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June 27, 2012

APA president: tentative agreement has "clear improvements" over Section 1113 term sheets

In a letter sent out to pilots on Wednesday evening, Allied Pilots Association president David Bates said the tentative agreement with American Airlines includes "clear improvements" over the Section 1113 term sheets the carrier filed with the bankruptcy court in March.

The agreement also includes a 13.5 percent equity stake in the new company once American's parent company, AMR Corp. emerges from bankruptcy and the union's advisors emphatically urged the union to accept the agreement because of it.

Bates said the equity stake would likely make APA the largest stockholder in the new company and would allow the union to “influence key decisions” as American restructures. He added that if a merger between American and US Airways occurs, which the pilots union supports, the value of the equity stake would increase.

Keep reading for the full letter from Bates.

-Andrea Ahles

APA President Captain David Bates

Since AMR filed for Chapter 11 on Nov. 29, 2011, APA and management have engaged in multiple rounds of negotiations in an effort to reach a consensual agreement and avoid the possible abrogation of our collective bargaining agreement. These discussions involved National Mediation Board- and court-mediated discussions as well as direct bargaining. During the past several weeks the tempo of these talks intensified, culminating with management presenting a “last, best, final offer” in New York on June 15.

As has been the norm for many years, in contract negotiations with APA and AMR, the more significant moves often occur in the last few days and even last few hours. The “cleanup” required as the final pieces come together is a laborious and time-consuming process. Last week, as the final bargaining was still unfolding, there were still many loosely defined issues and significant clarification was required for the APA Board of Directors to have sufficient information to fully evaluate the offer. As a result, some Board members were not comfortable in voting on what they viewed as an incomplete agreement. Both the bankruptcy judge and AMR management understood this concern and the judge granted management’s request for a one-week extension before his decision on AMR’s 1113(c) motion would be issued.

This afternoon the APA Board of Directors voted nine to seven to approve management’s offer as a tentative agreement. This vote of approval triggers the membership ratification process, which at the direction of the bankruptcy judge will follow a moderately compressed schedule relative to our normal process. Within the next few days, we will disseminate information detailing the schedule for the coming weeks that will culminate in the vote tally on Wednesday, Aug. 8.

Before the APA Board of Directors voted, APA’s advisers—including financial restructuring experts at Lazard and bankruptcy attorney Fil Agusti of Steptoe and Johnson—were emphatic in recommending approval of management’s final offer as a tentative agreement. In particular, our advisers focused on the significance of the provision that gives APA a claim in the form of a 13.5 percent equity stake in a newly reorganized American Airlines. Our advisers stated that a 13.5 percent equity stake should make APA the largest equity holder in the company. As a result, we would be able to influence key decisions from our seat on the Unsecured Creditors’ Committee that will take place for the balance of restructuring such as the makeup of the reorganized airline’s board of directors and other key strategic considerations.

Our advisers also noted that if a merger between American Airlines and US Airways takes place—whether during restructuring or after AMR emerges from bankruptcy—the value of that equity stake should increase, since the overall enterprise value would go up through the combination of the two airlines.

It’s also important to recognize that the tentative agreement contains provisions that represent clear improvements compared with management’s 1113(c) term sheet, including enhanced pay increases; preservation of our duty rigs; some furlough protections; limits on Scope; an early-opener provision at year four; and indexing to Delta, United and US Airways pay rates at year three.

Our advisers told the APA Board of Directors about the substantial downside risk associated with rejecting management’s final offer, including the legal “gray area” that we would enter into if the court were to grant management’s request to abrogate our contract. At that point, we would be required to resume negotiations with the current management team. Negotiations could continue indefinitely as we exit bankruptcy and enter back into protracted Section 6 bargaining trying to renegotiate a CBA from an abrogated position.

Our advisers have stated that management could exit Chapter 11 without labor agreements in place. Given AMR’s substantial cash balance, the airline may not need exit financing from any outside sources. Post abrogation, we would be working under the current management team’s imposed terms—which could be far worse than their final offer—with no guarantee of reaching anything resembling industry-standard terms.

By ratifying our tentative agreement with AMR management, we obtain a sizable unsecured claim, preserve much of our Green Book, and put ourselves in a very powerful position on the Unsecured Creditors’ Committee to have meaningful input in the future of this company. Despite any suggestions to the contrary that you may have heard, a ratified agreement with current AMR management doesnot preclude us from pursuing a merger with US Airways.

This agreement is clearly not the industry leading contract we all want and deserve. However, it’s also important to recognize that if AMR management were to exit bankruptcy before engaging in any potential consolidation activity, our conditional labor agreement with US Airways will sunset and AMR’s stand-alone plan will have survived. The tentative agreement therefore represents a form of insurance that limits our downside risk while ensuring that we have a significant voice in the direction of American Airlines going forward.

Let me be clear. We have two choices in front of us—we either accept a near-term agreement with AMR management, or we risk abrogation and a tremendous amount of uncertainty about our terms of employment.

I want to close this message by thanking the APA members who took the time to be on hand at union headquarters today for the APA Board of Directors’ vote. There was a sizable group in attendance on this important occasion. I’d also like to recognize the APA Board of Directors for making an effort to conduct much of today’s business in open session for the benefit of those members at large.

In addition, I want to express my gratitude to our entire negotiating team, including the APA Negotiating Committee, Scope Committee, Technical Analysis and Scheduling Committee, Pension Committee, Communications Committee, Family Awareness, many other volunteers and members of our staff, and our professional advisers.

Finally, I want to extend my sincere appreciation to the APA Board of Directors for all of the time they have devoted to this effort. After all of the discussion, debate and deliberation, your domicile representatives made the difficult but necessary decision to approve management’s final offer, giving the pilots we represent the last word in this process. I believe that’s as it should be.

We will have much more information to share with you in the days and weeks to come and are planning to conduct a national road show in July. Please consult alliedpilots.org often for the latest updates.

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Comments

David Barnes

This is good news for AA's pilots. It will be interesting to see if AA's other unions will also find consensus with the company. The APFA has shunned the entire process from the get-go, whereas most TWU groups have agreements. The APFA will have to set aside their differences and get serious like their counterparts. Clinging to hopes of a merger does not resolve the immediate situation.

APA Pilot

It's time to stop driving forward while looking in the rearview mirror: this deal takes us to the future and leaves behind the ugly past.

Year three guarantees wage parity with other major airlines' pilots, and the retirement is frozen rather than terminated.

It won't get any better with a judge or in a speculative "deal" with USAir that can't seem to come to agreement with its own employees never mind thousands of others dragged on board through a merger.

Now is the time to ratify and move on.

frontline

Well of course a negotiated deal is going to be better than the 1113 term sheets! Is this just now dawning on the braintrust over at APA headquarters?

Thank goodness they had enough sense to take the deal and put it to a vote!

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