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American can now impose temporary work terms on its pilots as it works out long term deals, including its own possible merger with US Airways.

A judge on Tuesday ruled that AMR Corp, the bankrupt parent of American Airlines, can abrogate its collective bargaining agreement with its unionized pilots, signaling the likely imposition by AMR of unilateral work terms.

Judge Sean Lane issued his ruling from the bench at a hearing in U.S. Bankruptcy Court in Manhattan, saying the company successfully corrected certain issues that had caused him to reject its earlier request.

AMR, which has said it needs to save more than $1 billion a year in labor costs to become profitable, can now impose temporary work terms on its pilots as the sides continue to hash out long-term deals.

The third-largest U.S. carrier, which declared bankruptcy last November, has reached deals with most of its unions, but the pilots remain the lone holdout.

Judge Lane in August denied AMR’s initial request to scrap its current deal with pilots after a three-week trial in April and May, despite agreeing with the bulk of the proposal.

AMR went back to court on Tuesday, saying it had met Lane’s objections.

As labor relations have unraveled at AMR, Chief Executive Tom Horton has lost the support of his unions, which support the aggressive push by smaller competitor US Airways Group to acquire AMR during its bankruptcy.

While AMR is exploring the idea, it has said it would prefer to exit bankruptcy as a standalone company and then consider a tie-up.

But it remains to be seen whether creditors and investors will support a standalone restructuring if the company’s pilots are at odds with its leadership. US Airways has already reached tentative labor agreements with AMR’s unions.

Bruce Hicks, an AMR spokesman, said the company appreciated the judge’s decision, but added that “there is no sense of accomplishment in this outcome.

“We worked very hard to reach a consensual deal with our pilots,” Hicks said in a statement, adding the decision allows AMR to “implement the changes that are necessary” for the company to restructure.

The pilots’ union did not have an immediate comment.

Attempt to retry

Much of Tuesday’s arguments centered on AMR’s attempt to limit the hearing to the furlough and code-sharing issues – two aspects of the case that the judge had earlier found objectionable.

Everything else in the proposal, AMR argued, Lane had already approved after the April trial.

But the pilots pushed to effectively retry the full case, saying AMR should have to prove that its arguments still applied in the face of a changed economic landscape.

The pilots pointed specifically to the 20 percent cost cut target contemplated by AMR’s unilateral term sheet, saying the company was willing to drop that figure to 17 percent during out-of-court settlement talks with the pilots’ and other unions.

AMR unions that signed consensual deals with the company face 17 percent cuts, proving that the company can survive on cost cuts lower than the 20 percent the term sheet would impose on the pilots, the union argued.

But Lane said concessions made during out-of-court settlement talks cannot be used as evidence in court. He said the pilots were effectively trying to extract the benefit of the lower cost cuts without submitting to a long-term deal.

“Would I not be setting a horrible precedent,” Lane said, “by encouraging parties to have (settlement) discussions and then, if they don’t work out, to use them as weapons” in court?

Lane added that, while AMR may be able to survive on only a 17 percent cost-cutting target, “necessity should not be associated with ‘only essential’ or ‘bare minimum,'” Lane said.

The company and its creditors have said labor stability is needed before AMR can move forward with a plan to exit bankruptcy.

The case is: In re AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.


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