The union representing pilots of American Airlines will send the company’s most recent contract offer to its members for a vote, the Allied Pilots Association announced late yesterday.

In deciding to send the offer to its members by a vote of nine to seven, the APA’s board deemed the airline’s latest offer a “tentative agreement,” reversing its decision last week rejecting the contract.

As a result of the decision, Manhattan bankruptcy court judge Sean Lane will further delay issuing a decision on the company’s motion under Section 1113 of the Bankruptcy Code to reject its collective bargaining agreements with its three unions – the APA, the Association of Professional Flight Attendants, and the two groups of the Transport Workers Unions with which it has not yet come to terms (five groups representing union members have already reached a deal with the airline).

The Section 1113 decision, which was scheduled to be delivered tomorrow, is now slated for mid-August, although the precise date is somewhat unclear. The APA said in an online message to its members yesterday afternoon that the decision would come Aug. 8, but a subsequent statement from the union’s president, Capt. David Bates, saying that the pilots’ vote would be completed on Aug. 8 and the decision would come a week later, on Aug. 15, looks to be more on target.

Regardless of the precise new deadline for Lane’s decision, American said it would “use the additional time wisely to reach agreements with APFA and TWU on the two remaining agreements rather than wait on the judge’s decision.” American said it had talks scheduled with both the APFA and TWU for “early next week.”

As reported, the APFA has already announced that it is scheduled to meet with American on July 3, 4, and 5.

Pilots to be American largest stockholder
The 13.5% equity stake in a reorganized American that pilots are slated to receive under the company’s latest offer loomed large in APA’s decision.

“Our advisers focused on the significance of the provision that gives APA a claim in the form of a 13.5% equity stake in a newly reorganized American Airlines,” Bates told his fellow pilots. “Our advisers stated that a 13.5% equity stake should make APA the largest equity holder in the company. As a result, we would be able to influence key decisions from our seat on the unsecured creditors’ committee that will take place for the balance of restructuring such as the makeup of the reorganized airline’s board of directors and other key strategic considerations.”

What’s more, Bates added, “Our advisers also noted that if a merger between American Airlines and US Airways takes place – whether during restructuring or after AMR emerges from bankruptcy – the value of that equity stake should increase, since the overall enterprise value would go up through the combination of the two airlines.”

Bates’ reference to a merger of American and US Airways “after AMR emerges from bankruptcy” is significant. As widely reported, American’s three unions all have reached agreements with US Airways premised on an acquisition occurring in the context of the American’s Chapter 11 process. If American and its unions are able to reach labor agreements, it would clear the way for the company to develop and confirm a standalone reorganization plan.

‘Clear improvements’
Beyond the equity stake, the APA board’s acceptance of the airline’s last offer bodes well for the prospect of American reaching agreements with its other unions, as well.

In urging pilots to vote for the latest offer, Bates said, “It’s also important to recognize that the tentative agreement contains provisions that represent clear improvements compared with management’s 1113(c) term sheet, including enhanced pay increases; preservation of our duty rigs; some furlough protections; limits on Scope; an early-opener provision at year four; and indexing to Delta, United, and US Airways pay rates at year three.”

In contrast, Bates said, waiting for the court to issue a ruling on whether the company could reject its collective bargaining agreements contained “substantial downside risk,” specifically citing the “legal ‘gray area’ that we would enter.” Noting the less favorable terms that could be imposed on workers once if the company is able to reject its collective bargaining agreements, Bates noted, “Negotiations could continue indefinitely as we exit bankruptcy and enter back into protracted…bargaining trying to renegotiate a [collective bargaining agreement] from an abrogated position.”

As reported, American was able to sweeten its offer to the pilots by targeting cost saving of 17%, versus its earlier target of 20%, while still meeting its financial goals – a development that American attributed, at least in part, to “recent revenue improvements.”

Further, American has suggested that the potential benefits of those new, reduced targets will be extended to its employees across the board.

As also reported, the APFA said in a statement yesterday that the key to a deal is whether American “is willing to move off the ‘ask’ – meaning if they are willing to reduce the amount they claim to need in bankruptcy ($230 million).”

While it is unclear whether the Airline’s new flexibility will be enough to satisfy the APFA, it is clearly a step in the right direction. – Alan Zimmerman

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