American Airlines pilots reject tentative deal

@CNNMoney August 8, 2012: 4:27 PM ET
American Airlines mechanics have ratified a tentative deal but the pilots union has rejected its proposed contract.


NEW YORK (CNNMoney) -- American Airlines' pilots have overwhelmingly rejected a tentative labor agreement, making it more likely the bankrupt carrier will impose even harsher concessions on the 8,000 pilots than the deal proposed.

The result, announced Wednesday, came as mechanics and other American (AAMRQ, Fortune 500) employees represented by the Transport Workers Union barely ratified their own tentative agreement. Cuts among the mechanics will be steeper than the ones facing the pilots, with much of the airline's heavy maintenance work being outsourced.

U.S. Bankruptcy Court Judge Sean Lane is set to rule next week on the airline's request to void the existing contract with the Allied Pilots Association -- a move likely to open the door to even deeper concessions.

But while American management is likely in the driver's seat in its request to the bankruptcy court, Joe Schwieterman, a professor at DePaul University, said the pilots' opposition and the split among mechanics is bad news for the airline's hopes of putting its labor problems behind it.

The labor unrest could make it more likely a hostile bidder, such as US Airways (LCC, Fortune 500), could end up making a play for American, either during the bankruptcy process or as it emerges from bankruptcy, he said.

US Airways is on record as saying that it is interested in American, and has reached tentative agreements with the carrier's unions that would give them better terms and conditions than American management offered. A US Air spokesman had no comment on Wednesday's votes.

American, which filed for bankruptcy in November, has said it's engaged in a review of "the full range of strategic alternatives" and is in contact with several potential bidders. But US Airways won't get a chance to present its case to the bankruptcy court until after the judge rules on the pilots' contract.

Even if American remains independent, labor unrest at an airline can lead to service problems and lost business, he said.

"The days operating a dysfunctional airline are pretty much over," said Schwieterman. "You can't survive in this market place with labor dragging its feet. They're playing with fire."

Still American is in stronger position in relation to its unions, at least in the near term.

"We are pleased that the ratification of the [TWU] agreements allows us to move forward now, and we are, of course, disappointed with the outcome of the pilot vote on that tentative agreement," said Bruce Hicks, spokesman for American.

The rejected offer would have preserved all 8,000 pilots' jobs at the airline. If the bankruptcy court agrees to void the current contract, management has signaled it plans to eliminate about 5% of pilots' jobs.

By comparison, the TWU contract is likely to eliminate about 5,500 of the 24,000 unionized ground workers at the airline, and 2,300 flight attendants out of 17,000. A contract ratification vote by flight attendants is still pending.

TWU spokesman Jamie Horwitz said accepting those job losses and other concessions was a better deal than they could hope for if they had "thrown themselves on the mercy of court."

With the vote, the pilots passed up the airline's offer to own 13.5% of the stock in the airline when it emerges from bankruptcy. The pilots also would have received immediate pay increases. Among the concessions were the termination of one pension plan and the freezing of another. There are also changes in the cost of medical insurance and limits on sick and vacation days in the two proposals.

The pilots union's board was itself split on the deal, passing it by a 9-to-7 vote. While the board did not specifically urge members to vote for the deal, it warned that the best way to control their own destiny was to keep it out of the hands of the bankruptcy judge. To top of page

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