American Airlines loses key decision in bankruptcy court

American Airlines Pilots
American Airlines pilot and flight attendant unions march at the AMR Corp. headquarters in Fort Worth, Texas, U.S. Photographer: Mike Fuentes/Bloomberg via Getty Images

In an unexpected victory for the workers' union, a bankruptcy judge rejected American Airlines' request to throw out its pilots contract and impose concessions on its 8,000 pilots.

The latest development could make it more difficult for the airline to emerge from bankruptcy as an independent carrier.

American and its holding company AMR (AAMRQ) are seeking to cut more than $1 billion in annual costs through changes in its labor contracts, including deep staff cuts, but it needs approval of either its unions or the bankruptcy court to do so.

The Transport Workers Union, which represents its ground workers, ratified a concession contract last week. But the pilots union rejected a tentative labor pact and fought the effort in bankruptcy court, even though judges rarely rule in favor of keeping labor deals in place.

The airline's flight attendants are in the process of voting on their own concession contract.

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The Allied Pilots Union hailed the decision of Judge Sean Lane, saying it hoped to restart negotiations with the airline on the concessions it seeks. The union has already taken the unusual step of reaching a labor agreement with US Airways management, which has expressed a desire to purchase American during its bankruptcy process.

"For many months now, we've emphasized that AMR management has overreached in their desire to extract more concessions than are warranted to support their reorganization plan in this bankruptcy," said union president Keith Wilson in a message to members. "Clearly, management went well beyond what is the industry standard for bankruptcy contracts, and the judge recognized this in his decision today."

But American management said it will move ahead with its efforts to get rid of the existing contract, since the judge accepted all but two of its conditions -- greater latitude to lay off pilots and flexibility to share flights with other airlines.

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"The judge supported American's business plan throughout his ruling and agreed with the company's position that changes to the collective bargaining agreement were necessary," said airline spokesman Bruce Hicks. He said management will make the appropriate changes in the two outstanding provisions and go back to the judge for approval.

But the airline now has to worry that the pilots' court victory could encourage flight attendants to also reject their contract. Without approval from the unions or Judge Lane, management's hopes to emerge from bankruptcy in control of the airline, without a merger with US Airways, will be blocked.

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