Dec. 08--Pilots at American Airlines on Friday ratified a new union labor contract in a move that may help the airline emerge from bankruptcy protection and pave the way for a merger with US Airways, which reportedly has made a formal bid to combine two of the nation's largest carriers.
The new pilot contract, among other terms, includes pay raises and a 13.5 percent stake in the company in exchange for allowing the airline to outsource more of its flying to regional jets and airline partners.
Friday's ratification removes uncertainty created by the unresolved pilot contract, so creditors in the bankruptcy "can focus without distraction on the underlying strategic and financial merit of an AMR/US Airways merger," the pilots union said recently in a missive to members.
And the pilots' 13.5 percent stake in the company, which besides being worth at least $100,000 per pilot on average, gives the union "important influence over the restructuring process, including input in the selection of a new AMR leadership and the optimal strategic alternative," said Dennis Tajer, spokesman for the Allied Pilots Association.
Jamie Baker, a stock analyst with JPMorgan Securities, agreed in a research note to clients, writing "ratification helps ease the way towards a potential merger. ... A failure to ratify would have essentially stopped the clock, in our view, further dragging out an already complex process."
US Airways' merger proposal could value the combined airline at around $8.5 billion, and a deal could come as soon as January, Reuters reported Friday, citing two unnamed sources.
The union contract agreement with AMR was approved by 74 percent of Allied Pilots Association members overall and 86 percent of Chicago-based pilots, the union reported. AMR and pilots have been trying to agree on a new collective bargaining agreement since 2006.
Thousands of American Airlines passengers in late September and early October were affected by the labor dispute between management and pilots when the airline experienced rampant delays and cancellations nationwide, which also involved hundreds of flights at O'Hare International Airport. The airline blamed pilots for the operational failures, although the Allied Pilots Association denied organizing a work slowdown.
Earlier this week, a union message to pilots said the contract is not perfect, but there was a limit to what can be achieved in bankruptcy. "It's not a 'scorched earth' bankruptcy contract," wrote APA Vice President Tony Chapman. "It's a contract that retains much of what constitutes our quality of life and eventually closes the pay gap with our brethren at United and Delta."
Denise Lynn, American Airlines senior vice president of people, said in a statement that the contract "is an important step forward in our restructuring."
"Today's ratification gives us the certainty we need for American to successfully restructure, providing opportunity and growth for all of our people and stakeholders," Lynn said.
Pilots are the last union at American to reach a deal with the airline. But even with ratification of the contract, pilots say they support an AMR merger with US Airways, with whom all AMR unions already struck labor agreements.
American Airlines officials have said they prefer the airline to emerge from bankruptcy as a stand-alone company.
"This ratified agreement should not in any way be viewed as support for the American stand-alone plan or for this current management team," Tajer said. "We continue to support an American Airlines-US Airways merger as the best way to strengthen our airline and enhance our pilots' long-term career prospects. ... This contract represents a bridge to a merger with US Airways."
Ray Neidl, aerospace analyst with Maxim Group, sees pros and cons to a combination with US Airways.
"Advantages of a merger would give the enlarged entity the size to compete with Delta Air Lines and United Airlines, both of which overtook American after their own mergers with other carriers in recent years," Neidl wrote in a note to investors Friday. "We believe the disadvantage would be that it would be a difficult merger to engineer and could create major disruptions over at least the next two years."
Tom Horton, AMR's chief executive, said in a letter to employees Friday that management is still evaluating a merger with US Airways. "We expect to have a conclusion on this soon," he wrote.
American Airlines, the No. 2 carrier in the Chicago region, entered bankruptcy protection in an attempt to cut labor costs, as its major competitors already have done.
The largest carrier in the Chicago region, United Continental Holdings, has also experienced contract disputes with pilots this year. But Chicago-based United Continental, parent of United Airlines, also has a tentative agreement with its pilots. Ratification voting on that contract opened Nov. 30 and runs through Dec. 15.
Copyright 2012 - Chicago Tribune
