What if ... American hadn't avoided bankruptcy in 2003?

Labor and management united to save the airline then; but those moves have led to a wider gap between them


It took late-night confrontations, the resignation of its top leader and a near-collapse of the deal, but everyone at American Airlines Inc. breathed a collective sigh of relief in April 2003 when unionized workers finally agreed to deep pay cuts that kept the company out of bankruptcy

Today the carrier is making a profit. But it has unhappy employees, heavy debt and higher labor costs than most of its major competitors. It also doesn't get a lot of credit for having avoided the plunge into Chapter 11.

What should be a happy memory instead is a complex subtext in increasingly acrimonious labor negotiations.

Both sides wear the avoidance of bankruptcy as a badge of honor.

American officials point out that employees are getting much more in pensions and benefits than those at the airlines that went into bankruptcy; the unions reply that it was all thanks to their sacrifices, which saved the airline and created the wealth being pocketed by top executives.

Nearly five years after the court filings were put away unused, it's worth examining American's decision to avoid the bankruptcy path taken around the same time by United Airlines Inc., Delta Air Lines Inc., Northwest Airlines Corp. and US Airways Group Inc.

All of American's constituencies say they are happy that the airline avoided a trip to bankruptcy court.

Certainly there are no complaints from owners of AMR Corp.'s publicly traded shares, which were nearly worthless in early 2003 and are now valued at more than $5.5 billion.

But among American's executives and employees, there are much-discussed downsides.

In investor conference calls, meetings with employees and discussions with the news media, American officials frequently lament the carrier's cost disadvantage compared with peers that lowered their labor expenses in bankruptcy.

Jeff Brundage, American's senior vice president of human relations, acknowledges that the airline wishes it had the unit labor costs of its competitors that went through the bankruptcy process.

But "I also look at our nonlabor costs and say I'm glad we have that," he said.

"If you want to look at our business in its individual pieces, you could lust after a whole host of other things at other carriers."

American continues to fund generous pension plans and helps pay for retiree medical coverage, costs that the bankrupt airlines were able to chuck or reduce, he said.

"But we've also benefited by reducing much of our nonlabor costs, and we've done a good job as a result of avoiding bankruptcy and improving the balance sheet," Mr. Brundage said.

On the labor side, the pay cuts employees were asked to accept in 2003 were so deep that some union officials questioned at the time whether they would be better off letting the airline file for bankruptcy.

The Transport Workers Union agreed to pay cuts for its mechanics, dispatchers, fleet service clerks and other ground workers. But that path was better than the one that led to bankruptcy court, the union says today.

"We don't believe we would be better off in bankruptcy," said Dennis Burchette, lead negotiator for the TWU.

"Look at the people who have chosen that path. The only people who benefit in bankruptcy are lawyers and bankers."

Double-digit cuts

In 2003, American's three major unions - the TWU, the Allied Pilots Association and the Association of Professional Flight Attendants - agreed to contracts that helped give AMR the $1.8 billion in annual cost-cutting it demanded to avoid a trip to federal bankruptcy court.

The unions agreed to double-digit percentage cuts in pay rates plus reductions in benefits and changes in work rules to make the carrier more productive.

In retrospect, Allied Pilot Association spokesman Karl Schricker says, it was better than letting management, debtors and a bankruptcy judge decide how deep the cuts would go.

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