariz.-based US Airways has signaled its intention to bid for the bankrupt airline, while American officials prefer to emerge from Chapter 11 protection before considering consolidation.

US Airways' effort received a major boost earlier this year when American's three largest labor groups endorsed the buyout plan and announced tentative labor deals with US Airways that would govern the proposed merger.

Some in the industry have long been skeptical that the endorsement of a deal was a negotiating ploy, and the source predicted that if the pilots approve American's contract offer they will back off from their support for US Airways' bid. And while flight attendants and ground workers have also come out in favor of the US Airways deal, the pilots are seen as the most critical group to win over.

"The pilots, literally and figuratively, are driving the plane," the source said. "They have the most leverage."

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