Judge Sean Lane of the U.S. Bankruptcy Court for the Southern District of New York in a ruling late Wednesday said that Fort Worth, Texas-based AMR did not provide ample evidence that its request to furlough 450 pilots and expand its code sharing with other airlines was justified.
AMR filed for Chapter 11 protection last November hoping to extract more than $2 billion in annual costs, including from its labor deals. The term sheet the company had asked the judge to impose on its pilots was inferior to what AMR had presented as its last and best offer earlier in the summer, and a person familiar with the situation said the judge likely wanted the airline to bridge the gap between the two proposals instead of imposing the more draconian terms on labor.
The ruling, which was not expected, at least temporarily delays AMR's effort to consider its exit options including a potential merger with US Airways Group Inc. Tempe, Ariz.-based US Air has publicly lobbied for such a deal, reaching tentative agreements with American's labor groups and holding discussions with creditors.
AMR management has expressed a preference for completing the reorganization and emerging as an independent carrier before turning to consolidation, but has pledged to consider all options. The airline has said it needs its labor issues resolved before considering options so it can accurately determine its costs as a standalone company.
The carrier is still waiting on results of a separate vote by members of the Association of Professional Flight Attendants on a contract offer. Judge Lane has postponed a decision on AMR's request to terminate the flight attendants' existing contract until Aug. 19, as the ruling would be unnecessary should the workers approve the offer on the table.
AMR late Wednesday noted that the judge had rejected just two aspects of its proposal, relating to furloughs and codesharing, and said it would adjust those elements and resubmit the request. Lane would likely prefer the airline and the union to work out a consensual agreement, but that would require a new round of negotiations followed by a time-consuming member vote and could delay by months AMR's exit from bankruptcy.
The ruling comes as AMR chief executive Tom Horton seemingly has softened his stance on mergers, while labor is showing signs that it might be questioning the benefits of a deal. Horton in an interview with the Financial Times published Aug. 13 said a deal with US Airways "may be an attractive option under the right circumstances."
Labor, led by the pilots union, earlier in the summer had been a vocal advocate for a deal, with leaders of American's three largest unions taking the unusual step of appearing with US Airways CEO Doug Parker when Parker delivered a speech in Washington, D.C., discussing the merits of a deal.
But APA membership last week voted down AMR's contract offer, necessitating Judge Lane's ruling. In the days since the APA board has replaced union president Dave Bates, a strong deal proponent, and according to The Dallas Morning News has called on union leadership to cease public interactions with potential merger partners and limit conversations about deals.
A labor source reached Wednesday said that the pilots union remains focused on getting the best possible deal for its members. But some in the industry continue to believe APA's embrace of US Airways was motivated more by the union's desire to exert leverage against AMR, and less by the union's desire to force in a merger while in bankruptcy.
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