Canadian Manufacturing

American Airlines looks to cancel union contracts in bankruptcy flap

Lawyers said the company must make painful cuts in labour costs to survive in an increasingly competitive industry.



NEW YORK—Lawyers for American Airlines and its labour unions argued Monday in federal bankruptcy court over the best course for the financially troubled company.

American’s lawyers said the company must make painful cuts in labour costs to survive in an increasingly competitive industry. Union lawyers suggested that there is a gentler alternative—a merger with US Airways.

American’s parent, AMR Corp., has lost about $12 billion since 2001 and filed for bankruptcy protection in November. The company says it is saddled with higher labour costs than competitors and must eliminate 13,000 union jobs, freeze or terminate pension plans, curb health benefits, and change work rules.

Without union approval, American can only make those cuts—saving $1.25 billion a year—if the bankruptcy court lets it throw out the union contracts. Otherwise, American says, it can’t survive.

Lawyers for unions that represent nearly 55,000 pilots, flight attendants and ground workers at American said the airline’s turnaround plan is unfair and unworkable. It’s endorsed only by the company’s paid witnesses, said union lawyer Edgar N. James.

The union lawyer was referring to last week’s bombshell—American’s unions endorsed a potential takeover bid by US Airways Group Inc., the fifth-largest U.S. carrier, which has failed in previous merger attempts with United and Delta. Union officials approved tentative contracts that would kick in if US Airways can take control, with terms including pay raises and fewer job losses.

US Airways CEO Doug Parker says he would keep both airlines’ hubs and planes, stick with the American Airlines name, and create a bigger company that could compete against United and Delta. But AMR CEO Thomas Horton says he’s not interested in a merger until his company finishes cutting costs in bankruptcy.

American has exclusive rights to present a restructuring plan to the court until Sept. 28. The unions and other creditors could ask the court to cut that period short if there is a legitimate alternate proposal.

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