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NEW YORK | Mon., Apr. 23, 2012 3:49pm EDT (Reuters) — American Airlines kicked off a week-long court hearing on its bid to abandon union contracts, telling a judge on Monday that its bankrupt parent, AMR Corp, cannot survive without major concessions from its labor force.

Hundreds of people, including lawyers and airline workers, filled the courtroom and two overflow rooms in U.S. Bankruptcy Court in Manhattan for the start of the hearing, as other unionized workers rallied outside the courthouse.

Cordoned off by police, the workers held signs and chanted for fairer work terms and against AMR's plan to cut about 13,000 union jobs.

AMR wants to convince Judge Sean Lane not only that it desperately needs labor concessions, but that its unions have unreasonably rejected prior attempts to negotiate those concessions. AMR filed for Chapter 11 bankruptcy in November, citing uncompetitive labor costs.

In opening statements, AMR lawyer Jack Gallagher said the company needs 20% across-the-board reductions in employee costs, half of which must come from medical benefits.

AMR spends three times as much annually on medical benefits as the average lower-cost carrier, like Southwest Airlines, he said.

"It's not the unions' fault we're in bankruptcy, but it's not about whose fault it is," Gallagher said. "It's about the facts of our business."

Edgar James, a lawyer for the Allied Pilots' Association, which represents about 10,000 AMR pilots, said AMR's proposed business plan is unfair, in part because AMR has not done enough to explore possible merger or consolidation options.

"What everyone believes is going to occur is they're going to get out of this bankruptcy and consolidate with someone," yet the company has told the pilots' group it has not considered that option, James said.

American has about 74,000 full and part-time employees. AMR said in February it expects to trim about 4,600 mechanics and related jobs, 4,200 fleet service workers, 2,300 flight attendants, 1,400 management and support staff, and 400 pilots.

 (Additional reporting by Kyle Peterson in Chicago; Editing by Martha Graybow, Carol Bishopric and Tim Dobbyn)

© 2011 Thomson Reuters. Click for Restrictions.

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