* Defends plan to reject union contracts
* Unions picket outside courthouse
* Hearing expected to last a week
(adds detail from union rally; adds detail from witness
By Nick Brown
NEW YORK, April 23 American Airlines
defended its plan to abandon its union contracts on Monday as
its workers picketed outside a Manhattan court house, in the
first day of a high-profile court battle over the bankrupt
airline's labor deals.
The company's parent, AMR Corp, told a judge at a hearing on
its request to abrogate its union contracts, that it cannot
survive without major concessions.
Jack Gallagher, an attorney for AMR, said the company needs
20 percent across-the-board reductions in employee costs, half
of which must come from employee benefits.
"It's not the unions' fault we're in bankruptcy, but it's
not about whose fault it is," Gallagher said. "It's about the
facts of our business."
AMR spends three times as much annually on medical benefits
as the average lower-cost carrier, like Southwest Airlines
, Gallagher said.
Hundreds of people, including lawyers and airline workers,
filled a courtroom and two overflow rooms in U.S. Bankruptcy
Court in Manhattan, while outside, hundreds of members of the
Association of Professional Flight Attendants and Transport
Workers Union, which represent AMR's flight attendants and
ground workers, respectively, held a spirited rally.
Cordoned off by police, workers held signs and chanted for
fairer work terms and against AMR's plan to cut about 13,000
The airline brought two of its expert witnesses to the stand
on Monday, with more slated to testify later in the week.
Daniel Kasper, a Boston-based airline economics consultant,
testified that deregulation in the airline industry has tied
airlines' economic viability to a strong cost-structure.
Jerrold Glass, president of airline labor relations
consultant F&H Solutions Group, said AMR's labor contracts are
not as cost-effective as those of other major airlines.
AMR Chief Restructuring Officer Bev Goulet is among the
witnesses slated to testify on Tuesday.
The hearing is expected to last about a week.
In order to succeed in its attempt to scrap labor contracts,
AMR must convince Judge Sean Lane not only that it desperately
needs labor concessions, but that its unions have unreasonably
rejected prior attempts to negotiate those concessions. AMR
filed for Chapter 11 bankruptcy in November, citing
uncompetitive labor costs.
Judge Lane will not rule 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 similar chance to present their case in court in May. A
ruling from Lane would then be expected in June.
Regardless of how Lane rules, AMR must keep negotiating for
a consensual deal with its unions. A ruling granting AMR's
request to break its contracts would allow AMR to impose its own
unilateral labor terms while those negotiations go on.
The Transport Workers Union, which represents seven work
groups at American, will vote starting next week on the
carrier's best and final contract offer, with results expected
before unions testify in the hearing, three sources said.
The Transport Workers Union represents 26,000 members.
WORKERS SAY MERGER COULD SAVE JOBS
Edgar James, a lawyer for the Allied Pilots' Association,
which represents about 10,000 AMR pilots, argued at Monday's
hearing that AMR's proposed business plan is unfair, in part
because AMR has not done enough to explore possible merger or
"What everyone believes is going to occur is they're going
to get out of this bankruptcy and consolidate with someone," yet
the company has told the pilots' group it has not considered
that option, James said.
In an unusual step in bankruptcy, the pilots', flight
attendants' and ground workers' 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 jobs.
AMR has long shunned merger interest from US Airways, and on
Monday, Chief Executive Tom Horton again shrugged off attention
from US Airways in a letter to employees.
"I want you to know these developments in no way alter our
course," he said. "We are making significant progress, and the
court has granted us the exclusive right to pursue our plan of
reorganization at least through the end of September and this
may be extended further."
Jeff Brundage, senior vice president of human resources for
AMR, said the US Air deal was "a creation of the unions and of
US Air." "It's not real," Brundage said after Monday's hearing.
"What's real is American's business plan, and this process."
At the rally, workers chanted "US Air" and carried signs
declaring that American was trying to "Blame Labor Again" for
its financial woes. The rally drew about 750 participants, TWU
spokesman Jamie Horwitz said.
US Airways Chief Executive Doug Parker cautioned his
employees on Friday that his company's agreement with AMR's
unions does not mean a merger is in the works.
If the two airlines combine, it would create a carrier that
rivals United Airlines and Delta Air Lines in
size and scope.
The flight attendants' union, which represents 17,000
employees, said the US Airways plan would offer a pay increase
of 2.5 percent initially and 1.5 percent a year for the next
Gregg Overman, a spokesman for the pilots' association,
declined to give details on the US Airways deal.
In March, US Airways gave a presentation to representatives
of AMR's unsecured creditors and told them that a combination of
the two airlines would create about $1.5 billion in synergies,
according to people familiar with the matter.
The bankruptcy is In re AMR Corp et al, U.S. Bankruptcy
Court, Southern District of New York, No. 11-15463.
(Additional reporting by Kyle Peterson in Chicago; Editing by
Martha Graybow, Tim Dobbyn and Carol Bishopric)