As a result of its Chapter 11 reorganization filing last week, AMR Corp. has suspended its American Eagle Airlines’ divestiture and is likely to reject a “Plan B” proposed by the Air Line Pilots Association (ALPA) that limits aircraft retirements for the next eight years.

The company’s initial divestiture plan called for fleet reductions starting in 2014, with upward of 40 regional jets allowed to be cut each year thereafter. The pilots union countered with an eight-year deal that left the fleet untouched for five years, rather than two, added a “right of first refusal” that would enable Eagle to secure bids on services from San Juan, Puerto Rico, and confirmed a minimum fleet of 135 jets at the end of the contract.

Eagle’s management accepted this proposal in late October (Aviation Daily, Oct. 24) and both sides were proceeding with contract language until AMR Corp. filed for court protection Nov. 29.

In a letter dated that same day but just released by ALPA, Eagle’s president and CEO, Daniel Garton, told Anthony Gutierrez, American Eagle’s ALPA master executive council (MEC) chairman, that negotiations had ceased and that no deal would be signed. “In light of the changed circumstances resulting from the Chapter 11 filing, American can no longer guarantee its ability to enter into the “Plan B” air services agreement with Eagle. American will be evaluating its mainline and regional networks and associated fleet plans in light of the Chapter 11 filing and it may be several weeks before we are advised of the impact on Eagle. As a result, Eagle will be unable to proceed with finalizing the tentative agreement reached in October,” said Garton.

“Unfortunately, the AMR bankruptcy petition makes it likely the divestiture of Eagle will not be concluded until the reorganization is completed. This is certainly not the outcome we have been working toward over the past 18 months, but we are hopeful we can emerge from bankruptcy as a more competitive, viable company and that our plans to become an independent airline will be realized,” adds Eagle’s top executive.

While Chapter 11 still provides the possibility for AMR and Eagle’s pilots to reach a labor accord, Gutierrez is preparing his members for tougher times. “MEC Vice Chair Dave Ryter and I met with Eagle President Dan Garton. At this meeting, management issued a letter to all American Eagle labor groups indicating an intention to seek changes to the labor contracts under Section 1113 of the Bankruptcy Code. Before the company can reject a CBA [collective bargaining agreement], Section 1113 requires that it make proposals, engage in a negotiation process, provide information related to its request, and obtain approval from the bankruptcy court,” says the ALPA chairman.

“If an agreement cannot be reached, the bankruptcy judge will determine whether management has met the requirements of Section 1113, including its obligations to negotiate and demonstrate that the terms proposed by the employer are necessary to permit the company’s reorganization. If so, then the bankruptcy court may grant the motion and management can impose the modified terms. If this occurs there will no longer be a pilot contract, only those terms and conditions approved by the court,” adds Gutierrez.