American, key unions strike deal
Published: Tuesday, April 1, 2003 at 6:01 a.m.
Last Modified: Monday, March 31, 2003 at 10:21 p.m.
NEW YORK - American Airlines took a huge step toward preventing bankruptcy Monday by reaching tentative cost-cutting agreements with three key unions representing pilots, flight attendants and mechanics.
While the company secured from labor leaders the $1.8 billion in concessions needed to avert Chapter 11, the tentative accords still must be voted upon by union members. The ratification process will begin todayTuesday, union officials said.
The chairman of the company, Don Carty, praised union leaders, saying their actions ``have enabled us to avoid an immediate filing with the bankruptcy court.''
The news lifted shares of American by 33 percent as investors considered a bankruptcy filing much less likely now.
But the carrier is not guaranteed a smooth ride, since the industry is still battling its worst downturn ever, precipitated by fears of terrorism, an ailing economy and now the war in Iraq.
``If the war lasts for many months or if there's another act of terrorism, then even these cost savings could prove insufficient,'' said Philip Baggaley, Standard & Poor's airline analyst.
Even if employees ratify the agreements, he said it will still be critical for AMR Corp., the airline's parent company, to secure additional financing from lenders as well as concessions from suppliers and lessors.
``That will be very important to tide them over through their current, difficult financial circumstances,'' Baggaley said. The savings from wage cuts would be felt immediately, he said, but those accruing as a result of reduced benefits and changes to work rules would be slower in coming.
Executives met with lenders Monday to put together a financing package that would help the airline operate, a person familiar with the airline's situation said. The lenders involved in the talks were Citigroup, J.P. Morgan Chase, CIT Group and Merrill Lynch, the person said, speaking on condition of anonymity.
Industry experts said the pace of labor negotiations at American was probably sped up because of the progress made last week by United Airlines, which secured a tentative agreement from its pilots' union on a new contract that would cut annual costs by $1.1 billion.
``I think that has helped focus their minds,'' said Peter Cappelli, a professor of management at the University of Pennsylvania's Wharton School of Business.
United, which is restructuring under Chapter 11 protection, has said deep cuts were needed to avoid liquidation. Executives at American, meanwhile, had indicated that they would file for bankruptcy protection soon unless they had tentative agreements with all major labor groups Monday, union officials said.
Other major airlines also are pushing employees to accept wage and benefit cuts as the industry racks up huge losses, and analysts said the momentum at United and American could spread. The lesson learned, several analysts said, is that restructuring can be done outside of bankruptcy court.
After the war in Iraq began, carriers laid of thousands of employees, cut certain flights from their schedules and reduced the frequency of others. But analysts say - even with new labor contracts - that major carriers still need to make further cuts to their capacity, a move that would likely help them raise ticket prices.
Over the weekend, the company reached tentative agreements with six groups of ground workers, totaling 2,500 employees. The company previously reached a tentative deal with 16,300 baggage handlers.
However, there were still no deals with the three most important labor groups in its work force of 99,000.
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