New YORK (Reuters) - AMR Corp’s AAMRQ.PK labor relations chief acknowledged on Thursday that the company tried to “limp along” by negotiating burdensome short-term labor deals before deciding to file for bankruptcy.
Testifying at a court hearing on AMR’s request to abandon its labor deals, Jeff Brundage said the concessions AMR asked of its unions before its bankruptcy filing would not have “allowed us to be a viable enterprise.”
Brundage was addressing criticism from labor unions that the AMR demands for concessions since filing for bankruptcy have been unfairly steep, and that it sought more drastic cuts than in earlier negotiations.
But Brundage said that is because the company’s goals shifted after it filed for Chapter 11 protection.
Before the bankruptcy, AMR’s aim was to keep its unions from striking, and to avoid bankruptcy.
“We were governed by how hard we believed we could push to make changes and have them ratified,” Brundage told a full courtroom at U.S. Bankruptcy Court in Manhattan. “We were governed by the art of what we thought the possible was, not what thought was necessary.”
Now in bankruptcy, AMR is trying to hash out union contracts that will allow it to become viable and profitable in the long-term, Brundage added.
The American Airlines parent filed for bankruptcy in November, citing untenable labor costs. The company has since said it needs about $1.25 billion in yearly concessions from its labor force, including $990 million in annual cuts from its unions.
Unions have balked at those requests, resulting in an impasse in contract talks. That, in turn, triggered AMR to ask court permission to abrogate its current labor deals altogether and impose unilateral terms in the interim as long-term negotiations continue.
Among the unions’ complaints about the new demands is that they seek deeper cuts than pre-bankruptcy proposals, in which AMR sought between $600 million and $800 million in reductions.
But AMR executives internally referred to those offers as “limp-along” or “kick-the-can” methods, Brundage said, adding they were designed only to avoid bankruptcy and keep the peace with unions.
“It was not brilliant, but it was employed to meet those two goals,” he said.
In hindsight, Brundage said it is clear the pre-bankruptcy offers would not have allowed the company to avoid bankruptcy. The company hoped outside factors such as an improving economy would then allow it to flourish.
“We hoped if we could get a little tailwind, rather than headwind, we could capitalize on it,” Brundage said.
AMR’s bid to scrap its collective bargaining agreements has been the subject of a hearing since Monday. It is expected to last through Friday, after which AMR and its unions will have two weeks to try to negotiate consensual deals.
If that window passes with no agreement, the unions will have a chance to present their case in court in May. Judge Sean Lane would then be expected to issue a ruling in June.
The dispute involves AMR’s three primary unions representing its pilots, flight attendants and ground workers.
Brundage testified that AMR’s cost savings plan would minimize cuts to employee base pay rates and would include annual raises and profit-sharing programs if AMR can return to profitability.
It would also outsource certain services. AMR has said it needs to cut 13,000 union jobs.
Unions, meanwhile, have declared support for a potential merger with US Airways Group Inc LCC.N, which they say could save more than 6,000 jobs.
AMR said interest from US Airways will not deter it from pursuing a standalone restructuring plan. Its financial adviser testified on Wednesday that the company needs a standalone plan to be able to compare alternatives such as merger offers.
The case is In re AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.
Editing by Andre Grenon