AMR tries to dodge bankruptcy
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Investors seemed to be betting that the world’s largest airline will be able to stay out of bankruptcy. Shares of parent company AMR Corp. (AMR: up $0.65 to $4.88, Research, Estimates) were up 20 percent to $4.08 by late afternoon Wednesday after a delayed opening. Tuesday had been the deadline set by the world’s largest airline for all three of its unions to have rank-and-file ratification of concession contracts reached March 31, when the airline faced its first bankruptcy deadline. Two of the unions — the Allied Pilots Association and Transport Workers Union, which represents most of American’s ground workers — did approve their deals by the deadline. But when 51 percent of membership of the Association of Professional Flight Attendants rejected the tentative deal, bucking their leadership’s recommendations to approve the concessions, the union and airline management scrambled to give them a second chance to vote. The electronic vote was extended to 5 p.m. CT (6 p.m. ET) Wednesday. The union leadership said that problems in the voting had prevented some members from getting a chance to vote, and not allowed others the opportunity to change their votes after management made late changes in the tentative deals designed to benefit employees should the airline have a stronger than anticipated recovery during the six-year life of the labor contracts. The two unions that approved the labor deals had allowed members to change their votes after the late contract changes. “APFA desire is to ensure the true will of the membership is known,” said a message on the flight attendants union telephone hotline for members. “We trust in our membership and will abide by the will of the majority. American parent AMR Corp. made millions of dollars in scheduled debt payments due Tuesday that it had not intended to pay if it was going to file for bankruptcy court protection. It made the payments in order to buy time for union members to change their minds. “With almost 10,000 jobs hanging in the balance, and the future of 100,000 employees at stake, we agreed to take this risk and make this investment for our employees because we believe that all employees will be better off if we can save jobs and restructure our costs consensually rather than through the bankruptcy process,” said a statement from Don Carty, chairman of American parent AMR Corp. “This is our last chance to avoid bankruptcy.” But Carty said that with additional debt payments due Wednesday, “I must make completely clear that if we fail to secure flight attendant ratification by tomorrow, we are — regrettably — left with no alternative but to immediately file for bankruptcy.” Airline analysts said Wednesday they were confident that American would get the votes it needed from the flight attendants this time around. “I don’t think American would have extended unless they got assurances from union leadership they had the votes,” said Ray Neidl, airline analyst with Blaylock & Partners. “It was a flawed process to begin with.” Philip Baggaley, the managing director for airlines and aerospace companies at credit rating agency Standard & Poor’s, said that the thin margin against the contract and the strong early negative vote also leads him to believe the membership will approve the contract with the new deadline. “It won’t take much of a switch to change the result,” said Baggaley, who equated the vote process to the 2000 presidential vote in Florida. “There’s also the precedent of the other labor groups approving it, including the mechanics, who were thought to be toughest sell. I don’t think even those who voted against it are eager to go into bankruptcy.” Even if the world’s largest airline is forced to file for bankruptcy court protection, the move would have only limited immediate impact on its customers. American intends to file under Chapter 11 bankruptcy, allowing it to continue operations. But, longer term, a bankruptcy filing could force the carrier to make deeper cuts in flight schedules and routes in an attempt to satisfy creditors and lenders. A filing, if it occurs, would likely wipe out American’s investors. Most bankruptcy filings leave little for holders of the company’s equity, although some companies in Chapter 11 bankruptcy are able to have their shares continue trading for weeks or even months after filing. The union deals were designed to save American $1.8 billion annual through a combination of across-the-board pay cuts and changes in work rules, which would the airline to cut additional employees. The leadership of the three unions had only reluctantly endorsed the deals, reached on March 31, arguing to their members that work conditions would be even worse if the airline followed through on its threat to file for bankruptcy. The airline says it will need an additional $500 million in annual labor cost savings if it does file for bankruptcy in order to satisfy lenders who would fund their operations throughout court-supervised reorganization. “There is no question that these agreements represent a major step backwards for our union,” said a statement from James Little, director of the Air Transport Division for the TWU. “We made these agreements only because it is painfully obvious that the results of bankruptcy proceedings would have been far worse. The company has been provided with everything it needs to survive. We can only hope that they will not squander the opportunity our members have provided them.” More : money.cnn.com |