AMR asks bankruptcy court to void union contracts

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Published: March 29, 2012

American Airlines has asked a US bankruptcy court judge to scrap collective bargaining agreements with three employee unions that oppose the carrier’s plan to cut 13,000 jobs.

The widely expected request comes one week after AMR Corporation proposed the move in a preliminary hearing and follows similar contract rejections in the four previous bankruptcy proceedings by other US carriers.

“We must remember failure to make the right changes is failure and that puts all jobs at American at risk,” Tom Horton, American’s chairman and CEO, wrote in a letter to employees.

After accumulating $ 16.8 billion in debt over the past decade, Horton fears that American could fail to survive the bankruptcy process. The company wants to shed nearly $ 1.3 billion from the payroll as part of a $ 3 billion restructuring plan.

In his letter, Horton pointed to news articles speculating that American could become a target of an acquisition or a brake-up. US Airways, for example, has acknowledged hiring advisors to study a possible merger attempt. Other reports have linked Delta Air Lines and the private equity firm TPG Capital to a possible take-over.

American’s three unions – the Allied Pilots Association, the Association of Professional Flight Attendants and the Transport Workers Union of America – had sought to challenge American’s move.

They argued that the airline had allowed the collective bargaining agreements to expire three years ago and therefore could not be tossed out under the bankruptcy process. It was part of a strategy aimed at forcing management to accept a negotiated settlement under binding arbitration.

Although American has asked the bankruptcy court to throw out the existing contrats, Horton says it would not do so immediately after receiving approval.

“The best outcome is consensually negotiated new contracts,” Horton writes. “This will remain the ultimate objective of all parties as we proceed and we will continue to work with our union negotiating committees to reach agreement.”

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