Judge objects to parts of American's proposal

By Bob Cox

American Airlines must wait at least a few weeks longer for court approval to impose new cost-cutting measures on its 8,000 pilots, including changes to benefits and work rules.

In what may be only a temporary setback, U.S. Bankruptcy Judge Sean Lane on Wednesday denied a motion by AMR Corp., the airline's parent company, that would have allowed it to nullify its contract with the Allied Pilots Association.

The judge had waited to decide until the pilots could vote on the company's last contract offer. It was resoundingly rejected last week.

In the 111-page ruling issued late in the day, Lane said he was persuaded by American's argument that the airline can't successfully reorganize without making big changes to its labor contracts to reduce costs and boost revenue.

He rejected the union's argument that American's business plan is "fatally flawed" and said it's "undisputed" that American's pilot labor costs are among the highest in the industry.

"American has demonstrated that changes are necessary to employee benefits that apply to all union employees, including the pilots, and to many of the collective bargaining terms that apply only to the pilots," Lane wrote.

But the judge ruled that the terms American proposed in April were too sweeping in two areas: expanding its authority to furlough pilots and enter into code-sharing arrangements with other domestic airlines.

Lane concluded that American's proposals would have given the airline "unrestricted use of furlough and code-sharing" and that those provisions are not "justified as necessary either in American's business plan or by the practices of American's competitors."

However, Lane said American could alter its Section 1113 proposal to address his concerns and resubmit its request to the court.

American officials, in a conference call with reporters, said they would do that immediately.

"It's a relatively easy fix and we plan to refile that motion by the end of this week," said Gary Kennedy, American's senior vice president and general counsel.

American is "very pleased," Kennedy said, that the judge "agreed with virtually every position we took" in arguing that it should be able to abrogate the contract with the pilots.

Keith Wilson, who took over as the union's president last week when Dave Bates resigned after the union vote, told members that the ruling is "a rare Chapter 11 victory for labor" because the judge did not bow to American's wishes.

Wilson also called it a "significant setback for management" because it will lead to "another set of 1113 court hearings and another round of bargaining."

"The elation I feel today is tempered somewhat by my abiding frustration with AMR management for the many misjudgments they have made to deliver us to this juncture," he wrote.

"AMR's Chapter 11 filing was precipitated by AMR management's actions -- and all too often, their inaction -- not by a collective bargaining agreement our pilots negotiated in good faith."

The ruling may have surprised everyone involved, said Dallas bankruptcy attorney Jeff Erler.

"My expectation was the judge was going to rule in favor of the company," Erler said, so the pilots union could certainly claim a victory.

Still, because the judge so clearly spelled out what he found objectionable in American's proposals, Erler said, the ruling could end up being little more than "a speed bump" in the airline's path to reorganization.

The ruling may also send a message to the company and the pilots, Erler said, "that this is the appropriate time for both sides to go back to the bargaining table" and come to a negotiated agreement.

To answer the judge's objections, American officials said, they will alter their proposals to include language from the proposed contract that the company and the union negotiated recently.

That proposal was overwhelmingly voted down by the pilots.

Those revisions would provide furlough protection for 95 percent of American's pilots and set specific limits on code-sharing arrangements, said Denise Lynn, American's senior vice president of people, during the conference call.

"We feel with these changes Judge Lane will find it acceptable to approve our business plan," Lynn said.

Wednesday's decision follows months of court hearings and union negotiations over the airline's plans to cut labor costs.

Fort Worth-based American, which filed for Chapter 11 bankruptcy protection in November, laid out its cost-cutting plans in February.

After its unions threw their support behind a potential merger with US Airways, the company revised its proposals and began intensive contract negotiations.

American officials said they hope that flight attendants, who have until Sunday to finish voting on a proposed contract, will not interpret the judge's decision as meaning they can reject the contract and get a better deal down the road.

Leaders of the Association of Professional Flight Attendants, while not recommending a yes vote, have sent a strong message to their membership that there may not be a better deal if the contract proposal is rejected.

Aircraft mechanics and other ground workers represented by the Transport Workers Union narrowly approved revised contracts that provide concessions in wages and work rules to American.

American officials said they ultimately expect to sit down with the pilots union and reach a "consensual agreement" on a new contract. But they were not sure how that would happen.

"There is not additional economic value to be offered to the pilots than has already been offered," Kennedy said.

Bob Cox, 817-390-7723

Twitter: @bobcoxict

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