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Latest News - April 2012

April 23, 2012
American To Make Its Case Against Union Contracts
Source: Associated Press
By: David Koenig

American Airlines heads to federal court Monday to convince a bankruptcy judge that to survive, it must break labor agreements that workers fought decades to win.

The nation's third-biggest airline lost more than $10 billion in the decade leading up to its declaration of bankruptcy last November. During that same period most of its major rivals used the bankruptcy process to cut wages and benefits, which American says has left it with higher labor costs.

If American gets its way, it will cement a decade-long overhaul of the airline industry that has seen major carriers use the bankruptcy process to cut wages and eliminate cumbersome union work rules.

American 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.

The airline's unions say company leaders are unfairly blaming workers instead of doing something to make American grow and bring in more revenue.

On Friday, the unions expressed their defiance by supporting a potential bid by US Airways to merge with American's parent company, AMR Corp. In effect, they were saying that US Airways' management could run American better than the current leaders.

So on Monday, both sides will gather in a federal courthouse in New York to begin an two-month hearing on whether American can void its contracts with pilots, flight attendants and ground workers and impose its own terms for pay, benefits and working conditions.

Among the dozen potential witnesses are AMR executives and its banking and labor-relations consultants. A decision is expected by early June.

Helped by lower labor costs achieved in bankruptcy, United Continental Holdings Inc. and Delta Air Lines Inc. returned to profitability. Of the major U.S. airlines, only American lost money last year, about $2 billion. And the losses keep piling up — another $1.7 billion in the first three months of 2012, although most of it was for bankruptcy-reorganization costs.

"We're going through a major restructuring of labor relations in the airline industry," says Gary Chaison, a professor of industrial relations at Clark University in Massachusetts. "The entire industry is preparing itself for hard times ahead that might be caused by high fuel prices or by the continuing recession — forces beyond its control."

The unions, which forced American to capitulate on wages in the 1990s, have lost much of their clout. Even if they agree to concessions now, Chaison says, they'll probably be asked to give up more in a few years as the airlines go through more cost-cutting.

The company's demands for lower pay, longer hours and reduced benefits would be devastating, says Laura Glading, president of the Association of Professional Flight Attendants. She says regular workers are still angry over years of stock bonuses paid to management after the unions accepted concessions in 2003.

"We get it that the company is in bad shape," Glading says. "All we're asking is to be treated fairly."

AMR CEO Thomas Horton says the company can do just 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 and comfortable.

To make the turnaround work, American says, it needs relief from union work rules that limit its flexibility and drive up costs. For example, American wants to outsource more flying to other airlines, something that is currently prohibited by the pilot-union contract.

Severin Borenstein, a University of California economist who has written often about the airline business, says airlines once would have been hesitant to take such a strong stand against their own unions. They were afraid of strikes. The financial pressures on the industry from high fuel prices and lingering economic weakness are changing the airlines' approach.

"When you go into bankruptcy," Borenstein says, "your back is to the wall and you can much more credibly say, 'We're going to have to make some changes.'"

 

 

 


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