American Airlines kicked off a week-long court hearing on its bid to abandon union contracts, telling a judge on Monday that its bankrupt parent, AMR Corp, cannot survive without major concessions from its labor force.
Hundreds of people, including lawyers and airline workers, filled the courtroom and two overflow rooms in U.S. Bankruptcy Court in Manhattan for the start of the hearing, as other unionized workers rallied outside the courthouse.
Cordoned off by police, the workers held signs and chanted for fairer work terms and against AMR's plan to cut about 13,000 union jobs.
AMR wants to convince Judge Sean Lane not only that it desperately needs labor concessions, but that its unions have unreasonably rejected prior attempts to negotiate those concessions. AMR filed for Chapter 11 bankruptcy in November, citing uncompetitive labor costs.
In opening statements, AMR lawyer Jack Gallagher said the company needs 20 percent across-the-board reductions in employee costs, half of which must come from medical benefits.
AMR spends three times as much annually on medical benefits as the average lower-cost carrier, like Southwest Airlines, he said.
It's not the unions' fault we're in bankruptcy, but it's not about whose fault it is, Gallagher said. It's about the facts of our business.
Edgar James, a lawyer for the Allied Pilots' Association, which represents about 10,000 AMR pilots, said AMR's proposed business plan is unfair, in part because AMR has not done enough to explore possible merger or consolidation options.
What everyone believes is going to occur is they're going to get out of this bankruptcy and consolidate with someone, yet the company has told the pilots' group it has not considered that option, James said.
Some of AMR's expert witnesses were expected to testify on Monday afternoon, along with the company's chief restructuring officer, Bev Goulet.
After the hearing wraps up, the company and its unions have another two weeks to negotiate. If new terms are still not reached, the unions will have a chance to present their case in court in May.
Regardless of how Lane rules, AMR must keep negotiating for a consensual deal with its unions. A ruling by Lane granting AMR's request to break its contracts would allow AMR to impose its own unilateral labor terms while those negotiations go on.
WORKERS SAY MERGER COULD SAVE JOBS
In an unusual step in bankruptcy, three unions that represent AMR's pilots, flight attendants and ground workers on Friday said they had struck a deal with US Airways Group Inc to support a potential merger between US Airways and AMR. They said a deal could save more than 6,000 jobs.
AMR has long shunned merger interest from US Airways, and on Monday, Chief Executive Tom Horton again shrugged off attention from US Airways in a letter to employees.
I want you to know these developments in no way alter our course, he said. We are making significant progress, and the court has granted us the exclusive right to pursue our plan of reorganization at least through the end of September and this may be extended further.
US Airways Chief Executive Doug Parker cautioned his employees on Friday that the union deal does not mean a merger is in the works.
If the two airlines combine, it would create a carrier that rivals United Airlines and Delta Air Lines in size and scope.
In March, US Airways gave a presentation to representatives of AMR's unsecured creditors and told them that a combination of the two airlines would create about $1.5 billion in synergies, according to people familiar with the matter.
American has about 74,000 full and part-time employees. AMR said in February it expects to trim about 4,600 mechanics and related jobs, 4,200 fleet service workers, 2,300 flight attendants, 1,400 management and support staff, and 400 pilots.
The Association of Professional Flight Attendants, which represents 17,000 employees, said the US Airways plan offers a pay increase of 2.5 percent initially and 1.5 percent a year for the next five years.
Gregg Overman, a spokesman for the Allied Pilots Association, declined to give details on the union's deal with US Airways. He also declined to confirm a Wall Street Journal report that the deal would give pilots an immediate 5.5 percent raise and 3 percent increases a year for five years.
The bankruptcy is In re AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.
(Additional reporting by Kyle Peterson in Chicago; Editing by Martha Graybow, Carol Bishopric and Tim Dobbyn)