7.06.12 – (LAA) – Negotiations, Exclusivity Period Extension, Retiree Health vs AA

Currently, AMR has the exclusive right to present a reorganization plan to the bankruptcy court. That right was set to expire at the end of September. It has already been extended once. Now, the exclusivity period has been extended until the end of the year.

A couple of important points. One – unlike the United Airlines bankruptcy, which went on for years, with the airline retaining exclusivity throughout the process — this can’t happen here.

It can’t happen because the bankruptcy laws were changed after the United bankruptcy.

Companies can now maintain exclusivity for a period of only 18 months after filing for Chapter 11 protection.

You are all very smart people and you can use the calculator on your iPhone just as well as I can.

This means that if the airline goes to the end of the year, it will have only about five months or so left on the clock.

Secondly, no, this extension is not a “signal” of anything.

It does not change anything about the fact that US Airways still wants a chance to present its plan to the UCC prior to American exiting bankruptcy. It does not reflect a “change in attitude” in the UCC toward this process.

The main reason the extension was granted is labor.

The pilots at American Airlines are now going to vote on a tentative agreement that the board of directors of the Allied Pilots Association has approved. We may see other TA’s sent to either the APFA membership or the TWU membership as well. Or we may not.

But let’s just look at the pilot situation because we know what is happening there. The voting process for this TA ratification will not be completed until August.

So regardless of what else happens with the other two major unions, this timetable does not leave enough time for the bankruptcy process to reach its conclusion. There is not going to be enough time for the UCC to review the airline’s reorganization plan, in addition to any other plans that might pop up prior to the end of September, if the result of the pilot vote is not going to be known until sometime in August.

Hence, the agreement to move the exclusivity date to the end of the year.

Two other very, very important comments about the extension. We were told Wednesday that not only does the extension include the same provision whereby the UCC can ask the court to end the exclusivity at any time, but notably the extension notes that this extension gives more time for the UCC to consider “other strategic options.”

This would seem to indicate that the UCC is more than willing to look at alternatives to the plan now being pushed by AMR management.

On to other questions. Do I think the American pilots are going to vote for the tentative agreement? At this point in time I have serious doubts about its ability to pass.

That then leads to, “So then what happens?”

And that is where things get very murky. Remember the term, “uncharted waters?”

I’m not really sure, with the exclusivity clock running down, and no contracts on the horizon, what happens. And frankly, over the last week I’ve heard different scenarios from different people on various sides of the process.

But as we move into August, I think we’ll begin to have more clarity on this.

So for now, here is where the bankruptcy stands. Nothing has changed in regard to US Airways and its intent to merge with American while the airline is still in bankruptcy. American still seems unwilling to entertain such an option. As a result, the bankruptcy process continues.

At this point, the major part of that process is the completion of the 1113 proceedings. So now, as we have said in the past, all we can do is wait. And then we’ll wait some more.

Meanwhile, this next week, American will announce the latest round of employee layoffs, as part of the “Cascade” project.

As one of our subscribers wrote to us this week, “Things are twitchy” at headquarters. Indeed they are. A lot of people will be told next week that they are losing their jobs.

I think we should just designate next week as “Be nice to an employee of American Airlines week.”

One last thing. Last week I said that I thought we would probably see US Airways present a deal one way or another this month. That is now off the table, as a result of the extension of the exclusivity period. Obviously, Judge Lane did not hand down an 1113 decision. Obviously, we now have a union vote to move through.

Prior to her founding PlaneBusiness, Holly served as senior vice-president at two Wall Street investment firms. Hegeman also served as a consultant to then-Chairman and CEO of American Airlines, Robert Crandall from 1994 to 1995, where she worked on a number of communications management projects. She also authored the 1994 AMR Annual Report along with Crandall.