A Review of Several Airline 1113 Cases
Based on membership feedback, there appears to be many misconceptions regarding what a “no” vote would mean when faced with a pending 1113 ruling on our contract. Specifically, members have pointed to the Frontier, Hawaiian, UAL and NWA bankruptcies to espouse various “opinions” as to what could or will happen at AMR. Again, we will reiterate that each bankruptcy is unique, with its own set of facts and circumstances. It’s also important to recognize that bankruptcy law is constantly evolving. It is important that we clear the air on these issues and get the facts straight.
In the Frontier bankruptcy case, the question before the court during that trial was which one of management’s two 1113 proposals would be considered by the court for contract rejection. While the bankruptcy trial was in progress, Frontier management contended that the court should look to the modified term sheet that had evolved after the trial had begun — rather than its original pre-trial term sheet — for the purpose of figuring out whether management had met the standards for rejection. Because the parties had made significant progress in negotiations during the trial, the modified term sheet was much more reasonable from the workers’ perspective than the original term sheet was. This required that management would have to carry the burden of convincing the court it was entitled to reject the contract based on the original term sheet. The bankruptcy court ruled in management’s favor and rejected the Teamsters’ collective bargaining agreement. The Teamsters appealed and the bankruptcy court’s decision was reversed by the district court, which stated that the corporation must prove that it is entitled to reject its CBA based on its pretrial proposals. Because the bankruptcy court hadn’t analyzed the standards for rejection based on those pretrial proposals, the district court sent the case back to the bankruptcy court to apply the Section 1113 standards to those proposals. In short, the court ruled in favor of the Teamsters, and required the bankruptcy court to issue a second decision before the airline could reject the contract. During these proceedings and the appeal process, negotiations between the parties continued. Both parties were eventually able to reach an agreement before the bankruptcy or appeals courts issued a second decision on abrogation. In this particular case, the Frontier Teamsters’ experience has little applicability for us in a post-abrogation scenario, because, simply put, their contract was never abrogated.
In the case of the Hawaiian pilots’ bankruptcy, management had been removed and a trustee appointed to manage the airline. That case was particularly unusual in that several people associated with the bankruptcy were convicted on federal fraud charges. After nearly a year of bargaining, the pilots voted down a tentative agreement that had been negotiated by their leadership. Both parties then asked the judge to stay the ruling and give them one last chance to reach an agreement. The judge agreed and granted them more time to reach a consensual agreement and avoid abrogation. (It is important to remember that at this point, the court had not ruled on the 1113 and both parties were facing the same type of deadline that we faced in June when AMR and the judge agreed to give the parties an additional week to further refine AMR’s offer.) Both parties at Hawaiian resumed negotiations and reached a consensual agreement that was eventually ratified by the membership. There was no 1113 ruling and no contract abrogation, as some have alleged.
It is also critical to know that in our case, Judge Sean Lane has already extended the deadline for his decision once, and he has stated in multiple conversations with APA and AMR lawyers that he will not give any additional extensions. Challenge & Response speculation notwithstanding, the judge has made it indisputably clear that he will rule on Aug. 15 and that there will be no further extensions.
United’s bankruptcy has a very complicated procedural history that lends little clarity regarding what the world would look like for us in a post-abrogation scenario. Over the course of the airline’s very lengthy bankruptcy, United management filed two separate 1113 motions spread out over a three-year period. These motions also included a request for emergency relief in the form of pay cuts that were subsequently granted by the court. During the timeframe of the bankruptcy, the employees (IAM mechanics included) reached consensual agreements that were subsequently ratified by the rank-and-file. Thus the court did not make a decision regarding abrogation and United tells us nothing about a post-abrogation environment.
The Northwest flight attendants were the lone outlier in the bankruptcy process, in that after a convoluted set of negotiations and failed tentative agreements, their contract was eventually rejected by the court. The judge presiding over the case uncharacteristically chose to put conditions on the abrogation by stating that the terms that had been negotiated since management’s original 1113 filing would constitute the terms under which the flight attendants would work until they negotiated a new agreement, even though the flight attendants had voted down these terms. Both parties were sent back to the negotiating table, and the union leadership reached a second follow-on TA with management, but the flight attendants voted this TA down as well. After the second attempt at a tentative agreement ratification failed, the flight attendants gave Northwest management notice that they intended to strike. Initially the bankruptcy court ruled that the flight attendants were free to strike, but upon appeal by management, the district court reversed the bankruptcy court’s decision and enjoined the flight attendants from striking in response to the contract rejection. At this time the district court also ruled that Northwest management did not have to implement the more generous terms of the July 17 TA and was free to implement the more onerous March 1 TA, which management did. Concurrent with this process, the Second Circuit affirmed the district court and held that there was no legal right to strike in response to contract rejection and that a union loses its legal right to an unsecured claim if the contract is abrogated. While the issue had not been raised on appeal, the Court questioned where the bankruptcy judge thought he had the authority to attach conditions to the Section 1113 order. Later, the flight attendants pursued a claim for $1.2 billion resulting from the abrogation of their CBA in the bankruptcy court. Relying on the Second Circuit decision, the bankruptcy court rejected that claim, saying that the only way the flight attendants could have a claim would be if the debtor agreed to give them one — they were not entitled to one as a legal right based on the abrogation. After having been trounced on appeal and in the subsequent claims process, the flight attendants eventually ratified an agreement that gave management essentially all the concessions they had previously sought ($195 million per year, including many work rule concessions). That agreement also included a much smaller unsecured claim of $182 million, instead of the $1.2 billion that was denied by the court.
It is important to know that Judge Lane has repeatedly said in open court that, unlike the bankruptcy judge in Northwest, if he decides that American Airlines can abrogate our CBA, he does not believe he has the authority to and, therefore, would not put any conditions on the terms that management can put into place after the abrogation. Our lawyers have told us that management could, at worst, impose any term they wanted if our contract is abrogated, and, at best, impose the terms of the April term sheet. Even in that best-case scenario, though, American Airlines management has made it clear that they won’t impose all the terms of the April term sheet, because they had made some contingent on a consensual agreement. That is, if our CBA gets abrogated, American won’t give us pay raises, a 13.5 percent contribution to our 401(k)s, sequence protection, parts of the long-term disability benefit, or profit-sharing. And, of course, we also wouldn’t get our claim for equity in the reorganized New American.
Some pilots have speculated that the bankruptcy court’s decision in Northwest would require American to impose only the terms of the June 20 “Last, Best Offer” (LBO) if the court orders rejection. Judge Lane has repeatedly stated on the record that he believes he does not have the authority to approve specific terms as part of his rejection order. American Airlines management has asked for permission to implement the terms of their April 19 proposal — the last proposal they made before the trial began on the 1113 motion. The unions and the Unsecured Creditors’ Committee all argued that Judge Lane does not have the authority to “bless” any particular terms. Judge Lane agreed in open court, stating several times that he thinks that Section 1113 does not give him authority to “bless” any particular terms.
Therefore, Judge Lane’s decision will likely grant or deny American’s request to reject our CBA without telling management how they can change the current wages and working conditions on the property. In other words, if Judge Lane orders the rejection of our CBA, he is unlikely to give American Airlines management any instructions on what to do next.
In summary, we have only one group of airline employees that opted for abrogation rather than negotiate an agreement prior to having their contracts terminated. The Northwest flight attendants got a much smaller claim than they had sought, based on the route that they chose. They also left behind some very onerous legal precedents that we will have to navigate in the event we find ourselves in the same situation. In the end, this appeal ruling questioned whether or not the bankruptcy court actually had the power to authorize particular conditions or terms in an abrogation scenario. To date, in “legal speak,” this remains unfinished law and there has been no appeal that would lend further clarity to this issue. However, in our case, Judge Lane has repeatedly stated for the record in open court that all he can do is either authorize the rejection of our contract, or deny AA’s motion to reject it. What he cannot do is dictate the terms or conditions that American can impose following the rejection of the contract, as some would like to think.
