American Airlines on Tuesday made its most forceful case yet to terminate its labor contracts as the company’s top restructuring official laid out the airline’s bleak finances in bankruptcy court.
In a precise, deliberate manner, Beverly Goulet, American’s vice president for corporate development and treasurer, told the U.S. Bankruptcy Court that the carrier had lost just under $1.1 billion in 2011 and that it needed to save $1.25 billion a year in labor costs over the next six years — $990 million a year of that from the company’s three unions.
By cutting costs, getting more flexible work rules to fly regional jets and expanding its domestic flight offerings through code-sharing with other airlines, Goulet said, “we believe that the business plan will generate $1 billion of incremental revenues” annually.
“The goal, obviously, is to emerge from bankruptcy (with) sustainability liquidity and a balance sheet that allows us to invest in the business,” said Goulet, who was appointed last year by CEO Tom Horton to address what American called its “substantial cost disadvantage” to rival carriers.
The Fort Worth, Texas-based carrier, which entered bankruptcy in November, is seeking U.S. Bankruptcy Judge Sean Lane’s approval to terminate its contracts with pilots, flight attendants and transport workers.
The so-called 1113 proceeding — which began Monday with the airline making its case to restructure with a management plan — requires American and labor unions to continue negotiations under the rules of the Railway Labor Act, which applies to airlines as well as railroads. The unions will present their case the week of May 14 and a ruling is expected by June 6.
The prospect of a takeover of American by USAirways hangs over the hearing since the unions have come to a preliminary understanding with the Phoenix-based carrier on contract terms for a merged company.
However, the judge has given American exclusive right through the end of September to come up with a plan with labor to emerge from bankruptcy.
In an unusually candid moment in court late Tuesday afternoon, the judge interrupted Robert Clayman, an attorney for the flight attendants’ union, who was asking Goulet “whether American will choose to pursue any combination down the road.” Referring to a letter that Horton sent to employees on Monday that said USAirways had reached a non-binding contract agreement with the unions, the lawyer said it was “critical” for labor to know whether the airline’s business plan was “an excuse or a pretext,” or if American officials’ eventual goal was a merger.
“I don’t agree with you,” Lane shot at Clayman, saying that the lawyer could not ask about confidential business information.
“I’m being asked to make an 1113 determination; that is what I’m going to do,” Lane said. “This case is like an iceberg. I see a very small piece above the water.” Adding that he had to avert his eyes from news reports that might touch on other aspects of the company, he said, “I have to decide what’s in front of me.”
Goulet testified that prior to the bankruptcy filing, Horton had said “that he believes consolidation has been good for the industry and might well have a role as we move forward.” But she acknowledged that the company had not considered a merger as part of its plan to emerge from bankruptcy.
The unions see the possibility of a USAirways takeover as a solution that wouldn’t cause the kinds of cuts in pay and benefits proposed by American. On Monday, hundreds of flight attendants and transport workers staged a demonstration in front of the courthouse to protest the company’s move to terminate contracts and to support a USAirways takeover.
Allied Pilots Association president Dave Bates, who is attending the hearing, said outside the courtroom that USAirways “plans to submit an alternative reorganization plan” to American — a move he supports because “a standalone plan is not viable in the long term.”
Bates said that he was assured by USAirways CEO Doug Parker and president J. Scott Kirby that if a merger happens, the combined company’s corporate headquarters would remain in Fort Worth and the new, larger carrier would keep the American Airlines brand.
“I’m trying to keep the best options for the airline, my members and the community,” Bates said.
But American senior vice president Jeff Brundage told reporters Monday evening that “this USAir thing is a creation of USAir and the unions. It’s not real.”
Bates, in response, said, “It’s very real.”
Brundage said American’s effort to emerge from bankruptcy through the 1113 process would restore the company to viability “and protect as many jobs as possible.”
With the airline’s employees angered by the prospect of having their contracts abrogated, the presidents of the three unions were in court on the first day of the hearing: Bates, Association of Professional Flight Attendants president Laura Glading and Transport Workers Union International president Jim Little. Bates and Glading were also in the courtroom Tuesday, although Little was not. The TWU is expected soon to put forward a new contract proposal from American to its membership for a vote.
American will continue making its case before the judge this week.