As Pilots Stand Firm, AMR’s Plan Takes Hit

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Published: August 10, 2012

The overwhelming rejection by AMR pilots of the airline’s latest contract offer, which several sources attributed to their lack of confidence in company management, raises doubts about whether the carrier can garner support to exit bankruptcy as a stand-alone company.

Members of the Allied Pilots Association, the airline’s most powerful employee group, on Wednesday voted 61 percent to 39 percent to reject a contract offer that would have imposed about USD$ 315 million in cost cuts.

The deal would still have been preferable to the potential alternative: AMR exercising its right in bankruptcy to impose even stricter terms unilaterally.

People close to AMR’s restructuring say many pilots understood that risk but treated the vote as a referendum on AMR chief executive Tom Horton. The pilots, along with AMR’s two other key union groups, have already declared their support for a proposal by US Airways to merge with AMR and its management team.

AMR’s unions are members of its unsecured creditors’ committee, with three of the committee’s nine seats, and have a big say in how the airline restructures, either as a stand-alone entity or through a merger.

“There was great concern” that a ‘yes’ vote on AMR’s latest contract offer “would be seen as an affirmation of management, which wasn’t reflective of where some of these pilots stood,” said one of the people close to the matter.

Union leadership, led by outgoing president David Bates, lobbied members to support AMR’s offer, visiting the airline’s major hubs, sometimes more than once. But the most common problem they ran into was pilots’ hesitance to embrace a deal seen as supportive of management, said a person familiar with the voting process.

Bates, who had supported signing the deal, resigned on Thursday at the request of the union’s board of directors after membership shot the deal down. He was replaced by Keith Wilson, who ran against Bates for the union’s presidency in 2010 and lost.

The rejection of AMR’s offer by such a wide margin – which can be seen as a “vote of no confidence in AMR management by AMR pilots,” according to UBS analysts – comes against the backdrop of an aggressive merger push from US Airways. The airline has already reached a tentative agreement with AMR pilots in the event of a takeover, featuring work terms similar to those of AMR’s last offer.

US Airways has received a non-disclosure agreement from AMR, which has agreed to explore the possibility of a merger.

AMR has said it would prefer to emerge from bankruptcy as an independent company and consider consolidation later. But no large airline has exited bankruptcy without a labour deal in place, and creditors may prefer a US Airways merger if they see it as providing more stable relations.

“The argument for doing a merger later is a lot weaker today because AMR lost labour and you don’t have a clear path… to getting labour done,” said a person involved in the restructuring.

A lawyer for AMR did not return calls seeking comment. The company declined to comment. US Airways declined to comment.

A spokesman for the pilots’ union said the “no” vote does not change the union’s support for the US Airways merger.

“We are eager to see all strategic alternatives reviewed,” spokesman Dennis Tajer said.

But the pilots’ vote could have the effect of slowing down the process. Judge Sean Lane, overseeing AMR’s bankruptcy, on Wednesday of next week is scheduled to rule on whether AMR can abandon its current labour deals and unilaterally impose temporary work terms as the sides continue to negotiate a long-term deal.

Such a scenario could further sour an already-damaged relationship between AMR and its pilots, and in an attempt to avoid it, the sides may shift focus back to negotiating a deal and away from merger discussions.

Hunter Keay, an analyst at Wolfe Trahan, said AMR will have to resume negotiations with a pilot community that has “little else to lose” once unilateral terms are imposed.

“We can easily see those negotiations going nowhere, pushing AMR close to the end” of its window of exclusivity to file a restructuring plan, and “open the door for US Airways to file its own plan,” Keay said.

He added that he does “not envision AMR successfully pitching an exit strategy” without labour certainty.

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