American Airlines' stay in Bankruptcy Court could become longer after two of its major unions delivered a split decision Wednesday on new cost-cutting contracts.
Pilots overwhelmingly rejected a proposed contract that would have given the pilots pay raises and a 13.5 percent equity stake when the carrier emerges from bankruptcy. Mechanics and store clerks approved their contract proposals. Flight attendants are in the midst of their ratification vote.
It's unclear whether U.S. Bankruptcy Judge Sean Lane will stick to his original date of Aug. 15 to decide whether to throw out the pilots' and flight attendants' contracts and impose concessionary terms. Attorneys for the company and the unions will meet with the judge today to discuss the results.
No Bankruptcy Court has ever rejected a pilots contract, and without labor deals in place, American's parent company, AMR Corp., will have a harder time submitting a reorganization plan for court approval.
"It's imperative to have those agreements in place before you submit the restructuring plan for creditors to vote on," said Jeff Erler, who leads the bankruptcy practice at Bell Nunnally & Martin in Dallas. "I would be surprised for the court to confirm a plan without those in place."
The terms of the pilots contract improved in recent months after Fort Worth-based American's three largest unions announced that they had reached conditional labor agreements with US Airways, which wants to merge with AMR while it is in bankruptcy.
The pilot vote was 61 percent, or 4,600, against and 39 percent, or 2,935, in favor. Only two pilot bases -- Dallas/Fort Worth and Chicago -- voted for the deal.
The proposed contract would have lasted six years and included pay raises and furlough protections for pilots while giving the carrier more flexibility to code-share with other domestic carriers like JetBlue Airways and Alaska Airlines.
"You're talking about an agreement that was six years and that was simply too long for most pilots," said Tom Hoban, spokesman for the Allied Pilots Association. A lower pay scale for the new narrow-body airplanes that American has ordered from Airbus and anger toward the current AMR management contributed to the rejection, he said.
"If we can't sit down with the corporation in the near term and fix some of these items in the tentative agreement, then we face abrogation on Aug. 15," Hoban said.
American spokesman Bruce Hicks said the results of the pilots' vote are disappointing.
"We respect the rights of our pilots to voice their opinions in the voting process," Hicks said. "We now must await a ruling by Judge Lane that will allow the company to implement the changes necessary to move forward with our restructuring."
American has asked Lane to reject union contracts under Section 1113 of the bankruptcy code and implement concessionary terms that the company says are needed to restructure.
Voting by the flight attendants will not conclude until Aug. 19, four days after the judge is expected to rule.
The pilots' vote could also slow any attempts by US Airways to merge with AMR. AMR has the exclusive right to submit its reorganization plan to the court until Dec. 28 without any third-party bids. The company has also said it won't pursue mergers or acquisitions after it finishes renegotiating its labor contracts.
Ed Stewart, a spokesman for US Airways, said the Tempe, Ariz.-based carrier is pleased with the results of the mechanics' and store clerks' votes but declined to comment on the pilots' vote.
"We have always believed that the resolution of the 1113 process was an important step in furthering the merger discussions with AMR," Stewart said. The carrier has yet to sign a nondisclosure agreement that it received from American last month to formally begin discussing a merger.
Mechanics approved their new agreement by a slim margin of 48 votes out of more than 9,400 cast, 50.25 percent in favor and 49.75 percent against. The store clerks also approved a new contract, 79 percent to 21 percent. Both groups are members of the Transport Workers Union.
With the ratification by the mechanics and store clerks, American has reached agreements with all seven TWU work groups.
"The ratified agreements will help American reach our targeted cost savings and increase productivity and network flexibility while preserving nearly 1,900 TWU jobs that would have been eliminated under the original term sheets and offering pay increases for TWU employees," Hicks said.
The vote results, posted on the TWU Local 565 website, were 4,776 in favor and 4,728 against. D/FW mechanics voted 85 percent against the contract, and area store clerks voted 91 percent in favor, the union said.
TWU international representative Don Videtich said this was a difficult decision for the union.
"We wouldn't have been surprised if it would have passed by more or if it would have lost by more," Videtich said Wednesday.
Videtich said the mechanics contract includes 15 percent pay raises over the six-year deal, lowers the employee portion of health insurance costs and improves the 401(k) plan.
And while the deal is concessionary, it's better than possibly having the bankruptcy judge throw out the mechanics' existing contract, Videtich said.
"What would have been worse is if we go to the judge and the judge abrogates the agreement and the company imposes other terms," Videtich said. "It's something that would have been worse than what we are dealing with."
Also Wednesday, after seven days of negotiations in Washington, D.C., American Eagle's pilots union said it has reached an "agreement in principle" on new terms with the regional carrier.
In a message to pilots, the Air Line Pilots Association said the new agreement includes no pay cuts and no reductions in the company's retirement contribution. The union's leadership needs to finalize contract language and approve the agreement before sending it out for a vote by its 3,000 members.
"Understandably, there will be intense interest in the details of the AIP, and it is our goal to provide as much detail and information as possible surrounding this negotiation. Our focus is currently set on drafting final contract language based upon the agreed principles," the message said.
Hicks said the agreement is a significant step in restructuring the company.
Eagle already has tentative agreements with its flight attendants and maintenance and fleet workers that members will vote on this month.
July traffic down
American has been reporting improved financial performance.
On Wednesday, AMR said passenger traffic declined 2.2 percent in July as the company cut flights in its network. Capacity was also down 2.2 percent and its consolidated load factor was 87 percent, the same as in July 2011.
But unit revenue continued to grow as the company said passenger revenue per available seat mile increased 4.7 percent compared with the same period last year. Of the airlines that have reported monthly results, AMR has led the industry four months in a row in unit revenue growth.
"Our continued trend of strong unit revenue performance reflects the strength of our network and alliances and the effectiveness of our overall strategy," spokesman Sean Collins said.