American Airlines pilots approve new labor contract

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DALLAS Pilots at American Airlines approved a new labor contract, marking a key step in the company's recovery from bankruptcy and possibly speeding up a merger with US Airways (LCC).

American CEO Thomas Horton said the company expects to make a decision on the merger soon.

Since American and parent AMR Corp. filed for bankruptcy protection a year ago, Horton has favored the airline emerging on its own before considering a merger. But US Airways has pushed hard for a deal sooner - and one that would leave its executives in charge.

A combination of American and US Airways might compete better with United Airlines (UAL) and Delta Air Lines (DAL), which grew into the world's two biggest carriers by absorbing other airlines.

The Allied Pilots Association announced Friday that 74 percent of its members voted to ratify a new contract three months after they rejected a similar offer. Union leaders lobbied hard for passage the second time around.

Union officials and analysts say the vote gives AMR creditors certainty about the company's labor costs, making it easier for them to weigh which gives them more money - American on its own, or getting bigger through a merger with US Airways. American's unions support a merger.

"This contract represents a bridge to a merger with US Airways," said pilots' union spokesman Dennis Tajer. He said the vote "should not in any way be viewed as support for the American stand-alone plan or for this current management team."

American also hailed the vote as a key step in its turnaround after years of heavy losses.

In a message to employees after the vote, Horton called the contract with pilots an important milestone and said the company was nearing the end of its restructuring.

Horton said AMR was also wrapping up work on whether to remain independent or merge with US Airways. He said he was "confident the new American will be very strong" but was "still evaluating" the merits of a merger.

"We expect to have a conclusion on this soon," he said.

US Airways declined to comment, citing a confidentiality agreement it signed with American when the two began talks several weeks ago.

AMR and American filed for bankruptcy protection in November 2011. With the pilots' deal in hand, the company could exit Chapter 11 early next year, a faster reorganization than those in the last decade at United and Delta.

Friday's vote filled in the last unknown piece in AMR's labor-cost puzzle. The company's creditors "very much wanted a contract because they want some visibility on what the cost structure will be," said Ray Neidl, an airline analyst for Maxim Group.

US Airways has proposed a merger that would give AMR creditors 70 percent of the combined company, which would be run by US Airways. CEO Doug Parker, according to a person familiar with the discussions who spoke on condition of anonymity because the talks are private.

There have been reports that AMR might seek up to 80 percent for its creditors, which could be unacceptable to US Airways shareholders, the person said. Last month, a committee of bondholders told the pilots' union they would only support an independent American if AMR had a new board that would pick managers to run the airline.

American has about 7,500 active pilots plus a few hundred others on furlough. The union said the vote to ratify the contract was 5,489 to 1,951.

The six-year contract will raise pilots' pay by 4 percent on signing and 2 percent per year after that, with an adjustment in the third year to bring pay in line with that at other big airlines. The union will get 13.5 percent of the stock in the new AMR when it emerges from bankruptcy, which analysts estimate would amount to at least $100,000 per pilot.

In exchange pilots will fly more hours and American will get more flexibility to outsource flying to other airlines.

American, which has already frozen pension plans and made other changes in benefits and work rules, is trying to use the bankruptcy process to cut annual labor costs by 17 percent or about $1 billion.

In recent months flight attendants and ground workers have ratified separate contracts that reduced benefits and outsourced thousands of jobs. American expects to cut about 10,000 jobs, with 3,000 layoffs and the rest coming from early retirements and attrition.

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