American, Pilots Reach Tentative Contract

June 27, 2012

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Pilots' union leaders at American Airlines reached a tentative agreement with management on Wednesday on a cost-cutting contract aimed at heading off a threat by the carrier to abandon the current deal in bankruptcy and impose stricter terms.

The Allied Pilots Association board voted 9 to 7 to send the last and best offer to its membership for consideration, the union and the company said.

A vote by members is expected in coming weeks, prompting the judge overseeing American's case in New York to postpone a ruling that had been scheduled for Friday on whether to allow the airline to abrogate the pilots' contract, the airline said.

Ratification by pilots would end years of bitter negotiations and introduce a measure of stability to American's bankruptcy.

The airline is seeking more than USD$1.2 billion in cost cuts from its unions annually, a key factor in its decision to seek Chapter 11 protection from creditors last November.

The added certainty would allow the parties to shift focus to American's planned emergence later this year and whether it will do so alone or as part of a merger.

The six-year deal was revisited over the past several days after union board members rejected a previous proposal from American's parent, AMR.

Details of the tentative deal were not released. But proposed terms disclosed over the past few days included USD$315 million in annual cost savings - down from USD$370 million - no layoffs, annual pay increases, and a stake in the new company.

The union representing 10,000 pilots had no immediate comment beyond confirming the deal and the board's vote.

American said it believed pilots would carefully consider the proposal, which would be a watershed in the company's restructuring if it is approved.

"We believe this agreement addresses the needs of our pilots while achieving the goals of our business plan, and further demonstrates our commitment to reaching consensual agreements with all of our unions," American said in a statement.

A final agreement by pilots, the most powerful work group, is likely to clear the way for American's flight attendants and mechanics also to reach new contracts. The airline said it would meet those unions next week.

AMR is under pressure from unions to tie up with US Airways. American has said it would explore consolidation but prefers to exit bankruptcy as a standalone company.

US Airways struck a merger deal with America West in 2005 while still in bankruptcy, but the deal was necessary for its immediate survival.

American's case appears more along the lines of Delta Air Lines and Northwest. The two emerged from their bankruptcies with similar cost structures and then formed a partnership.

American's motion in bankruptcy court to vacate contracts follows a similar pattern by other US airlines that took the bankruptcy route.

Even in cases where carriers won court permission to throw out collective bargaining agreements, they wound up reaching consensual deals with those unions before exiting bankruptcy.