Pilots approve new contract with American Airlines

December 7, 2012 - 9:33 PM
American Airlines-Pilots

Keith Wilson, president of the Allied Pilots Association, announces results of the vote on a new contract with American Airlines in the lobby of the union headquarters on Friday, Dec., 7, 2012 in Dallas. Pilots at American Airlines approved a new labor contract, which could clear the way for consideration of a merger with US Airways. The pilots' union announced Friday that 74 percent of its members voted to ratify the contract. (AP Photo/The Dallas Morning News, Lara Solt) MANDATORY CREDIT; MAGS OUT; TV OUT; INTERNET OUT; AP MEMBERS ONLY

DALLAS (AP) — American Airlines is closer to exiting from bankruptcy and possibly merging with US Airways after its pilots approved a new labor contract.

With the pilots' deal announced Friday, American has negotiated new, lower-cost contracts with all its unions since filing for bankruptcy protection just over a year ago.

Company executives insist the savings will let American compete as an independent airline. But rival US Airways has been pressing to merge, arguing that both must get bigger to succeed against huge rivals United and Delta. And US Airways executives want to run the combined company.

American and US Airways will keep talking about a potential deal. Thomas Horton, the CEO of American parent AMR Corp., said Friday that his company could make a decision soon.

But with AMR in bankruptcy, it could be its creditors who make the call. The pilots' contract was the last big unknown in American's restructuring, and creditors are likely to turn now to whether they would make more money if American merges or remains on its own.

The Allied Pilots Association announced Friday that 74 percent of its members voted to ratify a new contract three months after they rejected a similar offer. Union leaders lobbied hard for passage the second time around. They favor a merger and believe that Friday's vote made a deal more likely.

"This contract represents a bridge to a merger with US Airways," said pilots' union spokesman Dennis Tajer. He said the vote "should not in any way be viewed as support for the American stand-alone plan or for this current management team."

AMR leaders have seemed to favor emerging as an independent airline before considering a merger. On Friday, they hailed the pilots' vote as a key step in AMR's turnaround after years of heavy losses.

In a message to employees, Horton called the deal an important milestone and said AMR is nearing the end of its restructuring.

Horton said AMR is also wrapping up its study of whether to remain independent or merge with US Airways. He said he is "confident the new American will be very strong" but is still evaluating the merits of a merger.

"We expect to have a conclusion on this soon," he said.

US Airways declined to comment, citing a confidentiality agreement it signed with American when the two began talks several weeks ago.

AMR and American filed for bankruptcy protection in November 2011. With the pilots' deal in hand, the company could exit Chapter 11 early next year, a faster reorganization than those in the last decade at United and Delta.

Friday's vote filled in the last unknown piece in AMR's labor-cost puzzle. The company's creditors "very much wanted a contract because they want some visibility on what the cost structure will be," said Ray Neidl, an airline analyst for Maxim Group PLC.

US Airways has proposed a merger that would give AMR creditors 70 percent of the combined company, which would be run by US Airways CEO Doug Parker, according to a person familiar with the discussions and who spoke on condition of anonymity because the talks are private.

There have been reports that AMR might seek up to 80 percent for its creditors, which could be unacceptable to US Airways Group Inc. shareholders, the person said.

AMR creditors could push for a change in management even if they get a bigger share of the company. Last month, a group of AMR bondholders including JPMorgan Chase told the pilots' union that they would only support an independent American if AMR had a new board that would pick managers to run the airline.

American has about 7,500 active pilots plus a few hundred others on furlough. The union said the vote to ratify the contract was 5,489 to 1,951.

The six-year contract will raise pilots' pay by 4 percent on signing and 2 percent per year after that, with an adjustment in the third year to bring pay in line with that at other big airlines. The union will get 13.5 percent of the stock in the new AMR when it emerges from bankruptcy, which analysts estimate would amount to at least $100,000 per pilot.

In exchange pilots will fly more hours and American will get more flexibility to outsource flying to other airlines.

American, which has already frozen pension plans and made other changes in benefits and work rules, is trying to use the bankruptcy process to cut annual labor costs by 17 percent or about $1 billion.

In recent months flight attendants and ground workers have ratified separate contracts that reduced benefits and outsourced thousands of jobs. American expects to cut about 10,000 jobs, with 3,000 layoffs and the rest coming from early retirements and attrition.

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