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Airline makes case against labor contracts

American Airlines argued before a federal bankruptcy judge Monday that its union contracts must be changed to make the company financially stable.

The airline lost more than $10 billion in the decade leading up to its declaration of bankruptcy in November. During that same period, most of its major rivals used the bankruptcy process to cut wages and benefits.

American says it is now saddled with higher labor costs. So it wants to eliminate 13,000 union jobs -- about one in every four union workers -- freeze or terminate pension plans, curb health benefits, reduce time off, and impose many other cuts.

"A restructured job is better than no job at all," Jack Gallagher, a lawyer for the airline, argued in court. Noting that once-great airlines such as PanAm and TWA have disappeared, he said, "We don't want to join them."

The airline also told Judge Sean H. Lane that management costs will be cut by 20 percent through layoffs and wage cuts.

The hearing is about more than just American, the nation's third-biggest airline. If the company gets its way, it will cement a decadelong overhaul of the airline industry that has seen major carriers use the bankruptcy process to cut wages and eliminate cumbersome union work rules.

The unions are angry about American's plan to cut jobs. They say management has failed to grow the airline and bring in more revenue, unfairly blaming workers for its woes. Even in bankruptcy, they argued, the airline is doing little to change its ways.

"Other than the company's paid witnesses, you are going to find few who say the airline's business plan makes sense," said Edgar N. James, lawyer for the pilots' union.

Three days ago, the unions complicated the bankruptcy process by backing a potential US Airways bid to take over American's parent company, AMR Corp. In effect, they were saying that US Airways' management could run American better, even though American has the exclusive right until Sept. 28 to submit a restructuring plan to the court.

US Airways' plan would save about 6,200 jobs at American, or nearly half the jobs that AMR's management wants to eliminate. Doug Parker, the chairman and CEO of US Airways Group Inc., has said he would keep both airlines' hubs and planes to create a bigger company.

The bid for AMR is US Airways' latest attempt to combine with another carrier. It tried to merge with Delta and United in the last decade, but was rebuffed by both.

Lawyers for both sides on Monday danced around -- but didn't ignore -- a potential merger.

"There are alternatives out there that don't require these draconian cuts," said James.

AMR CEO Thomas Horton told employees in a letter Monday that the US Airways announcement changed nothing. "There is no easy path back to renewal and growth and industry leadership," he said.

Horton has said the company can do fine on its own, thanks to new revenue from international flying, a planned expansion at five big U.S. hubs, and orders for 460 new planes that will be more fuel-efficient.

Before the hearings, the unions rallied outside the courthouse, blocks from Wall Street, saying that the workers were part of "the 99%." They carried signs that said, "Profits First, Workers Last" and "Merge don't purge."

American is expected to take the entire week to make its case. Those arguments will be followed by a two-week break for the company and unions to try to negotiate an agreement. If none is reached, the unions present their case and the judge is expected to issue a decision by June.

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