American Airlines Pilots Walk Away from Possible Deal

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American Airlines Pilots

Source: Getty images

If folks were hoping American Airlines mechanics and pilots would have ratified a tentative deal to end the stalemate over contracts, the news isn’t good. The mechanics narrowly voted to allow it, but the pilots union has rejected its proposed contract.

Not only did they simply reject it, but American Airlines’ pilots have overwhelmingly rejected the agreement. This puts the financially troubled airline in the position of difficult concession for nearly 9,000 pilots on the payroll. The offer would have saved all of those jobs, but now, if the bankruptcy court agrees to void the airline’s current contract, its management is sure to eliminate about 5% of pilots’ jobs. What’s interesting is the cuts among the mechanics will be steeper than the ones facing the pilots, with much of the airline’s heavy maintenance work being outsourced as part of the agreement.

It was also announced on Wednesday that a U.S. Bankruptcy Court could make a ruling as early as next week on the airline’s request to void that existing contract with the Allied Pilots Association. This is sure to leave open the likelihood for even more concessions. The bankruptcy proceedings have been ongoing for more than nine months and the airline says it remains committed to the “full range of strategic alternatives”.

Many analysts are saying the possibility of a hostile takeover increases with every passing minute. Some are even watching US Airways to make a move. Whether this will happen during or after bankruptcy proceedings seems to be the only unanswered question, though it’s not likely to be that significant in terms of the end result. US Airways, which has had its own battles in the past, had already voiced its intentions in the past, though it’s not commenting at this point. It is believed the airline will likely negotiate with the unions rather than its competitor.

For now, though, the public relations nightmare continues and the airline is stuck in limbo and can’t complete the bankruptcy proceedings until all labor disputes have been settled. As one analyst said,

The days operating a dysfunctional airline are pretty much over. You can’t survive in this market place with labor dragging its feet. They’re playing with fire.

Any heavier hand that American had to its benefit won’t work for much longer, either.

Still American is in stronger position in relation to its unions, at least in the near term. A contract ratification vote by flight attendants is still pending.

For its part, the mechanics group said on Wednesday that accepting those job losses and other concessions was a better deal than they could hope for if they had “thrown themselves on the mercy of court.” It’s a proactive approach versus a more reactive dynamic.

The rejected deal means the pilots passed up the airline’s offer to own slightly less than 14% of the stock in the airline when – and if – it emerges from bankruptcy. The deal also put into place instant pay increases for the pilots. In return, however, the pilots would have had to abandon one of their pension plans while also agreeing to freeze the other one. Further, the medical insurance would have taken a hit and the pilots would have lost several of their vacation and sick day allowances. For awhile, some though the deal could have passed and the union board passed it with a 9-to-7 vote. It should be noted that the board did not specifically urge its members to vote for the deal, it warned that the best way to control their own destiny was to keep it out of the hands of the bankruptcy judge. Still, it was voted down.

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About Author

David is a CPA and has spent the past decade as a financial adviser helping clients meet their fiscal objectives. With an appreciation for journalism, he has spent the past few years overseeing several financial columns as well as writing two previous finance blogs. He resides on the East Coast with his wife and two sons and has guided many through the recent recession while providing a no-nonsense approach to spending and saving.


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