- August 20, 2012
- Posted by: Richard Feinberg
- Category: News
The American Airlines bankruptcy case has brought much media attention since filing for Chapter 11 late last year. There has been much scrutiny over employee layoffs, closing of terminals and routes and even discussions over a possible merger.
However, this week an important decision was made by a bankruptcy judge that could greatly impact the future of the airline and its employees.
Up In The Air
Employee union representatives have had their hands full in recent months trying to stave off more cuts to pension and benefit plans. Having been one of the most aggressively targeted areas for reducing operating costs, American has been trying to obtain approval to have current labor contracts cancelled. Estimating it could save the company around $2.2 billion annually, American Airlines continues to fight to relive itself of union obligations.
This week marks the first time in the history of any airline bankruptcy that a judge sided with the union over the parent company. Upholding the contractual obligations and denying American the right to cancel contracts, the bankruptcy judge said the company failed to prove that employee furloughs and outsourcing of flights to other airlines was necessary for a successful exit from Chapter 11.
While this news comes as a relief for employees, pension contracts are not safe just yet. If American can resolve their issues and provide further evidence that cutting contracts is necessary to exit bankruptcy, the judge could rule in their favor. For now, the fate of labor contracts for American employees is to be determined as American returns to the boardroom to gather more evidence in their favor.