* Union questions fairness of AMR business plan
* Plan seeks $990 mln in annual concessions from unions
* Unions have said merger with US Airways could save jobs
By Nick Brown
NEW YORK, April 24 The prospects of a merger for
bankrupt AMR Corp took center stage again on Tuesday
in the second day of a court battle over the fate of the
company's labor contracts.
The airline's chief restructuring officer, Bev Goulet,
defended AMR's business plan during testimony in U.S. Bankruptcy
Court in Manhattan, drawing questions from the unions that
would be asked to make annual concessions of $990 million.
The unions and the company are at loggerheads over ongoing
contract negotiations, and are now in court fighting over AMR's
request to scrap its collective bargaining agreements altogether
and impose interim terms unilaterally.
For the request to be successful, AMR must convince Judge
Lane that its unions have unreasonably shunned prior requests to
negotiate, and that the company considered alternatives to avoid
The unions have said AMR has not considered the alternative
of a merger. Robert Clayman, an attorney for AMR's flight
attendants' union, argued on Tuesday it was "critical" to know
whether the cost-saving plan "is just a means of extracting as
much money from labor as possible." Clayman said AMR could
implement stingy labor terms only to render them moot by merging
with another airline.
Judge Sean Lane shut down that line of questioning, citing
confidentiality concerns about merger talks.
The merger issue has been front-and-center since AMR's three
main unions on Friday said they had struck a deal with US
Airways Group Inc to support a potential merger between
US Airways and AMR. They said a deal could save more than 6,000
US Airways Chief Executive Doug Parker said the union
agreement does not mean a merger is in the works, while AMR CEO
Tom Horton said whispers of a merger would not veer AMR off its
course to pursue a standalone restructuring.
The hearing, in U.S. Bankruptcy Court in Manhattan, is
expected to last at least a week. On Monday, two witnesses
testified that AMR's labor costs were the highest in the airline
industry. Other key witnesses, including Rothschild Group's
David Resnick, AMR's financial advisor, are expected to take the
stand on Wednesday.
AMR filed for bankruptcy in November, citing untenable labor
THE FIVE PILLARS
AMR's business plan calls for the company to sharpen its
focus on international markets and on what it has referred to as
its "Five Pillar" domestic markets -- Dallas/Fort Worth, New
York, Los Angeles, Miami and Chicago.
The plan could generate $1 billion in new revenues, Goulet
testified, but would still fall "well short" of bringing the
company to profitability without additional concessions of about
$1.25 billion a year from its union and non-union workforce.
AMR, the world's largest airline in 2000, has slipped to
fourth as labor costs have risen and lower-cost carriers have
taken away market share.
During his cross-examination of Goulet, Clayman kept his
focus on a merger, asking Goulet if she felt that consolidation
by other airlines, like Delta Air Lines and United
Airlines, helped them to leapfrog AMR.
Goulet acknowledged that growth was an important factor in
an airline's viability, but did not bite when Clayman asked
whether it was necessary for AMR to pursue similar growth.
"Growth is part of our business plan, but I don't know if
I'd call it a significant amount of growth," Goulet said.
Goulet admitted she had had conversations with CEO Tom
Horton in which Horton had expressed a belief that AMR might one
day "have a role in" consolidation in some form.
Clayman's examination at times took on a critical tone,
including his barb that AMR's growth projections had not
factored in the expectation of similar growth by other airlines.
"You would not expect Delta and US Airways on any particular
day to just stop competing, would you?" Clayman said.
Later in her testimony, Goulet said AMR's business plan does
account for competitive response.
LONG WAY TO GO
Judge Lane will not issue a ruling right away. After the
hearing ends, the company and its unions will have another two
weeks to negotiate. If new terms are still not reached, the
unions will have a chance to present their case in court in May.
A ruling from Lane would then be expected in June.
On Monday, sources told Reuters that the Transport Workers
Union, which represents seven work groups at American Airlines,
will vote starting next week on an updated contract offer from
the airline, with results expected before unions testify at the
Regardless of how Lane rules on AMR's motion to scrap
contracts, the airline must continue negotiating for a
consensual long-term contract with its labor force. A ruling
granting AMR's request to break its contracts would allow AMR to
impose its own temporary unilateral labor terms while those
negotiations go on.
The bankruptcy is In re AMR Corp et al, U.S. Bankruptcy
Court, Southern District of New York, No. 11-15463.