Judge To Rule Friday On Whether AA Can Set Its Own Terms For Cost Reductions

The Allied Pilots Association (APA) board voted 11-5 on Wednesday to reject the latest contract offer from American Airlines, who's parent company AMR Corp is reorganizing under Chapter 11 bankruptcy rules.

The dispute is largely over a provision that would allow increased code-sharing on flights not operated by AA, but sold as seats on the airline. The current contract with the APA does not allow flights to be sold on non-American Airlines carriers as AA seats. The move would mean American could lay off more pilots, according to the Associated Press.

Bankruptcy laws allow airlines, and other companies, to scrap their union contracts if it is necessary for survival. In a news release Wednesday, American said the U.S. Department of the Treasury had published a Proposed Regulation that could move American closer to being able to freeze and retain the Pilot "A" Plan instead of terminating the plan.

Since March, American Airlines, the Allied Pilots Association (APA), the Pension Benefit Guaranty Corporation (PBGC) and Unsecured Creditors Committee (UCC) have been diligently working toward that goal. "We committed to work collaboratively with the APA, PBGC and UCC to explore every option that would allow us to retain the Pilot "A" Plan. This news puts us in a position to make major progress in that effort," said Tom Horton, AMR Chairman and Chief Executive Officer.

"A top APA priority is preserving the benefits American's pilots deserve. I'm devoted to making that happen and pleased that we're moving one step closer to protecting a very important and valued benefit," said Captain Dave Bates, President – Allied Pilots Association.

The Proposed Regulation, if finalized, could allow companies to remove lump sum benefit payouts in some circumstances, making a freeze a possibility for American. As previously discussed, the lump sum benefit could drive pilot retirements that could pose significant operational risk. Josh Gotbaum, Director – PBGC said:  "It is great news that American is continuing to work to preserve its pilot pension plan. It's encouraging that American recognizes this benefit doesn't need to be sacrificed to ensure success."

There will be a 60-day comment period on the Proposed Regulation. Following that process, the U.S. Department of Treasury typically issues its Final Regulation.

American Airline spokesman Bruce Hicks said the company was "disappointed" that the board did not allow the offer to go to the rank-and-file pilots for a vote.  While APA spokesman Tom Hoban said the two sides are "very close in many areas" and that the latest contract was better than previous offers, "This is still a concessionary contract."

American is still hoping to emerge from bankruptcy as an independent company, though many of its unions have pushed for a merger with another airline. US Airways is most often mentioned in that context.

FMI: www.alliedpilots.org, www.aa.com