American Airlines asks bankruptcy judge to ditch union contracts

Another corporation wants to cut pay of 20 percent of union workers. BBB

Apr. 23, 2012
American Airlines asks bankruptcy judge to ditch union contracts
By Maria Recio | McClatchy Newspapers

More than 300 American Airlines’ transport workers and flight attendants rallied in protest in front of the U.S. bankruptcy court Monday where their company asked a judge to wipe out their labor contracts and unions touted a possible bid by USAirways Inc. to take over the Fort Worth, Texas,-based carrier.

“We bailed them out, AA sells us out,” said a sign carried by Frank Ricci, a Transport Workers Union member from New York’s John F. Kennedy International airport. He stood across the street from the court on a chilly, cloudy day.

“I think this is an attack on the middle class,” said Ricci of the pay cuts and benefit reductions the company is asking U.S. bankruptcy judge Sean Lane to impose after abrogating contracts for the pilots, flight attendants and transport workers.

American wants to reduce its labor costs by $1.25 billion a year. Monday marked the beginning of the so-called 1113 process, which gives American the opportunity to have the court eliminate existing contracts. After this week’s arguments by American attorneys, followed by labor’s presentation on May 14, the court is expected to rule by June 6.

A fiery Jim Little, president of the Transport Workers Union, told the crowd, “It’s the blame game. They want to blame labor.”

The union, which represents mechanics and ground-crew workers, will send management’s latest contract proposal to its membership this week. American says it has significantly fewer job cuts than an earlier one, but union members clearly were frustrated by the cuts and financial terms.

“We’re sick of it,” said Darrin Pierce, TWU president at Dallas/Fort Worth Airport. “For it to come to this is unacceptable. We felt New York was where we had to come to take a stance.”

J.P. Sylvestre, a 16-year flight attendant based in Miami, said of the USAirways merger idea, “It’s the only chance we’ve got.”

“We’re angry _ very, very angry,” said flight attendant Raymond Lewis of New York’s JFK Airport and an official with the Association of Professional Flight Attendants, which represents American’s flight attendants. “We’re trying to save our jobs.”

American, which sought bankruptcy protection in November, is walking a fine line with its workers, praising them while saying it cannot survive without significant cost savings from labor.

Inside the ornate court building, which also houses a museum, American started the proceeding to abrogate the labor contracts with attorney Jack Gallagher saying, “no one wins a 1113 proceeding.”

“American has the highest labor costs in an intensely competitive industry,” he said. “It’s that simple. We need to fix this business.

“We know that it’s not our non-labor costs. We have the highest labor costs in the country and that is an absolutely untenable position,” said Gallagher.

The company wants pay cuts of 20 percent across the board and more flexibility in restrictions now in labor contracts, such as what size aircraft union pilots will fly. While it has agreed to freeze its pensions, the carrier also wants to change to a defined contribution plan instead of a defined benefit plan, and also to make workers pay more for health benefits.

In opening arguments, attorneys for the pilots’ union and the flight attendants’ union both brought up USAirways, despite the judge’s having granted American exclusivity to present a reorganization plan in the proceeding until September.

Allied Pilots Association attorney Edgar James said the judge should look at American’s business plan and consider merger as an option. “USAirways/American Airlines would create the largest airline in the world,” James said. “You need consolidation. You need heft.”

“They have failed to consider consolidation,” James said.

American spokesman Bruce Hicks said during a break: “It has nothing to do with this hearing.”

In a letter to employees Monday, American Chief Executive Officer Tom Horton wrote about USAirways reaching a non-binding contract agreement with the three unions.

“I want you to know these developments in no way alter our course. We are making significant progress, and the court has granted us the exclusive right to pursue our plan of reorganization at least through the end of September, and this may be extended further,” said Horton.

The company got a boost from a majority of the Unsecured Creditors Committee, made up of creditors including three banks, Hewlett Packard Enterprises LLC, Boeing Aircraft, as well as the three unions. “The committee supports the robust, stand-alone business plan,” said attorney Jack Butler. “American has met its burden of proof. The current status quo must be abrogated.”

Feelings ran high throughout the day.

James brought up the hundreds of millions of dollars in bonuses that American gave top management after labor made concessions in 2003. “The executive compensation created an incredibly toxic environment at American,” he said.

American’s lead expert witness, Dan Kasper, senior consultant of Boston-based Compass Lexecon, charted out American’s labor costs compared with other so-called legacy carriers such as United Airlines and Delta Airlines, as well as low-cost carriers such as Southwest Airlines and Jet Blue Airlines.

Kasper said that excluding fuel costs, American’s cost per available seat mile “is 70 percent higher than low-cost carriers.”

American’s labor costs per available seat mile are 4.25 cents while the industry average is 3.43 cents a mile and low-cost carriers are 2.38 cents a mile.

He also warned about the looming prospect of competition from Southwest Airlines in 2014 when the restrictions on flights to and from Dallas Love Field are lifted. The Wright Amendment, named for former Speaker Jim Wright, D-Texas, originally limited Love Field service to states bordering Texas, a limit that Congress expanded to a few other states.

Kasper calculated that American stood to lose $800 million on its top 28 routes out of DFW from low-cost carriers once the Wright Amendment is lifted.

But to employees battered by years of hard times, the prospect of more cuts is hard to take. “I had to take a second job eight years ago,” said Donna Gaspero, an American flight attendant at the rally.

The chants included, “AA got bailed out, we got sold out.”