Court Allows AMR To Void Pilot Contract

 - September 5, 2012, 3:28 PM
American Airlines can now unilaterally impose contract concessions on its pilots.

AMR, American Airlines’ parent company, succeeded in its second effort to void its contract with the Allied Pilots Association Tuesday afternoon, when, in a ruling in U.S. bankruptcy court in New York, Judge Sean Lane rejected the union’s contention that American Airlines’ financial condition had improved enough since its Chapter 11 filing last November to avoid the measure. 

The latest ruling reverses an August 15 decision in which Lane denied AMR’s earlier petition to negate the contract based on the company’s “overreaching” efforts to weaken furlough protections and loosen its domestic code-sharing limitations. AMR since modified the proposal, to Lane’s satisfaction. 

“There’s no reliable forecast for what to expect next in light of Judge Lane’s decision [yesterday] to grant AMR management’s revised motion to reject our contract,” APA president Keith Wilson wrote in a letter to the union membership. “About the only prediction I’m willing to make is this: we’ll find out whether management decides to proceed with caution, or whether the urge to take punitive measures carries the day.”

The ruling allows AMR to proceed with its efforts to exit Chapter 11 without the need for a negotiated settlement with its pilots. By August 8 all seven of American’s Transport Workers Union work groups ratified tentative agreements with management and on August 19 members of the Association of Professional Flight Attendants followed suit.

Judge Lane’s decision could also affect the dynamics of AMR’s negotiations with US Airways over a potential merger of the two companies. Talks between US Airways and AMR reached a formal stage on August 31, as the two companies begin to exchange “certain confidential information” under the terms of a nondisclosure agreement. The deal calls for both companies to work in good faith in evaluating the possibilities of a combination, marking an apparent softening of AMR’s previous stance against any merger talks before it exited Chapter 11 bankruptcy protection.

In a statement, the companies said they do not expect to make any further announcements on the status of any discussions “unless and until” they either break off negotiations or enter into a transaction. Perhaps more significantly, the two sides agreed not to talk with other parties about their potential merger. That provision, however, does not preclude AMR from entering nondisclosure agreements with other potential suitors. In fact, British Airways parent IAG has signed a similar deal with AMR.

The nondisclosure agreement between AMR and US Airways effectively ends any further talks between US Airways management and the three major employee unions at American Airlines, all of which issued a joint statement several months ago announcing their support of the merger and that they had agreed to the terms that would govern collective bargaining agreements at the merged airline.