Pilots approve new contract with American
FORT WORTH, Dec 08, 2012 (Menafn - Fort Worth Star-Telegram - McClatchy-Tribune Information Services via COMTEX) --AMR Corp. will make its decision "soon" on whether to merge with US Airways now that American Airlines' pilots union has overwhelmingly ratified a new contract with the bankrupt airline.
Chief Executive Tom Horton said the Fort Worth-based carrier is close to completing its review of a merger with another airline.
"While we are confident the new American will be very strong, we are evaluating whether such a combination could create value for our owners and a positive outcome for our people and our customers," Horton said in a letter sent to employees Friday. "We expect to have a conclusion on this soon."
On Friday, American's pilots approved a new contract with the carrier, helping American conclude a major part of its bankruptcy restructuring. The pilots were the airline's only union that had not agreed to a new cost-cutting contract, having rejected an earlier proposal while mechanics, flight attendants and other work groups signed off on deals that trimmed thousands of jobs.
The Allied Pilots Association, which represents the pilots, said that 5,489 votes, or 73.8 percent, were cast in favor of the new contract while 1,951 pilots voted against it. The union said 96 percent of members eligible to vote cast ballots by Friday's noon deadline.
All of American's pilot bases approved the contract, with Dallas/Fort Worth pilots voting 79 percent in favor.
The six-year pact gives pilots pay raises and a 13.5 percent equity stake in the restructured company in exchange for more code-sharing with other domestic carriers and an expansion of regional jets in American's fleet.
APA President Keith Wilson said the ratification vote shows that "we're a unified pilot group, moving forward to work with the corporation, that we now have a 13 percent ownership stake in, to ensure that the corporation becomes a successful and viable carrier going forward."
Without a pilots agreement, AMR has been unable to file its restructuring plan with the bankruptcy court. The company has asked the court to extend its exclusive period to file a reorganization plan from Jan. 28 to March 11. If it is granted at a Dec. 19 court hearing, it will be the fourth extension received by AMR since it filed for bankruptcy more than a year ago.
American originally asked all employee groups to cut costs by 20 percent as part of 2 billion plan to reduce costs in bankruptcy. After months of negotiations, the unions, except for the pilots, agreed to cut costs by 17 percent.
In August, the pilots voted down an offer from American with 61 percent voting against, leading the union's president to step down. The new contract enhanced the August offer by moving pay rates on the A319 aircraft to the same pay band as the Boeing 737 and changing the formula American will use to adjust pilot pay in the contract's third year.
The ratified contract provides a 4 percent raise on the date of signing, then pay raises of 2 percent after years one, two, four and five. It also has a 5 percent profit-sharing program and does not include any pilot layoffs.
While Wilson said the contract will eventually raise the pilots' pay to the industry standard rate, the union is still in favor of a merger with US Airways.
"We believe American needs to grow stronger and faster than it can alone and we think the merger is the best path to make that happen," Wilson said.
US Airways declined to comment on Horton's letter or on the ratified agreement Friday, citing a nondisclosure agreement signed with American this fall to facilitate merger discussions. The airline, based in Tempe, Ariz., began suggesting a merger with American this year and quickly won support from American's unions. Under its proposal, the merged airline would retain the American name and continue to be based in Fort Worth, but be run by US Airways' top executive, Doug Parker.
Wall Street analysts said the pilots agreement will allow AMR's restructuring process to move forward.
"AMR creditors need a stand-alone business plan in order to consider the merits of a potential merger," J.P. Morgan analyst Jamie Baker wrote in a research note to investors on Friday. "A failure to ratify would have essentially stopped the clock, in our view, further dragging out an already complex process."
Analysts have said that a combined American and US Airways, which are No. 3 and No. 5 respectively in the industry, would be a more formidable competitor to the industry leaders, United Continental and Delta Air Lines.
Maxim Group analyst Ray Neidl said having a pilots contract in place will make it easier for creditors to decide which option will give them more value in the restructured American.
"We expect to see rapid movement going forward and, as chances improve for a merger, U.S. Airways' stock price to strengthen and unsecured claims at American to strengthen in price," Neidl said.
American's lawyers have asked the Bankruptcy Court to consider approving its newly ratified contract with the pilots at a hearing scheduled for Dec. 19.
The bankruptcy code requires at least 21 days notice before a new business contract can be approved by the court. However, American's attorneys argue that as soon as the new agreement is put into effect it will "generate considerable annual cost savings to the Debtors."
"Both American and the APA are anxious to have the new CBA approved by the Court and promptly implemented so that the significant benefits attendant thereto can be realized for all of the parties in interest," the court filing made Friday afternoon said.
Local leaders applauded the new labor agreement. Jeff Fegan, who is chief executive of Dallas/Fort Worth Airport, and the mayors of Fort Worth and Dallas said in a joint statement that the new union contracts "set the stage for the company's emergence from bankruptcy."
"A strong American Airlines is good for DFW Airport and good for the citizens and businesses of North Texas," they said.
With the pilots agreement ratified, Horton said, the company is at the "beginning of the new American," and is working to refresh its brand in the near future.
"I hope you share my optimism and can feel the recovery that's started," Horton said.
Andrea Ahles, 817-390-7631
Twitter: @Sky_Talk
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