American Airlines’ pilots union pressed its case Monday before the U.S. bankruptcy court, asking the judge not to abrogate its contract with the carrier and laying out its offers to cut costs that American had rebuffed leading up to the court hearing.
At issue is the future of Fort Worth, Texas-based American Airlines: Will it prevail with a business plan that leaves it a standalone carrier, or will it merge with US Airways, as its unions want it to do?
American announced Friday that it would consider the merger, but the court proceeding continued Monday under the so-called 1113 process. The process, created by the Railway Labor Act, applies to airlines as well and is meant to keep management and labor negotiating. American has the exclusive right to file a reorganization plan under court rules through the end of September.
The union contracts are central to the issue of American’s viability. The carrier, which lost $1 billion last year, says its highest-in-the-industry labor costs must be cut.
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The Allied Pilots Association argued that it had offered substantial savings as recently as February to management, which did not respond – setting up the 1113 hearing giving the judge the power to abrogate the contracts.
American management made its case before the court two weeks ago for Judge Sean Lane to terminate contracts with pilots, flight attendants and transport workers. He will rule by June 6.
The Transport Workers Union will tell the judge Tuesday morning the results of a membership vote on a contract offer from American.
The pilots, in particular, have a contentious history with the airline. The pilots’ chief negotiator laid out disputes over outsourcing, work rules, sick leave and medical costs that roiled the carrier leading up to the bankruptcy filing last year.
At least a half-dozen pilots in uniform attended the court hearing. New York-based Capt. Glen Millen stood outside the courthouse in Manhattan’s financial district with a sign, “AA From 1st to Worst?”
Asked about American’s willingness to consider a merger, Millen said, “Are they willing to consider stepping down, which is what we want?”
In the courtroom, company attorney Neal Mollen objected to a union attorney bringing up the US Airways merger prospect. But the judge overruled the objection and told the pilots’ chief negotiator, Neil Roghair, to answer “if APA’s proposals would be sufficient to allow the company to reorganize?”
Judge Lane said, “We’re going to get there anyway.”
Roghair’s response: “Yes.”
Throughout the hearing, the pilots pushed the US Airways merger. “We want to hitch our careers to a successful and thriving business plan,” said Roghair.
In the meantime, there are issues that divide labor and management.
American said in court that pilots were calling in sick at higher rates since the 1113 process got under way, a phenomenon that has forced the carrier to reduce its schedule.
Mollen asked chief negotiator Roghair whether American’s pilots were not calling in sick over the last two months “at a significantly higher rate than at other airlines.” Told “yes,” Mollen then asked if there was “any epidemiological issue” to explain it.
Roghair said that the pilots’ uncertainty about their future was a factor leading to the use of sick leave.
“We have higher than normal sick usage and residual effects of retirements that has led to a 1.5 percent flight reduction in the month of June, primarily domestic,” American spokesman Bruce Hicks, who is attending the trial, told McClatchy outside the courtroom.
The carrier wants pilots to produce evidence from doctors and to receive 60 percent of pay when they take sick leave.
“It was increasingly clear that the company was looking for a concessionary contract,” said Roghair of negotiations last year. The pilots’ union maintains that it offered major changes in productivity but “it was never enough from the company perspective,” said Roghair.
In February, the union said it valued its contract proposal to the carrier at $270 million a year in savings, a change from earlier pilots union proposals that would have cost the carrier an additional $55 million a year.
“We knew this was serious,” said Roghair.
But the negotiations did not pan out, and when US Airways approached American’s unions several weeks ago, the talks quickly led to all three unions signing off on a tentative deal supporting the merger.
Roghair said pilot concessions to US Airways were valued at $240 million a year.
Pilots union investment adviser Andrew Yearley, managing director of Lazard Freres, testified that American “had a network problem” in terms of its system and that a merger with US Airways is a matter of when and not if.
The pilots and American nonetheless continue to talk.
Allied Pilots Association attorney Ed James told the American Airlines’ bankruptcy courtroom Monday that the carrier’s pilots and management had met last week for “substantive discussions” and would meet again.
At a break in the proceedings APA president Dave Bates told McClatchy that he had been personally contacted by management and that the union met over proposals to let non-union pilots fly smaller regional jets and code-sharing. “The company has made some minor moves,” said Bates. “We’re still hugely apart.”
Despite the new round of talks, Bates said, “We do not see it as likely that we will be able to reach agreement before the end of this trial.”
Asked about American’s seeming change of position to consider a merger – which two weeks ago management all but ignored during its presentation to the court – Bates said, “Personally, I think . . . management is under a great deal of pressure.”
But American spokesman Hicks said of the 1113 proceeding and American’s looking at the merger: “They are unrelated.”
“The unions would like them to be related but they’re not,” he said. “The 1113 is a tried and true procedure to achieve reductions necessary in labor contracts.”
American, which lost $1 billion last year, wants labor concessions of $990 million a year from the unions. Management and non-union labor savings would add over $250 million annually, said Hicks.