AMR, Unions Wrap Up Marathon Court Hearings

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Published: May 26, 2012

An American Airlines lawyer on Friday dismissed as “smoke and mirrors” talk of a merger with US Airways and defended American’s plan to scrap its staff contracts, a request now in the hands of a bankruptcy judge after three weeks of hearings.

Judge Sean Lane now has about four weeks to make a ruling, during which the sides can still reach new terms.

Jack Gallagher, an attorney for AMR, American’s bankrupt parent, said the airline desperately needs to reduce its labour costs, and that a merger proposed by US Airways and supported by AMR’s unions should not deter that effort.

Gallagher spoke during closing arguments of hearings that began in April and continued intermittently in US Bankruptcy Court in Manhattan.

Lawyers for unions representing AMR pilots, flight attendants and ground workers also took their final shots, peppering AMR with criticism of its resistance to a merger and of its cost-cutting targets.

AMR, which filed for bankruptcy in November, has proposed abandoning union contracts in an effort to get new terms aimed at cutting USD$ 990 million a year in union costs. Witnesses at the hearings included AMR executives and outside financial advisers for the company and its unions.

The unions have argued that AMR did not meet the legal standard for scrapping collective bargaining contracts, which includes exhausting all other options first.


Jack Butler, an lawyer for AMR’s creditors’ committee, said he hoped the parties solve the matter consensually. While the committee supports AMR’s effort, Butler compared the rejection of labour deals to a game that does not ultimately benefit either side.

Invoking the 1983 Matthew Broderick movie WarGames, Butler said “the only way to win is not to play.”

Judge Lane took the analogy a step further.

“Not only isn’t this a game that can be won by playing, it’s also a destructive game to play,” Lane said. “It forces parties who otherwise would hope to have a long-term relationship to criticise each other, often harshly. There are bruised feelings.”

Lane said the parties are “stuck with each other,” explaining that, while the abrogation process allows AMR to temporarily impose unilateral terms, the sides must ultimately negotiate consensual, long-term deals.

The centrepiece of the union case is the merger proposed by US Airways, which the unions say could save more than 6,000 jobs that would be lost under AMR’s plan to exit bankruptcy on its own. The unions said AMR has an obligation to explore the idea.

Gallagher dismissed “the spectre of” a US Airways merger as “a red herring, smoke and mirrors, an issue that is not really before the court.”

Carmen Parcelli, an attorney for unionised flight attendants, responded that AMR itself has acknowledged that consolidation is ultimately likely.

“Why would our union sign away its right to bargain… when AMR itself is of the view that consolidation is something it needs to participate in?” she said.

Gallagher said AMR would be better poised to consider a deal after it emerges from bankruptcy. Earlier in May, however, the airline announced it would not rule out a tie-up while in bankruptcy, bowing to pressure from its unions.

Five employee factions covered by the Transport Workers Union have accepted a new contract offer from AMR, avoiding the risk that the airline could unilaterally impose even stricter terms if allowed to reject its current deals.

Two TWU factions, along with the pilots’ and flight attendants’ unions, still have not signed any new contract with AMR. All three unions continue to support a US Airways merger.

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