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7.06.12 – (LAA) – Negotiations, Exclusivity Period Extension, Retiree Health vs AA

This is Leslie Mayo, National Communications Coordinator, with the APFA Hotline for Friday, July 6, 2012.

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As reported earlier, AA and APFA made some progress at the negotiating table over the past several days. Today, the APFA leadership held a conference call to review the developments thus far, and more work will be done next week. Meanwhile, the judge is expected to announce his decision on AA’s 1113 petition to abrogate the union contracts within 7 days of the pilots’ final balloting date, which is August 8, 2012. We will continue bargaining with American next week. On Thursday, July 12th, APFA’s leadership will meet to review the status of negotiations and determine the best path forward.

Exclusivity Period Extension
This week’s Plane Business Banter by Holly Hegeman* addressed the Unsecured Creditors Committee (UCC) and AMR’s request (which was granted by the judge yesterday) to extend the company’s exclusivity period through December. This action caused some confusion among the masses so Holly lays it out it in plain english. Holly gave us permission, once again, to use her wonderful way with words to help explain the process.

Holly writes: “Before I answer the inevitable question that has been asked many times in many emails, i.e., “What does this mean?” — a brief reminder on how all this works.

Currently, AMR has the exclusive right to present a reorganization plan to the bankruptcy court. That right was set to expire at the end of September. It has already been extended once. Now, the exclusivity period has been extended until the end of the year.

A couple of important points. One – unlike the United Airlines bankruptcy, which went on for years, with the airline retaining exclusivity throughout the process — this can’t happen here.

It can’t happen because the bankruptcy laws were changed after the United bankruptcy.

Companies can now maintain exclusivity for a period of only 18 months after filing for Chapter 11 protection.

You are all very smart people and you can use the calculator on your iPhone just as well as I can.

This means that if the airline goes to the end of the year, it will have only about five months or so left on the clock.

Secondly, no, this extension is not a “signal” of anything.

It does not change anything about the fact that US Airways still wants a chance to present its plan to the UCC prior to American exiting bankruptcy. It does not reflect a “change in attitude” in the UCC toward this process.

The main reason the extension was granted is labor.

The pilots at American Airlines are now going to vote on a tentative agreement that the board of directors of the Allied Pilots Association has approved. We may see other TA’s sent to either the APFA membership or the TWU membership as well. Or we may not.

But let’s just look at the pilot situation because we know what is happening there. The voting process for this TA ratification will not be completed until August.

So regardless of what else happens with the other two major unions, this timetable does not leave enough time for the bankruptcy process to reach its conclusion. There is not going to be enough time for the UCC to review the airline’s reorganization plan, in addition to any other plans that might pop up prior to the end of September, if the result of the pilot vote is not going to be known until sometime in August.

Hence, the agreement to move the exclusivity date to the end of the year.

Two other very, very important comments about the extension. We were told Wednesday that not only does the extension include the same provision whereby the UCC can ask the court to end the exclusivity at any time, but notably the extension notes that this extension gives more time for the UCC to consider “other strategic options.”

This would seem to indicate that the UCC is more than willing to look at alternatives to the plan now being pushed by AMR management.

On to other questions. Do I think the American pilots are going to vote for the tentative agreement? At this point in time I have serious doubts about its ability to pass.

That then leads to, “So then what happens?”

And that is where things get very murky. Remember the term, “uncharted waters?”

I’m not really sure, with the exclusivity clock running down, and no contracts on the horizon, what happens. And frankly, over the last week I’ve heard different scenarios from different people on various sides of the process.

But as we move into August, I think we’ll begin to have more clarity on this.

So for now, here is where the bankruptcy stands. Nothing has changed in regard to US Airways and its intent to merge with American while the airline is still in bankruptcy. American still seems unwilling to entertain such an option. As a result, the bankruptcy process continues.

At this point, the major part of that process is the completion of the 1113 proceedings. So now, as we have said in the past, all we can do is wait. And then we’ll wait some more.

Meanwhile, this next week, American will announce the latest round of employee layoffs, as part of the “Cascade” project.

As one of our subscribers wrote to us this week, “Things are twitchy” at headquarters. Indeed they are. A lot of people will be told next week that they are losing their jobs.

I think we should just designate next week as “Be nice to an employee of American Airlines week.”

One last thing. Last week I said that I thought we would probably see US Airways present a deal one way or another this month. That is now off the table, as a result of the extension of the exclusivity period. Obviously, Judge Lane did not hand down an 1113 decision. Obviously, we now have a union vote to move through.

So that forecast is now no longer applicable.”

Retiree Health vs AA
American Airlines today took two steps toward its goal of severely reducing the health benefits of its current retirees.

First, it sued its retirees in Bankruptcy Court, seeking a court order to the effect that it has the right to reduce or eliminate all of its health care coverage for current retirees without having to go through the judicial process under Section 1114 of the Bankruptcy Code. That Section of the Code states that a debtor in bankruptcy “shall timely pay and shall not modify any retiree benefits” without first going through a process of negotiation and litigation similar to that involved in the Section 1113 process for collective bargaining agreements.

The lawsuit was filed against the “Committee of Retired Employees,” which is a committee appointed by the Bankruptcy Court to represent the interests of all American Airlines’ retirees. Under Section 1114 of the Code, each union may elect to serve as the representative of its own retirees, and APFA serves on the Committee along with representatives of the other employee groups. The Committee has its own counsel and will have APFA’s full support to fight this latest act by management. We believe American’s position is contrary to the law, as reflected in the statute itself, as well as a recent ruling by a federal court of appeals.

The second step taken by AA was to attempt to initiate the process under Section 1114 by serving the Committee with a list of proposed changes it wants to make to retiree medical and life insurance benefits. The key proposed changes are (1) elimination of retiree medical for age 65 and over and (2) early retiree access to medical only at full cost to the retiree.

As far as we know, American has not announced it will make any changes to our retirement benefits without going through the negotiation process and a court ruling allowing it to do so. To be clear, by filing this complaint, American has set in motion a legal process which will likely take several months to unfold. There is currently no schedule for how the case will proceed. APFA will be involved in the work of the Committee, and we will keep you updated on later developments.

That’s it for this week. Thanks for calling.

*Holly Hegeman Bio: The above excerpt under “Exclusivity Period Extended” comes from PlaneBusiness Banter of which Holly Hegeman is Editor and Publisher. Hegeman founded PlaneBusiness Banter in 1997. It is currently the most widely-read weekly publication covering the U.S. airline industry. Hegeman is often called upon by members of the media to comment on the industry, and most recently was on ABC World News Tonight, commenting on the potential US Airways/American Airlines merger.

Prior to her founding PlaneBusiness, Holly served as senior vice-president at two Wall Street investment firms. Hegeman also served as a consultant to then-Chairman and CEO of American Airlines, Robert Crandall from 1994 to 1995, where she worked on a number of communications management projects. She also authored the 1994 AMR Annual Report along with Crandall.

Holly is a graduate of Loyola University in New Orleans, and completed graduate level work at Griffith University, Brisbane, Australia, University of New Orleans-Innsbruck, and the University of Tennessee. You can follow Holly on twitter at @planebusiness or on her blog. Subscriptions to PlaneBusiness Banter are $197/year. For more information, contact

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