AMR Bankrutpcy Puts Eagle Divestiture On Hold

 - December 14, 2011, 11:41 AM
American Eagle's Embraer ERJ 135s appear particularly susceptible to lease rejections under Chapter 11. (Photo: Kirby Harrison)

AMR Corporation’s bankruptcy filing in late November will at least delay the planned divestiture of its American Eagle subsidiary, as well as throw into disarray any agreements forged between leaders of the Air Line Pilots Association (ALPA) and airline management.

In October the sides had reached terms on a new air services agreement to accompany the divestiture of the regional airline. Now, it appears the pilots and the rest of the company’s employee groups face far more pressing worries.

Although at press time American still needed to file plans for its post-reorganization fleet with the bankruptcy court, it appears likely to try to reject leases on its least profitable airplanes, namely its 37- and 44-seat Embraer jets. Meanwhile, leases on many of its ATR 72s will soon lapse, and the airline has already notified ALPA of possible furloughs of 119 Dallas/Fort Worth-based ATR pilots. In a December 20 letter to employees, American Eagle president and CEO Dan Garton said Eagle will stop flying ATR 72s from DFW by January 31, replacing them with Embraers, according to The Dallas Morning News. It plans to return 21 turboprops to their lessor, including 15 active ATR 72s at DFW and six airplanes that have been grounded. Remaining ATR turboprops will continue to operate in Miami and San Juan “for the near term.”

Under an agreement reached between the regional pilots and management for divesting Eagle from AMR, the sides agreed to an air services agreement (ASA) that would guarantee Eagle a minimum of 135 jets at the end of its 10-year term. It also guaranteed Eagle its entire existing fleet for a period of five years, rather than the two years management originally sought, when talks reached an impasse in early October.

Now bankruptcy essentially voids the tentative agreement, and potentially the original ASA, which allows American to remove all ATR turboprops from its fleet without replacement and gives the airline the right to begin removing 40 jets a year from the fleet starting in January 2014.

Depending on what the bankruptcy court allows, AMR could instead act to accelerate its plans to shed Eagle airplanes, and leave the pilots without any of the recourse they thought they had secured with the now voided tentative agreement reached in mid-October.

In a November 29 letter to American Eagle Master Executive Council chairman Anthony Gutierrez, Garton wrote that AMR “is looking to Eagle and its affiliates to address its cost disadvantages just as it expects American to do so.” To what extent AMR expects Eagle to absorb the pain will remain unknown for “several weeks,” added Garton, and much will depend on any scope-clause relief AMR can extract from its mainline pilots.