American Airlines' Flight Out of Bankruptcy Gets a Lot Bumpier

American Airlines
American Airlines

Coffee, 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.

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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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