Pilots at AMR Corp's American Airlines rejected a tentative contract from the carrier by a wide margin on Wednesday, leaving a major issue unresolved with the bankrupt airline's most powerful employee group.
Failure to reach a consensual labor deal is a blow to American's efforts to develop a standalone reorganization plan, which relies on slashing debt and labor costs to return to profitability.
The development comes as the third-largest U.S. carrier has begun to review potential mergers, including a deal with US Airways Group, to determine whether merging with a rival will generate more recoveries for American's creditors than going it alone.
American's pilots and two other key labor groups have already declared their support for US Airways' proposal to merge with the larger rival. The groups each have a seat on American's nine-member unsecured creditors committee and have a say in how American restructures in bankruptcy.
Pilots could face stricter terms should the judge overseeing American's bankruptcy case now allow the carrier to end its current contract with the pilots union.
"We are disappointed with the outcome of today's voting results, as ratification of the pilot tentative agreement would have been an important step forward in our restructuring," American Airlines spokesman Bruce Hicks said in a statement.
He added the company must now await a ruling that will let it "implement the changes necessary to move forward with our restructuring." Bankruptcy rules give companies the right to abandon collective bargaining agreements and impose their own terms unilaterally.
The Allied Pilots Association said 61 percent of pilots that voted, or 4,600, rejected the tentative contract while 2,935 pilots voted in favor. The agreement, which included pay increases and the offer of a 13.5 percent equity stake in the New American, represented the carrier's best and last offer to pilots after years of unsuccessful talks.
Gregg Overman, a spokesman for the pilots union, said the decisive rejection of American's offer reflected "serious frustration" among pilots who want a better deal.
"Our pilots made significant concessions in 2003, they looked at those concessions as an investment and at this point, they believe their investment was squandered," he said.
Overman said the union expects to return to the bargaining table at some point, but does not know when that might happen.
Resolving labor issues would allow American Airlines to shift focus to its planned emergence from bankruptcy and whether it will do so alone or as part of a merger. Last month, the carrier began sending non-disclosure agreements to potential merger partners.
Also on Wednesday, the Transport Workers Union said two of its factions that represent mechanics and store clerks at American approved contract agreements that reduce concessions AMR had asked for.
Workers in mechanics and related classifications approved their agreement by a vote of 50.25 percent to 49.75 percent, the TWU said. The stores employees, who work closely with mechanics handling inventory and materials for plane maintenance, voted 79 percent to 21 percent in favor.
"Nobody is happy with a concessionary agreement, and our members are still waiting to see a business plan that instills confidence," TWU International President James Little said in a statement.
But Little added the current result was "a lot better than what our members would have faced with a court-imposed solution."
American Airlines is seeking just over $1 billion in cost cuts from its unions annually, a key factor in its decision to seek Chapter 11 protection from creditors last November.
US Airways President Scott Kirby said in April that his company's plan would cut from labor only the amount necessary to bring the company in line with industry standards -- about $800 million.
From the unionized pilots, US Airways is seeking $240 million in cuts, while AMR would cut $315 million from that group.
(Reporting by Karen Jacobs, Soyoung Kim and Nick Brown; Editing by Gerald E. McCormick, Gary Hill)