American Airlines' pilots ratify new collective bargaining agreement

By Caroline Salls

Pittsburgh, Dec. 7 - American Airlines, Inc. requested court approval to enter into a new six-year collective bargaining agreement and related settlement with the Allied Pilots Association (APA), according to a Friday filing with the U.S. Bankruptcy Court for the Southern District of New York.

The tentative new contract agreement was ratified by the APA membership on Friday.

According to a statement from APA president Keith Wilson posted on the union's website, the pilots ratified the tentative agreement by a vote of 5,489 for and 1,951 against.

Wilson said the APA "will now turn its focus to helping to ensure that full consideration is given to strategic alternatives before American Airlines' restructuring concludes."

"The APA leadership continues to support a merger with US Airways as the best path to a stronger, more competitive American Airlines that will in turn enhance our pilots' long-term career prospects," Wilson's statement said.

American said the new bargaining agreement will give it the employee benefit and productivity terms it needs to reduce its pilot labor costs and the contractual flexibility to expand its network through increased use of larger regional jets and code-sharing with other domestic airlines.

Contract details

The terms of the new contract include:

• The contract will expire six years from the date of signing, provided that at any time following the fourth anniversary, either party can begin negotiations;

• Medical benefits will be substantially commensurate with those offered to other employees of American, including the amount of employee contributions.

Upon retirement, employees will continue to have access to retiree medical coverage or Medicare supplement at their cost. Additionally, an industry standard long-term disability plan will be implemented, which will include active medical coverage;

• The new contract provides significant new retirement benefits to American's pilots, in line with those provided to peer pilots at other network carriers but provides for a freeze of both existing pilot retirement plans;

• The new contract includes structured base-pay rate increases, including an increase for first-year pay.

Pay rates will be increased to industry average at the mid-point of the term of the agreement;

• The contract eliminates current pay components based on weight and speed/mileage and replaces them with a single rate of pay based on equipment categories;

• The contract eliminates night pay differential and replaces current premium pay provisions with a single premium rate structure;

• The contract modifies international override as of date of signing and increases per diem expenses in the fourth year.

• The pilots' profit sharing was reduced to 5%, rather than the 15% first-dollar profit sharing program that was incorporated in the company's initial proposal;

• The contract gives the company a scope provision that will allow it to operate a market-competitive number of large regional jets and allows more meaningful domestic code-share relationships;

• The new contract provides an adjusted cost savings of $315 million per year, or 17% of pilot total costs;

• The contract implements a preferential bidding system and makes other changes to work rules to increase the efficiency of the debtors' network, increases pilot "schedule max" time to align with other carriers and reduces dependency on reserves;

• The contract capitalizes on unique opportunities to allocate flying that originates from specific airports and awards that flying to pilots who reside in the vicinity of those airports; and

• The contract implements a case management system for sick absences and provides a notional Health Retirement Account with a one-time company contribution for eligible pilots in exchange for unused sick time at retirement that can be used to help offset the costs of retiree medical.

Settlement terms

American said the comprehensive agreement also includes provisions related to the administration of its Chapter 11 cases and a proposed plan of reorganization in light of the significant modifications to the terms under which its pilots were employed before the completion of the contract agreement, including the substantial savings attributable to benefits and work rules.

The company said those provisions are reflected in the settlement. The terms of that settlement include:

• In full satisfaction of any and all claims the APA has or might have, excluding specified grievances, the union will receive 13.5% of the equity of the reorganized company issued to holders of general unsecured claims under a Chapter 11 plan;

• The APA will have an allowed administrative expense claim in an amount sufficient to reimburse its fees and expenses incurred in connection with the new bargaining agreement, the settlement, the plan and the company's contract-related motion, subject to a $5 million cap;

• The APA will also have an allowed administrative expense claim in an amount sufficient to reimburse the fees and expenses of its investment banker, also subject to a cap of $5 million;

• The company will indemnify the APA and its members, officers, directors, advisers and other representatives for 50% of all costs and liabilities related to claims or lawsuits arising in connection with the new contract, the settlement or any amendment of any benefit plan or program related to pilots.

The 50% sharing agreement will exist until the APA's financial exposure reaches $5 million, after which any additional exposure will be the full responsibility of the American debtors;

• The company will not file or support any motion seeking rejection or modification of the new contract agreement for a period of three years, provided that it may do so in the event of a material deterioration in its financial condition or prospects; and

• The APA will withdraw and dismiss each of its appeals related to contract rejection proceedings and an APA lawsuit.

A hearing is scheduled for Dec. 19.

AMR Corp., the Fort Worth-based parent of American Airlines, filed for bankruptcy on Nov. 29, 2011. Its Chapter 11 case number is 11-15463.

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