American denied request to reject pilot contract

Washington DC
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The US Bankruptcy Court for the Southern District of New York denied American Airlines' request to reject its pilots contract, in a decision released after the close of business today.

Judge Sean Lane says that the Fort Worth, Texas-based Oneworld carrier did not make a sufficient argument for its proposed changes to furlough and domestic codeshare practicies in its section 1113 request, in his decision.

American has the ability to furlough up to 2,000 pilots under its existing contract with the APA but has only outlined a need to furlough 400 under the business plan it outlined with the court, says Lane. He adds that a force majeure clause in the contract also allows American to furlough additional pilots due to unexpected events.

The airline's proposal to enter into unlimited domestic codeshares is greater than the industry norm, writes Lane, but he notes that American did establish why it needs the ability to expand its current agreements in the US.

"Given the significance of these two provisions collectively to American's proposal, the court finds that American has not shown that the proposal is necessary as required by section 1113," says the judge.

American can submit a new section 1113 application with modified arguments on furloughs and codeshares within the next three days, says Lane.

"We appreciate judge Lane's thoughtful consideration of our Section 1113 motion regarding the pilots' contract," says American. "We will adjust those [two] elements, resubmit the term sheet to APA [Allied Pilot Association] and, as the court suggested, renew our 1113 motion for our pilots by Friday."

The airline had hoped to achieve significant cost savings by rejecting its labour contract with its pilots, who are represented by the APA. It was widely expected to implement layoffs and significant pay cuts if the request was approved.

Keith Wilson, president of APA, says the ruling is a "rare chapter 11 victory" for labour, in a letter to the carrier's pilots. "Your APA leadership is committed to securing a consensual, industry-standard contract that respects your sacrifices and recognises your true worth as professionals," he says.

The union supports a merger with US Airways and has already reached a tentative agreement with the Tempe, Arizona-based Star alliance carrier if a merger were to take place.

American's pilots rejected a tentative agreement between the carrier and the union by an 11-percentage point margin, with 61% voting against the contract and 39% for it in a vote that closed on 8 August.

The six-year contract included an at least 15% increase in base pay during the period, a significant increase in the number of regional jets that American could operate and would have allowed the airline to enter into unlimited domestic codeshare agreements with other carriers.