American Airlines pilots back new contract

story by Mary Schlangenstein
Bloomberg News

American Airlines pilots approved their first new contract since 2003, securing the labor savings sought by parent AMR Corp. and giving a possible boost to US Airways Group Inc.’s push for a merger.

The accord was approved by 74% of those voting, the Allied Pilots Association told members today (Dec. 7). The six-year contract will give pilots a 13.5% stake in the post- bankruptcy company and annual pay raises while freezing their pension and requiring longer work hours.

American is the largest carrier, by enplanements, among Arkansas' three largest commercial airports – Fort Smith Regional Airport, Northwest Arkansas Regional Airport and the Little Rock National (Bill & Hillary Clinton National Airport).

Pilots are the last work group to accept pay, benefit and work-rule changes as Fort Worth, Texas-based AMR crafts a reorganization plan. Creditors have sought a resolution on labor expenses so they can weigh AMR’s strategy to exit bankruptcy as an independent carrier against a US Airways takeover bid.

“We believe this helps pave the way to a potential merger,” Jamie Baker, a JPMorgan Chase & Co. analyst in New York, said in a note to investors. He said that without a union accord, the creditors would have been unable to compare the plans, “further dragging out an already complex process.”

American’s three unions are on AMR’s unsecured creditors committee, which has a voice in major decisions in bankruptcy. Jack Butler, the panel’s attorney, met with pilots in the days before the vote, warning them of the risks of rejecting the contract, said three people familiar with the matter who asked not to be identified because the sessions were private.

US Airways sent AMR a merger proposal in mid-November that called for creditors to receive a 70% stake in a combined airline, the Wall Street Journal said today, citing unidentified people familiar with the matter. Andy Backover, an AMR spokesman, and Ed Stewart, a US Airways spokesman, told Bloomberg News they had no comment on the report.

American’s pilots union reiterated its backing for a tie-up with Tempe, Arizona-based US Airways, which would create the world’s biggest carrier by passenger traffic, and distanced itself from CEO Tom Horton and his leadership team.

“This ratified agreement should not in any way be viewed as support for the American stand-alone plan or for this current management team,” said Dennis Tajer, an APA spokesman. “We continue to support an American-US Airways merger as the best way to strengthen our airline.”

American said the new pilot contract responds to the priorities of the pilots union, which last agreed on a contract more than nine years ago and had been in talks with the airline dating to 2006.

“Today’s ratification gives us the certainty we need for American to successfully restructure, providing opportunity and growth for all of our people and stakeholders,” said Denise Lynn, American’s senior vice president-people.

American’s 8,000 pilots rejected a previous tentative agreement with 61% of the vote in August, prompting the third-largest U.S. carrier to throw out the existing contract and begin imposing changes to trim spending.

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AMR said industry-leading labor costs helped push it into bankruptcy. The company sought to pare expenses 17% for each work group, including $315 million a year from pilots in pursuit of $1.06 billion in labor savings.

he company is eliminating 10,000 positions, with all but 1,800 of the cuts coming through early-out programs and attrition.

APA and American’s other unions agreed in April to contract terms with US Airways, contingent upon a merger. American retains the exclusive right to file a reorganization plan until Jan. 28. A request for an extension to March 11 is pending before the U.S. Bankruptcy Court in Manhattan.

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