NYTimes.com Article: American Air Reaches Deal With 3 Unions on Big Cuts

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American Air Reaches Deal With 3 Unions on Big Cuts

April 1, 2003
By EDWARD WONG






American Airlines said yesterday that it had reached
tentative agreements with all three of its major unions on
$1.8 billion in annual concessions, a move that reduces the
airline's chances of having to file for bankruptcy
protection immediately.

The airline, the world's largest, and its unions worked out
the agreements in frantic negotiations that began over the
weekend in Fort Worth, where American is based. Yesterday
afternoon, the pilots' union, the flight attendants' union
and the mechanics in the Transport Workers Union approved
tentative agreements, becoming the final labor groups to
accept wage and benefit cuts. Baggage handlers and six
smaller groups at the Transport Workers Union had already
reached tentative agreements last week.

Industry experts said that the agreements gave American, a
unit of the AMR Corporation, more breathing room but did
not guarantee that the company would stay out of bankruptcy
court in the next several months or even weeks. The
concessions still have to be approved by union leaders and
members, with all voting to be finished by April 15. And
the cuts might not even be enough to sustain American
through the steep drop in passenger traffic caused by the
war with Iraq. American also said it still needed to obtain
concessions from its suppliers and aircraft lessors.

Executives at American continued talks yesterday for over
$1.5 billion in financing that it would need if it filed
for bankruptcy protection. That money would probably come
from four lenders, led by Citigroup, bankers said.

Donald J. Carty, chief executive of American, said last
night that the tentative labor agreements would help the
company avoid an immediate bankruptcy filing.

"By taking these decisive actions, the union leadership and
our employees have demonstrated an unwavering commitment to
the future of the company and have enabled us to avoid an
immediate filing with the bankruptcy court," Mr. Carty
said.

Of the $1.8 billion in annual concessions, $660 million
would come from the pilots, $340 million from the flight
attendants, $620 million from the T.W.U. workers, $80
million from agents and representatives and $100 million
from management. In exchange, employees would take part in
a new stock option and profit-sharing program, the company
said.

American also said Mr. Carty would take a 33 percent pay
cut from his annual base salary and would decline a bonus.
He will also ask the board to cut executive compensation
packages, the company said. Those statements come after
lawmakers recently criticized airlines for doling out what
they called lavish packages to executives last year while
the carriers were losing billions of dollars.

Despite all the cuts, American said its "prospects remain
uncertain" and "the days ahead will be difficult and the
success of our joint efforts is not yet assured."

Jim Corridore, an industry analyst at Standard & Poor's,
echoed that assessment, saying that American would still
have to deal with the drop in revenue that has accompanied
the outbreak of war. In the first week of the war, overall
traffic fell by 10 percent, according to the Air Transport
Association, the industry's main trade group.

"I think they're still in significant danger," Mr.
Corridore said. "I wouldn't say it's likely that they'll
file for bankruptcy or that it'll happen. But the danger is
there because of the extent of the bad environment given
the war."

There is also a chance that one or more of the agreements
will be rejected during the votes by the various union
memberships. All the unions have said they intend to have
members vote on the concessions by mid-April if union
leaders give their approval. But voting can be capricious,
and Mr. Corridore said that the mechanics are "very
unpredictable."

The mechanics have complained that they already made large
sacrifices. Moreover, a competing union has tried to take
over representation of the mechanics, stirring up bitter
feelings among the workers and making leaders of the
Transport Workers Union more defensive.

The T.W.U., which has 34,000 workers at American, posted
details of the tentative agreements on its Web site
yesterday. For the eight labor groups that it represents,
wage cuts range from 6.6 percent to 19 percent.

The main cuts, though, would come from the mechanics and
baggage handlers because there are more than 16,000 workers
in each group. Pay would be cut 16 percent for baggage
handlers and 17.5 percent for mechanics. In addition, the
company will make changes to scheduling and work rules to
increase productivity.

Last November, United Airlines faced a nearly identical
situation - relying on its workers to vote in favor of
concessions to keep the airline out of bankruptcy. All the
labor groups voted for the cuts except for the mechanics,
represented by the International Association of Machinists.
That contributed to the many factors that pushed United to
file for bankruptcy protection in December.

The Association of Professional Flight Attendants declined
yesterday to release details of its tentative agreement
with American, saying that leaders were still reviewing it.


Gregg Overman, a spokesman for the Allied Pilots
Association, said the pilots had offered American wage and
benefit cuts of 20 percent in the first year and 15 percent
in subsequent years, in addition to work rule changes.
Productivity changes will result in 2,000 to 3,000 layoffs.


As it talked to its unions, American Airlines was also
trying to put together more than $1.5 billion in so-called
debtor-in-possession financing that would allow it to keep
operating under bankruptcy protection.

Executives from American and bankers were in talks all day
yesterday. One person briefed on the discussions said that
Citibank, which would lead the financing, had agreed to put
up $750 million because its parent, Citigroup, issues the
credit card tied to American's frequent-flier program. The
$750 million might come in the form of a straight loan or
become part of the overall debtor-in-possession package,
this person said. Citibank would contribute several hundred
million more to the package.

The other lenders involved in discussions were J. P. Morgan
Chase, the CIT Group and Merrill Lynch. GE Capital, the
financing arm of General Electric, dropped out of talks,
possibly on Friday night, said the person briefed on the
discussions.

In Washington, Republican lawmakers were trying to pull
together legislation that would give financial aid to the
airline industry. The House Appropriations Committee and
the Senate Appropriations Committee will be marking up the
supplemental financing bill to cover Iraqi war costs this
week, and each will attach some kind of aid to the airline
industry, worth about $2.8 billion.

The Senate Republican leadership agreed on a package that
would include a one-year extension on war-risk insurance,
which expires this summer, and would offer at least a
temporary respite from some of the fees and taxes imposed
since the Sept. 11 attacks. That package will also have
conditions limiting executive compensation.

House Republican staff members said their package was
likely to be in the same financial range as the Senate plan
but that the details could differ.

The assistance under discussion is much less than what the
airline industry has been seeking.

"There's a widespread recognition that you should not bail
out the industry," said Carlos Bonilla, a lobbyist at the
Washington Group, whose clients include Delta Air Lines.
"On the other hand, you should not let nonmarket issues -
war - decide the fate of the industry."

http://www.nytimes.com/2003/04/01/business/01AIR.html?ex=1050210023&ei=1&en=76cabe08260f9547



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