In re Delta Air Lines, Inc.

• Decision Date: 07 February 2007
• Docket Number: Bankruptcy No. 05 B 17923(ASH).,Adversary No. 06-1964A.
• Citation: 359 B.R. 491
• Parties: In re DELTA AIR LINES, INC., et al., Debtors. Comair, Inc., Plaintiff, v. Air Line Pilots Association, International, et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

Page 491

359 B.R. 491

In re DELTA AIR LINES, INC., et al., Debtors.

Comair, Inc., Plaintiff, v. Air Line Pilots Association, International, et al., Defendants.

Bankruptcy No. 05 B 17923(ASH).

Adversary No. 06-1964A.

United States Bankruptcy Court, S.D. New York.

February 7, 2007.

Paul, Hastings, Janofsky & Walker LLP, by John J. Gallagher, Esq., Robert S. Span, Esq., Brendan Branon, Esq., Washington, DC, Attorneys for Debtors and Debtors-in-Possession.

Cohen, Weiss and Simon LLP, by Michael I. Winston, Esq., Peter D. DeChiara, Esq., New York, NY, Attorneys for Defendant Air Line Pilots Association, International.

DECISION ON COMAIR MOTION FOR PRELIMINARY STRIKE INJUNCTION

ADLAI S. HARDIN, JR., Bankruptcy Judge.

By order dated December 27, 2006 in accordance with the Court's Decision dated December 21 (the "December 21 Decision"), this Court granted the motion of debtor Comair, Inc. ("Comair") under Section 1113 of the Bankruptcy Code, 11 U.S.C. § 1113, to reject its collective bargaining agreement with its pilots (the "pilot agreement") represented by Air Line Pilots Association, International ("ALPA"). Subsequent to Comair's announcement that it planned to implement the terms of its last Section 1113 proposal on or before January 1, 2007, ALPA made it clear that its members will not work under terms of employment not agreed to by the pilots and will conduct a strike if Comair implements new terms of employment. Comair responded on December 22, 2006 by commencing the above-captioned adversary proceeding for injunctive relief and filing the instant motion for a preliminary injunction to restrain ALPA and its members from sponsoring, encouraging or engaging in any strike or job action against Comair in violation of Section 2 First of the Railway Labor Act, 45 U.S.C. § 152 First (the "RLA"). ALPA opposes injunctive relief on the ground that Section 101 of the Norris-LaGuardia Act, 29 U.S.C. § 101 ("NLGA"), deprives the Court of jurisdiction to enjoin a strike in the circumstances presented here.

A hearing on Comair's motion was held on December 28, 2006. At the conclusion of the hearing counsel jointly announced that the parties had reached a "standstill agreement" to defer a decision on the motion for preliminary injunction and to adjourn the hearing to February 1, 2007 in order to give the parties additional time to resolve their differences by negotiation. In the standstill agreement, Comair agreed to defer implementation of new employment terms until February 2. At the February 1 hearing I requested that the parties extend their standstill agreement for one week. The additional time has not produced agreement, and the parties have asked the Court to decide the motion.

Jurisdiction

This Court has jurisdiction over this adversary proceeding and contested matter under 28 U.S.C. §§ 1334(a) and (b) and 157(a) and the Standing Order of Referral of Cases to Bankruptcy Judges dated July 10, 1984 signed by Acting Chief Judge Robert J. Ward. This is a core proceeding under 28 U.S.C. § 157(b)(2).

Background

The background and the details of Comair's Section 1113 litigation with ALPA have been set forth at length in this Court's December 21 Decision granting Comair's motion to reject the pilot agreement. To avoid unnecessary repetition, familiarity with that Decision is assumed. It will suffice here to reiterate that Comair is a regional airline wholly-owned by debtor Delta Air Lines, Inc. ("Delta") which filed for bankruptcy on September 14, 2005 along with Delta and other affiliates. Comair is one of five competitive regional airlines which provide "regional lift" for Delta, each operating under a separate Delta Connection Agreement. Delta is Comair's only customer, although Comair has sought unsuccessfully to compete for regional lift for other major airlines. Comair's pilot costs are the highest in the regional airline industry. Delta has the power to withdraw aircraft from service with Comair and to place such aircraft with competitive Delta Connection regional airlines, and it has done so based upon Comair's uncompetitive cost structure. The pilots are the only Comair employee constituency which has not agreed to any cost reduction since Comair filed for bankruptcy in September 2005.¹ The grounds on which this Court concluded that Comair had established the right to reject the pilots' collective bargaining agreement are aptly summarized in the concluding paragraphs of the Court's December 21 Decision.

The final statutory test, under Section 1113(c)(3) requires the Court to find that "the balance of the equities clearly favors rejection of such agreement."

The trial evidence compellingly demonstrates that the balance of the equities requires rejection of the Pilot Agreement.

No one can be gratified at the prospect of reducing established wages and benefits. No one questions the worthiness of these skilled and dedicated pilots or the heavy responsibilities that they bear in the air. And no one can doubt the economic hardship of pay cuts for some whose family needs may exceed their earning capacity in this job. But it is in the nature of bankruptcy that, as a simple matter of economics and competition, the debtor cannot meet pre-petition contract rights and expectations. It is the essence of a Chapter 11 reorganization that all economic constituencies of a debtor must make their appropriate and proportionate contribution to the debtor's reorganization in order that all may benefit from the continued viability and future success of the debtor.

In this case there is no dispute that Comair's pilot costs are materially higher than the rest of the regional airline industry. This competitive disadvantage has cost the airline dearly since 2003 and threatens the jobs of every employee in the company. Comair has seen its share of Delta regional lift decline from 52% to 32%. Its fleet has been reduced by 21 aircraft and it has been unable to compete for regional lift from other mainline carriers. Last month it lost twelve of its 25 70-seat jets to a competitive Delta Connection carrier. Effective January 1 Delta's annual pilot costs will increase by $8 million annually and it will be required to contribute an additional $3.5 million to its pilot defined contribution plan, all of which will greatly increase Comair's competitive disadvantage.

Finally, the pilots are the only employee constituency which has made no concessionary contribution to Comair's reorganization. Every other labor group, both union and non-union, has made substantial financial sacrifices to support the ongoing viability of the enterprise, except the pilots.

Comair's November 16 proposal is absolutely "necessary." It is proportionate and "fair and equitable." It would leave the pilots in the mid-range of compensation and benefits amongst its competitive regional airlines, and it guarantees pay increases within the four year term and includes "industry leading" profit sharing.

As noted above, this Court cannot make a new agreement for the parties, and both sides must return to the bargaining table if they are to resolve their differences consensually. But on a motion to reject under Section 1113 this Court is called upon to decide whether Comair must continue to perform in accordance with the existing Pilot Agreement during the pendency of their future negotiations, which both sides have assured the Court may last for many months. It is in this context that the Court must be mindful of the context of its decision and the fundamental objectives of Chapter 11.

The objective facts established at trial demonstrate that Comair's pilot wage rates are not competitive and, consequently, that it cannot compete successfully in the highly-competitive world of the regional airline industry. The most dramatic evidence of this is Comair's loss of twelve 70-seat jets to a Delta Connection competitor at a time when the only, significant competitive cost disadvantage remaining is Comair's pilot costs. Under the Pilot Agreement that competitive disadvantage will substantially increase upon the new year. The trial evidence leaves no doubt that the prospects for Delta's reorganization and future viability as a competitor in this industry are materially at risk as a result of Comair's existing pilot cost obligations. The sacrifice and, ultimately, jobs of all of Comair's other employee groups cannot be jeopardized by the hold-out of one labor constituency.

On this evidence, the "balance of the equities" requires that Comair be permitted to reject the Pilot Agreement.

The Issue; Precedents

As noted at the outset, ALPA contends that the NLGA deprives the court of jurisdiction to grant an injunction restraining employees from engaging in a strike or job action when an employer imposes new terms of employment after the court authorizes rejection of a collective bargaining agreement under Section 1113 of the Bankruptcy Code. Comair responds that the RLA, which ALPA concedes applies to Comair as a common carrier, trumps the NLGA under the case law, and that an injunction may be issued by the Court to enforce ALPA's duty under the RLA to negotiate in good faith and submit to the mandatory and lengthy procedures under the RLA for mediation. ALPA counters that the provisions of the RLA, do not apply to bar a strike or job action where Comair has unilaterally changed the status quo by imposing new terms of employment following the Section 1113 rejection of the pilot agreement.

Only three reported decisions have decided the issue thus framed. In In re Northwest Airlines Corporation, 346 B.R. 333 (Bankr.S.D.N.Y. August 17, 2006), pending in this Court, the Bankruptcy Court concluded based on the NLGA that the Court does not have jurisdiction to enjoin a strike in the circumstances here presented. On appeal the District Court reversed, concluded that the RLA was applicable on the facts to override the NLGA, and issued a preliminary injunction restraining the union...