American Airlines All Clear for Bankruptcy Exit As Allied Pilots Association Agree To More Concessions

Submitted by solidarity on Sat, 12/08/2012 - 09:30

December 7, 2012

American Airlines All Clear for Bankruptcy Exit

http://www.nytimes.com/2012/12/08/business/american-airline-pilots-agree...
With the overwhelming vote on Friday by its last holdout labor group, the pilots, to approve a new contract, American Airlines and its creditors are now free to focus on the biggest issue ahead: should American pursue a merger with US Airways or remain independent for now?
Thomas W. Horton, American’s chief executive, has long insisted American would emerge from bankruptcy as a stronger, independent carrier. But his counterpart at US Airways, Doug Parker, has been trying to keep up the pressure for a merger. The two airlines signed a nondisclosure agreement in September allowing them to share confidential information and work together to evaluate a combination. And last month, US Airways put forward a merger proposal, according to a person with knowledge of the discussions.
The proposal, which values the combined entity at around $8 billion, would give American’s creditors 70 percent of the new airline and US Airways’ shareholders 30 percent. American has insisted that its creditors are entitled to a bigger share, closer to 80 percent, leaving US Airways with just 20 percent, a level at which Mr. Parker would balk, according to analysts. American, meanwhile, has asked the bankruptcy judge for a six-week extension, to March 11, in the period in which it has the exclusive right to plan its bankruptcy.
A merger would give the enlarged entity the size to compete with Delta Air Lines and United Airlines, both of which overtook American after their own mergers with other carriers in recent years. While many analysts expect American and US Airways to merge, a combination also poses some risks, said Ray Neidl, an analyst with the Maxim Group. “It would be a difficult merger to engineer and could create major disruptions over at least the next two years,” Mr. Neidl wrote in a note to clients.
In either case, the pilots’ contract was a critical hurdle for American to clear. It finally clarifies labor costs and allows the company’s board and creditors to more properly consider their options. Whatever the outcome, the federal bankruptcy judge will have the final say on the matter.
American’s top three unions are those representing pilots, flight attendants, and mechanics and other ground workers. Each has one seat on the company’s nine-member unsecured creditors’ committee.
US Airways can count on the backing of these three unions, which have all supported Mr. Parker’s merger plans in an unusual show of defiance against American’s management. The unions all came to a provisional agreement with US Airways that would provide the basis for new contracts for all workers after a merger.
After Friday’s vote, American’s pilot union, the Allied Pilots Association, repeated its support for a merger with US Airways, saying it was “the best path to a stronger, more competitive American Airlines that will in turn enhance our pilots’ long-term career prospects.”
The union said the collective agreement was endorsed by 74 percent of members who cast a ballot. In August, in a surprise move, American’s pilots overwhelmingly rejected a similar deal with the airline. The union said 96 percent of its eligible members voted on the new contract, with 5,489 in favor and 1,951 against.
American and its pilots have been negotiating a new contract since 2006. The union has urged its members to ratify this latest deal, which would give pilots a pay raise and a 13.5 percent stake in the carrier once it comes out of bankruptcy.
It also establishes new work rules requiring more flight time for pilots and freezes their pension. And it allows American’s regional airline partners to fly bigger planes, an issue that has long been a sticking point in labor talks.
The previous agreement, which called for similar concessions and benefits from the pilots, was opposed by 61 percent of pilots in a show of defiance. After that vote, American imposed more draconian terms on its pilots and quickly sought to negotiate a new deal with its union. In response, some pilots called in sick in greater numbers and reported more mechanical problems with planes, leading to wide flight delays and cancellations.
In a letter to employees on Friday, Mr. Horton said the contract was an important milestone for the company. He added that American was now closer to completing its review of strategic alternatives, including the merits of a merger with US Airways. “While we are confident the new American will be very strong, we are evaluating whether such a combination could create value for our owners and a positive outcome for our people and our customers. We expect to have a conclusion on this soon.”
In recent years, American lost its top position and retrenched its operations around five big hubs — Dallas, New York, Los Angeles, Miami and Chicago. It has been hobbled by higher costs than its competitors, who have all used bankruptcy proceedings mainly to restructure their labor contracts.
With its bankruptcy filing last year, American sought to close its cost gap with rivals. It sought savings of $2 billion, mostly by cutting labor costs: shedding jobs, freezing pensions and reducing health benefits.
At the same time, it also reviewed its airplane contracts, debt payments and other financial obligations. It outlined plans to radically overhaul its fleet, which has relied heavily on older, fuel-inefficient planes like the MD-80s. Those planes are being gradually retired.
In July, the airline announced a huge order of 460 new single-aisle planes from both Boeing and Airbus for the domestic market, to be delivered from 2013 to 2020. It also announced the purchase of 14 new long-range Boeing 777s next year, destined for international service and equipped with new flatbed seats for its premium cabins.
When the first of these planes is delivered, probably next month, American is expected to unveil a new corporate image and a new look for its airplanes. It is likely to end a tradition that goes back decades of leaving its planes unpainted, adorned with just a few stripes of red and blue on a fuselage of polished aluminum.
Earlier this week, the Allied Pilots Association urged its members to endorse the new deal, which it said was equal to or better than contracts at United, US Airways and Delta.
“We must at some point come to grips with the new reality of no longer being the ‘big dog’ in the industry that we once were,” the union’s vice president, Capt. Tom Chapman, said in a message to the pilots. “The American brand has been severely damaged, and it may take a while to repair.”
Some analysts remain unpersuaded about American’s goals after bankruptcy.
“AMR’s existing plan is essentially the same failed strategy that drove the company to failure over the past decade,” said Vicki Bryan, an analyst at Gimme Credit. “We remain convinced that the best solution for AMR is to be run by someone else, and the best candidate in our view still is US Airways.”