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American Airlines pilots approve deal: merger on horizon?

Dec. 10, 2012, Dallas, Tx. - Pilots at American Airlines approved a new labour contract, which could clear the way for consideration of a merger with US Airways.


December 10, 2012
Carey Fredericks

The pilots' union announced Friday that 74 per cent of its members voted to ratify the contract. Pilots rejected a similar offer in August, but union leaders lobbied hard for passage the second time around.

Under the contract, pilots will get pay raises and own 13.5 per cent of American Airlines' parent AMR Corp. after it emerges from
bankruptcy protection.

Union officials and analysts say the vote gives AMR creditors certainty about the company's labour costs, making it easier for
them to weigh which gives them more money — American on its own, or getting bigger through a merger with US Airways.

"This contract represents a bridge to a merger with US Airways,'' said union spokesman Dennis Tajer. He said the vote "should not in any way be viewed as support for the American stand-alone plan or for this current management team.''

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American also hailed the vote as a key step in its turnaround after years of heavy losses.

The pilots' vote "gives us the certainty we need for American to successfully restructure,'' said Denise Lynn, American's senior
vice-president of people, in a statement. She added that "the modernization of our company is well under way, and we remain
focused on emerging as a competitive, world-class airline.''

AMR and American filed for bankruptcy protection in November 2011. With the pilots' deal in hand, the company could exit Chapter
11 early next year, a faster reorganization than those in the last decade at United Airlines and Delta Air Lines.

Friday's vote filled in the last unknown piece in AMR's labour-cost puzzle. The company's creditors "very much wanted a contract because they want some visibility on what the cost structure will be,'' said Ray Neidl, an airline analyst for Maxim Group PLC.

US Airways has proposed a merger that would give AMR creditors 70 per cent of the combined company, which would be run by US Airways Group Inc. CEO Doug Parker, according to a person familiar with the discussions and who spoke on condition of anonymity because the talks are private.

There have been reports that AMR might seek up to 80 per cent for its creditors, which could be unacceptable to US Airways
shareholders, the person said. Last month, a committee of bondholders told the pilots' union they would only support an
independent American if AMR had a new board that would pick managers to run the airline.

The airlines have exchanged confidential financial information and talked about a potential merger for several weeks, although a
deal is not certain.

American has about 7,500 active pilots plus a few hundred others on furlough. The union said the vote to ratify the contract was
5,490 to 1,951.

The 6-year contract will raise pilots' pay by 4 per cent on signing and 2 per cent per year after that, with an adjustment in
the third year to bring pay in line with that at other big airlines. The union will get 13.5 per cent of the stock in the new AMR when it
emerges from bankruptcy, which analysts estimate would amount to at least $100,000 per pilot.

In exchange, pilots will fly more hours and American will get more flexibility to outsource flying to other airlines.

American, which has already frozen pension plans and made other changes in benefits and work rules, is trying to use the bankruptcy process to cut annual labour costs by 17 per cent or about $1 billion.

In recent months flight attendants and ground workers have ratified separate contracts that reduced benefits and outsourced
thousands of jobs. American expects to cut about 10,000 jobs, with 3,000 layoffs and the rest coming from early retirements and
attrition.