Bankruptcy Court Judge Cancels Pilots’ Contract
September 7, 2012 11:00 am
Earlier this week, 88,000 mostly-unionized employees at American Airlines had their union contracts nullified in bankruptcy court. Judge Sean L. Lane, a bankruptcy judge in the Southern District of New York, ruled that American Airlines could effectively toss out its contract with the pilots under Section 2113 of the Federal Bankruptcy Code.
The 10,000 American Airlines pilots, similar to Hostess employees whose contracts were cancelled under the same clause, are now vulnerable to the whims of the strapped airline. American Airline’s management has stated that the carrier must cut 1.25 billion dollars in labor costs and make about 10,000 layoffs to stay competitive.
The pilots, represented by the American Pilots Association, are outliers amongst AA employees. The airline has wielded the prospect of total contract obliteration (as approved by Judge Lane) to draw concessions from unions representing flight attendants, baggage handlers and other airline employees, but the pilots elected to press on and take their chances in court. Lawyers for the pilots’ union argued that the concessions made by other employees reduced AA’s need to impose a proposed 20% labor cost reduction. (Not so, said Judge Lane, who considers all negotiations part and parcel to AA’s efforts to climb out of bankruptcy.)
American Airline’s executives and APA union leaders have not scheduled meetings since Judge Lane’s decision, and ownership has not indicated how they will behave now that the Judge has granted them carte blanche to cut labor costs and keep the company afloat.
Keith Wilson, President of the American Pilots Association, spoke on the disappointing decision:
…[there is] no reliable forecast for what to expect next from Judge Lane’s decision. … About the only prediction I’m willing to make is this – we’ll find out whether management decides to proceed with caution , or whether the urge to take punitive measures carries the day.
Terry Maxon of the Dallas News hypothesized on what will happen now that the pilots’ contract has been nullified:
We probably can assume that among the first items to go into force will be those terms that are common across all the employee groups: higher insurance premiums, the freeze of pensions and replacement of pension with 401(k) contributions, for example.
The airline does have something to lose should they deal harshly with the drastically weakened union. On August 31st, AA began talks with US Airways regarding a possible buyout. Imposing harsh penalties on the union could lead to confusion and an exodus of pilots, and potentially reduce AA’s potential asking price.
Still, American Airline’s pilots are left in a position of virtually no leverage, as both sides determine their next steps. The bankruptcy courts are sending a clear message: ailing companies can treat their unionized employees however they want, as long as it helps them balance the books.
Image from here