Bankruptcy Judge Voids American Airlines Pilot Contracts

By Scott Gordon
|  Wednesday, Sep 5, 2012  |  Updated 4:32 AM PDT
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A federal bankruptcy judge has thrown out American Airlines' contract with its pilots union.

Scott Gordon, NBC 5 News

A federal bankruptcy judge has thrown out American Airlines' contract with its pilots union.

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Bankruptcy Judge Throws Out AMR Pilots' Contract

A U.S. bankruptcy judge threw out the union contract of American Airlines' pilots as part of the company's restructuring.

AA Pilots Prepare For Court Battle

American Airlines pilots are in for quite a fight Tuesday afternoon. Their union, the Allied Pilots Association, is battling in bankruptcy court to keep their contracts and fears the judge s ruling won t be in their favor.
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Judge Sean Lane has given American Airlines approval to reject collective bargaining agreements with the Allied Pilots Association.

The decision invalidates the current contracts with the APA and allows American Airlines to impose cuts.

American Airlines spokesperson Bruce Hicks released the following statement:

“We appreciate Judge Lane’s thoughtful consideration of our renewed Section 1113 motion regarding the pilot contract. But, there is no sense of accomplishment in this outcome. We worked very hard to reach a consensual deal with our pilots, just as we did with each represented employee group. However, the pilots rejected the tentative agreement on August 8, so it is time to move forward."

“Judge Lane’s ruling is very important because it will allow us to implement the changes that are necessary for our successful restructuring. We will be sharing the implementation plan with the APA, and will communicate details of the plan to pilots in the coming days."

“Our goal remains to reach a consensual agreement with our pilots, and we are resolute in our efforts to put American Airlines in a position to win and create new opportunities and a brighter future for our people.”

Officials with the pilots union say they "will still do our job professionally" while bankruptcy proceedings continue.

Judge Lane says parts of the APA's argument were "flawed" while giving an explanation of his decision.

More updates expected soon from NBC 5's Scott Gordon, who is in the courtroom, and from NBC 5's Ray Villeda, who is speaking with APA officials.

AA, Pilots Battle in Court

American Airlines on Tuesday urged a bankruptcy judge to invalidate its contract with pilots and allow it to impose cost-saving cuts.

As arguments kicked off at U.S. bankruptcy court in New York, American's lawyers asked Judge Sean Lane to limit the hearing to two issues: Furloughs and domestic code-sharing.

"In American's view, there is very little work left to be done," said company attorney Neal Mollen.

In a surprise move last month, the judge refused to toss out the pilots' contract, agreeing with the airline's position that large labor cuts are necessary but saying it over-reached on those two issues.

The company then withdrew its changes on furloughs and set new limits on code-sharing agreements, allowing American to make deals with other airlines. Pilots consider it "outsourcing."

"Delay serves the interests of nobody except the pilots," Mollen said. "We've reached agreement with eight or nine (labor groups). The pilots are the last man standing."

Kathy Krieger, a lawyer for the Allied Pilots Association, argued the hearing should be more broad because the company has presented a new business plan and a new way to calculate cost-savings and revenue. The airline denied it has a new business plan.

Judge Lane frequently interrupted Krieger's statement with questions, asking if it is fair for the union to take numbers used in settlement talks and hold them against the airline.

"Would I not set a horrible precedent by encouraging the parties to compromise and then using that against them?" the judge asked.

The pilots' attorney said it was fair to consider changes in the business climate and that if the situation were reversed, the company could have pushed for further cuts.

"The union is not seeking to make this a one-way ratchet," Krieger said. "If conditions worsen, there's nothing to stop them from saying we need more concessions."

The hearing was set to wrap up Tuesday afternoon.

"I think the parties are arguing about legal issues," the judge said before taking a short recess at mid-afternoon. "The facts are the facts. I think I've got the facts."

Experts Expect Judge to Toss Out Contracts

Bankruptcy experts expected the judge to toss out the pilots’ contract this week.

Mark Ralston, an attorney who specializes in bankruptcy, expects the company to propose a plan to exit bankruptcy.

“I think they’re going to be taking a look at potential mergers with US Airways and others,” said Ralston, “I think they’re also going to investigate exiting as a standalone entity and make a decision as to which way to go and propose a plan along those lines.”

Still, he points out, sooner or later both sides will have to negotiate a new deal.  That’s because, if the company is allowed to impose its own working terms, those will only be good while the company is in bankruptcy, Ralston said.

“Essentially, it’ll be back to negotiating a permanent deal,” he said.

While Ralston believes the company holds a lot of bargaining power, he said AA can’t dictate a contract to the pilots. Still he said “the alternative for the pilots is to not have a contract, they also have an incentive to try to gain some certainty to what  their financial picture will be.”

NBC 5's Ray Villeda contributed to this report.

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