NEW YORK -- American Airlines told a U.S. bankruptcy judge Friday that its labor contracts must be terminated for the company to survive, dismissing union calls for a merger with US Airways as "smoke and mirrors."
Bankruptcy Judge Sean Lane finished three weeks of testimony on a surprising note when he said that while he is prepared to rule by the June 22 deadline, he would prefer not to. The proceeding was a Section 1113 hearing, named after the portion of the federal bankruptcy code that allows reorganizing companies to reject labor agreements."The only thing I have in front of me," he told the courtroom, "is whether to reject a collective bargaining agreement." Even if he abrogates the airline's agreements with its pilots, flight attendants and other support workers, Lane noted, "you're all still stuck with each other. You still have to negotiate new agreements."Given that situation, he said, "I urge -- and I cannot urge this anymore strongly -- that the parties resolve this" at the negotiating table, Lane said. "Regardless of what I do, you're going to have to do it anyway."Mediation is due to start next week between American and the labor groups, with another bankruptcy judge acting as a mediator. Lane said he would prefer a resolution that does not require him to make a decision, although "I'll do it even if I'm reluctant to do it."AMR Corp., the Fort Worth parent of American, filed for Chapter 11 bankruptcy protection in November and is seeking lower labor costs as it tries to reorganize and remain independent. American's pilots, flight attendants and transport workers have reached preliminary agreement with US Airways and contend that a merger with the Tempe, Ariz.-based carrier is a more viable solution.American has walked a fine line on the merger issue, arguing that it is irrelevant to the hearing over labor contracts while also saying it will consider consolidation as part of its business strategy.At Friday's hearing, however, the focus was on the June 22 deadline."We don't know if consolidation is in the future," American attorney Jack Gallagher said. "What we do need is to get out of bankruptcy. We need a competitive labor structure."Saying there was no concrete business plan that involved a merger, Gallagher told Lane that the term sheets agreed to by unions and US Airways do not amount to a deal."We think that's more smoke and mirrors. It's a distraction. It's a red herring. It's not really something before you," he said.American got a strong boost when Jack Butler, attorney for the unsecured creditors committee, which represents the company's nine largest creditors, including the unions, said "there's only one business plan before you." Butler, whose comments indicated that the unions haven't persuaded other unsecured creditors to back the proposed merger, told Lane that a deal with US Airways is "completely speculative."The unions countered that American may wait until it has a more favorable cost structure and then seek US Airways as a partner.Sharon Levine, a lawyer for the Transport Workers Union, said that the unions should not be used as "bait" for a future merger. Ed James, attorney for the Allied Pilots Association, said terminating the contracts was "permanent."In a filing made Thursday, the APA also asked Lane to consider a ruling in the Hostess Brands bankruptcy case last week. Hostess also asked a bankruptcy judge to allow it to reject labor agreements, but in that case the judge denied the baked-goods maker's request to abrogate its Teamsters Union contract while allowing it to reject its contract with a smaller union.In its filing, APA said that as in the Hostess case, "American's witnesses have been unable to demonstrate that accepting the APA's counterproposals would have any material effect" on earnings targets "or compromise its ability to successfully reorganize."American, which Gallagher said has lost $10 billion over the last 10 years and $80 million a month in 2012's first quarter, is seeking $1 billion a year in concessions from its unions. Its proposals include cutting over 13,000 jobs, closing its Alliance maintenance facility in Fort Worth and freezing pension plans.The carrier has reached new contracts with five of its Transport Workers Union groups, including ground workers. But the largest TWU work group, the mechanics, rejected American's latest offer. American is scheduled for mediation with its flight attendants Tuesday and will meet with the pilots the week of June 4.Staff writer Andrea Ahles contributed to this report.Maria Recio, 202-383-6103Twitter: @maria_e_recioHave more to add? News tip? Tell us
