AMR Corp.'s American Airlines on Wednesday was denied approval from a U.S. Bankruptcy Court judge to throw out its existing pilot contract and impose cost reductions needed to restructure after workers refused to accept concessions.
U.S. Bankruptcy Court Judge Sean Lane said the airline didn't show that its cost-reduction proposal was necessary, but it could try again to persuade him otherwise.
The ruling came one week after the union rejected an offer that would have frozen the pilots' pension plan and instead contribute 14% of pay into a new 401(k) plan, and would have given the Allied Pilots Association a 13.5% stake in parent AMR Corp., Fort Worth, Texas, after it emerged from Chapter 11 bankruptcy protection.
Mr. Lane's decision sets back AMR in crafting its restructuring plan by setting short-term pilot costs. The carrier agreed with its unsecured creditors committee in May to evaluate merger proposals from potential suitor US Airways Group against American's plan to remain independent until after it exits bankruptcy.
Mr. Lane will rule on a similar request from American involving flight attendants if they reject the airline's final offer in voting that concludes Aug. 19. The Transport Workers Union, which includes mechanics and baggage handlers, so far is the only labor group to agree with the carrier on concessions.
The APA, TWU and Association of Professional Flight Attendants in April reached labor agreements with US Airways, contingent on a merger with American. US Airways hasn't made a formal offer because American holds the exclusive right to propose a reorganization plan through the end of this year.
APA members on Aug. 8 voted 61% against the airline's final contract offer, prompting the union board to seek the resignation of President David Bates. Mr. Bates had been a major proponent of a merger with US Airways, and APA said that commitment would not change with new leadership. American has more than 8,000 pilots.
American's four pension plans have $8.3 billion in assets and $18.5 billion in liabilities, both as of Dec. 31, according to AMR's latest 10-K filing. DC assets totaled $9.4 billion, as of Sept. 30, 2011, according to Pensions & Investments data, the most recent available.