The board of the Allied Pilots Association voted late on June 27 to send what American parent AMR called its last and best offer to membership. The deal would cut American's pilot expense by 17% and give the airline more scheduling flexibility, part of a broader campaign to extract more than $2 billion in annual cost cuts via the court.
Dave Bates, an American pilot and president of the APA, in a letter to membership said union advisers at Lazard and attorney Fil Agusti of Steptoe and Johnson LLP "were emphatic in recommending approval" of the offer, and in particular the company's pledge to provide the union with 13.5% of the reorganized airline's equity.
"Our advisers stated that a 13.5% equity stake should make APA the largest equity holder in the company," Bates wrote. "As a result, we would be able to influence key decisions from our seat on the unsecured creditors' committee that will take place for the balance of restructuring such as the makeup of the reorganized airline's board of directors and other key strategic considerations."
The union is scheduled to tally member votes on the proposal on Aug. 8.
AMR filed for Chapter 11 protection on Nov. 29 after years of fruitless negotiations with pilots and other labor groups. The Fort Worth company has requested court approval to terminate its labor deals if new consensual accords are not negotiated.
Following the APA decision, Judge Sean Lane of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan delayed an expected June 29 ruling on AMR's request to terminate its labor deals until Aug. 15. American said it would use the extra time to continue negotiations with its other union holdouts.
While negotiations with American have been slow, the pilots and unions representing flight attendants and ground workers earlier this year did reach tentative deals with US Airways Group Inc. to govern labor issues in the event of a merger. The Tempe, Ariz., airline has expressed an interest in buying AMR out of bankruptcy, while AMR officials have said they would prefer to emerge as an independent before considering consolidation.
The APA advisers noted that should a merger with US Airways occur, either during restructuring or after emergence, the value of the equity stake should increase and provide the union and its membership with a windfall.
Many questions still remain. Some in the industry believe the APA's endorsement of a US Airways deal was merely a ploy to gain leverage in negotiations with American and expect the union to drop support for a merger should its membership ratify the AMR agreement. Other groups, most notably flight attendants, have been more adamant in their support of a merger, so the loss of pilot backing would be a significant blow to US Airways' efforts.
A source close to labor cautions against assuming the contract will be ratified by membership, noting the board was split 9-7 on whether even to hold a vote. Among the complaints about the tentative agreement are relaxations on limits to American's codesharing with other airlines and looser limitations on American's ability to contract with third parties to operate smaller aircraft.
Another wild card in the vote are pilots who once worked for Trans World Airlines Inc., which was purchased by AMR out of bankruptcy in 2001. Those aviators have long complained about their treatment postmerger, and many have expressed a preference for a deal with US Airways that might reshuffule seniority lists and give them a second chance to win back what was lost a decade ago.
The source says those pilots might be motivated to vote against American's deal with the APA in hopes of keeping the US Airways option front and center.
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