American Airlines' Flight Out of Bankruptcy Gets a Lot Bumpier

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American AirlinesCoffee, tea, or arbitration?

Things are heating up for American Airlines parent AMR (AAMRQ), and not in a way that can be solved by simply redirecting the air conditioning nozzle above your seat.

Executives at the legacy airline who are hoping to bring it out of bankruptcy aren't seeing eye-to-eye with their employees. They want to trim 15% of its workforce -- about 13,000 jobs -- as one of the many steps to get the deficit-riddled carrier flying higher financially again.

It won't be easy.

Fasten Your Seat Belts

It's easy to see why the airline's flight attendants and transport workers are incensed. AMR wants to whittle down its workforce, institute new productivity measures, outsource some operations, and terminate its underfunded pensions. Employees -- and those nearing retirement -- are trying to save their pensions. However, the two unions representing the workers who would be let go are playing hardball.

The company wants to cut 9,000 transport workers -- essential jobs that include mechanics and ramp workers. The Transport Workers Union is asking for $75,000 buyouts and medical coverage for employees with at least 10 years of service.

AMR also wants to lay off 2,300 flight attendants. The Association of Professional Flight Attendants is asking for a year's worth of pay and medical benefits for its members who have at least 15 years of service.

The company rejected both proposals over the weekend. As the only major carrier to post a loss in 2011, the last thing that it can afford to do is provide severance pay packages that include a year's worth of salary and health insurance. But will insensitivity to its employees cost the carrier more in the end?

Here Comes the Turbulence

This could boil down to a debate between pro-labor and anti-union groups, but the U.S. Bankruptcy Code does require the parties to initially negotiate in good faith.

Cynics will argue that labor savings are necessary, but those costs aren't the only reason why AMR didn't make money during a year that was generally kind to carriers. Rival carriers have either filed for bankruptcy or consolidated to achieve the necessary savings.

There's a solution that will save AMR, but it probably rests somewhere in the middle of the two warring sides.

Unfortunately, AMR doesn't have a lot of time. The recent spike in oil prices is making it that much more expensive to run an airline. Analysts have been lowering their profit targets for profitable rivals United Continental (UAL), Delta (DAL), and US Airways (LCC) over the past week.

The question will be whether AMR can reach an agreeable compromise while it still has enough runway to take off again.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article.




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Wayne Bradshaw

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May 05 2012 at 11:57 PM Report abuse rate up rate down Reply
Larry

This is funny to me. THe unions would not work with them and pushed the company basically into bankruptcy. The bankruptcy obviously protects them from the unions now and the unions are still asking for tons of money. I guess they all just want to lose their jobs. The times are too tough to be acting greedy, let's see how greedy they are when they are all out of work. I can care less because I lost a ton on this stock due to the bankruptcy so I have no sympathy for the unions. If I can lose, so can they.

March 19 2012 at 11:43 AM Report abuse rate up rate down Reply
Larry

This is funny to me. THe unions would not work with them and pushed the company basically into bankruptcy. The bankruptcy obviously protects them from the unions now and the unions are still asking for tons of money. I guess they all just want to lose their jobs. The times are too tough to be acting greedy, let's see how greedy they are when they are all out of work. I can care less because I lost a ton on this stock due to the bankruptcy so I have no sympathy for the unions. If I can lose, so can they.

March 19 2012 at 11:42 AM Report abuse rate up rate down Reply
J C Lentz

trying to get a simple stock quote on the aol site today and AMR (american airlines) doesn't come up I get a group from england Armor Group not AA. I tried repetedly what's up with this?

March 13 2012 at 10:52 AM Report abuse rate up rate down Reply
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March 05 2012 at 11:27 PM Report abuse rate up rate down Reply
shawn

I think many of you have forgotten that we employees of AA gave major concessions 9 yrs ago to stay out of this position, now mgmt wants more? They have proven once they dont know how to run this company all the while taking million $$ bonuses. Why should we trust them again? Its time for a shake-up in the upper mgmt sector.

March 01 2012 at 4:06 PM Report abuse rate up rate down Reply
gttdux

I'll just bet that Bain Capital is still getting their fees from AMR while the airline teeters on the brink of collapse. No money or jobs for union workers while the 1% continue to live the highlife.

March 01 2012 at 10:59 AM Report abuse -2 rate up rate down Reply
dfwpbi

I did all that ??

February 29 2012 at 9:11 PM Report abuse rate up rate down Reply
dfwpbi

I did all that ??
Gosh!

February 29 2012 at 9:11 PM Report abuse rate up rate down Reply
Richard

Let me see, we're broke, need to come out of bankruptcy without the pension issues, need to lay off thousands of employees, need to go up on ticket prices, need cheap fuel, need the unions to shut up-go away, bottom line, employess will get shafted, lose their retirements, it's not there anyway, just numbers on a bogus piece of paper, those who stay will lose benefits, get pay cuts and the beat goes on, top mgrs will receive raises, bonuses for their brillant leadership, kinda looks like the banking business, Wall Street to me.

February 29 2012 at 5:22 PM Report abuse rate up rate down Reply