AMR, pilots resume contract talks, stock hit again

Wed Oct 19, 2011 6:21pm EDT

American Airlines MD-80 aircrafts sit on the tarmac at Chicago's O'Hare International Airport April 9, 2008. REUTERS/John Gress

American Airlines MD-80 aircrafts sit on the tarmac at Chicago's O'Hare International Airport April 9, 2008.

Credit: Reuters/John Gress

(Reuters) - American Airlines and its pilots resumed contract talks on Wednesday with the company's chief executive saying achieving the kind of labor-cost reductions management wants to nail down will not be easy.

Negotiations between management and the Allied Pilots Association resumed with far less fanfare than last week's round of talks, which began with optimism the two sides might only need days to finally reach a deal after five years of bargaining.

When Sunday came and went with no agreement, Wall Street began the week by punishing shares of American's parent, AMR Corp despite assurances from both sides that significant progress was made on a number of issues.

The beating continued on Wednesday after the No. 3 airline posted a $162 million quarterly loss while rivals are poised to report profits. AMR shares finished off 7.4 percent at $2.61 on the New York Stock Exchange.

"We're still talking," said Gregg Overman, a union spokesman, who added the group's board of directors would remain in the Dallas/Fort Worth area for the remainder of the work week.

The union has been consulting the board on strategy since Saturday.

Although recent bankruptcy speculation has faded, American's outlook is less robust than rivals with lower labor costs.

American's outlay for wages and benefits for the latest quarter were nearly 30 percent of operating expenses. The figure includes salaries for nonunion employees.

"Our labor cost challenge, while not particularly complicated, is not an easy one to solve. And given the recent rumors and speculation in the media, and the recent volatility of our company's stock price, it's clear that some have their doubts as to whether we will succeed in bringing our negotiations to a successful conclusion," American's chief executive, Gerard Arpey, said in a letter to employees.

Arpey later told an analyst conference call that American was focused on the discussions and wants a transformational agreement that increases productivity and removes restrictions "on how we conduct business."

J.P. Morgan analyst Jamie Baker said in a note to clients that American's cost guidance seems to point to "an increasingly high likelihood" of a pilot deal in coming days.

"It is not a stretch, in our view, to believe AMR could conclude deals with all unions by the end of the first quarter," Baker said.

Airlines industry wide are closely watching the outcome of the American negotiations and where the two sides might find common ground.

The head of APA's rival union, Lee Moak of the Air Line Pilots Association, told Reuters on Tuesday that any pilot agreement at American could impact talks at the other big carriers.

Officials at United Airlines and US Airways Group Inc said in response they were watching events at American closely.

(Additional reporting by Kyle Peterson; editing by Andre Grenon)

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