More Turbulence Awaits American Airlines, Pilots' Union
Source: Knight Ridder/Tribune Business News
Publication date: 2002-06-17
Jun. 16--The timing couldn't be worse for American Airlines Inc. and its pilots' union as they try to negotiate a new contract.
Beset by a drooping economy and the aftereffects of the Sept. 11 terrorist attacks, American and other airlines are piling up record losses -- $1.8 billion for American's parent, AMR Corp., alone since contract talks began last summer.
Amid that financial backdrop, pilot leaders are striving to match or beat the pilot pay scales at Delta Air Lines Inc. and United Airlines Inc., which offer about 30 percent higher base hourly pay for captains and first officers.
Delta and United pilots reached their higher-paying contracts before the economic downturn.
But American can't wait for the airline industry to improve, said Mark Stephens, head of the Allied Pilots Association's negotiating committee. Contract talks often take years -- nearly three years in the case of the last pilot talks, which started in 1994.
Talks that start during booms often end during recessions. Or they start during a recession and are finished during a boom. It's useless to try to time the talks to hit an "up" period, Mr. Stephens said.
"Chasing the [economic] cycles is not something that we have been able to do, nor has anyone in the industry really been able to successfully predict when those things are, when the optimum time is," he said.
The main questions: When will American and the airline industry as a whole return to financial health, and how healthy will they be?
American's chief negotiator, Jeff Brundage, said the mainline carriers such as American shouldn't assume that they'll automatically prosper again once the economy improves.
Although that linkage has worked in previous economic expansions, Mr. Brundage said he doesn't think that will be true this time around. His expectation is that low-cost competitors such as JetBlue Airways Corp. and Southwest Airlines Co. will take more of the nation's passengers.
"If you start with the assumption that it's a cyclical industry and this is just the downside of the cycle, I think you're destined for failure. That's the first premise that we have to nail -- that it's a new world," said Mr. Brundage, vice president of employee policy and relations.
Although the airline and the union first exchanged opening positions nearly 11 months ago, the talks are still in early stages. Negotiators took a four-month timeout after Sept. 11, before resuming in January.
Mr. Stephens suggested that any delay in a new contract works to American's advantage. On one hand, he said, union negotiators have gotten no indication that American wants the union to consider concessions, as US Airways Inc. and United have. However, he pointed out that American's pay scale is less than its major competitors.
"But certainly the indication we've gotten from the company is that they're more than happy to operate on a 25 to 30 percent discount on pilot costs for as long as they can," Mr. Stephens said. "That's where we're at in negotiations."
Mr. Brundage rejected the idea of any foot-dragging by American and said the company would prefer a speedy end to talks. Although pilot pay would go up, American would also benefit from productivity improvements that need to be part of a new deal, he said.
"Parity is about more than just pay rates," Mr. Brundage said. "Parity means they get this agreement that's fair to them but is affordable to the company and provides an opportunity for us to be competitive in the marketplace."
A pilot's pay depends on years of employment, size of the airplane he or she flies and the rank, with extra pay for flying at night and on international trips.
The highest pay would go to a senior captain flying American's biggest jet, the Boeing 777, on international flights. Assuming the captain flew 75 hours a month on international flights, the annual wages would be about $211,000 a year. Under the same assumptions, a Delta captain would earn nearly $271,000 and a United captain would bring in about $268,000.
The negotiations go beyond pay. The union is also seeking safety improvements and limits on American's ability to use commuter and international partners.
For its part, American wants a deal that would let it expand American Eagle, its commuter partner, and gain productivity improvements that would help pay for wage increases.
American isn't alone in having to deal with labor issues. United and US Airways have asked for concessions, and Continental Airlines Inc. -- whose pay is at the bottom of the major carriers' -- has broached the subject of delaying contract talks. Even Southwest, often praised for its good labor relations, just had a proposed contract overwhelmingly rejected by mechanics with the International Brotherhood of Teamsters.
Southwest's pilots, represented by the Southwest Airlines Pilots' Association, are voting on an early extension of their contract, including pay raises of at least 20 percent by 2004. But the union's board of directors deadlocked on whether to recommend approval of the deal.
In a report last week, industry analyst Jamie Baker of J.P. Morgan Securities Inc. said American and Continental "share the conviction" that the rise in industry wages will be reversed as US Airways and United negotiate lower wages with their unions.
As a result, American and Continental "will probably delay settling with their own unions until UAL [United's parent] and/or US Airways have something to show for their efforts," Mr. Baker wrote.
In reality, unions at other airlines "are likely to interpret wage relief at UAL or US Airways as specific to those carriers, and they will therefore aggressively resist any attempts to mirror revised wages at their own carriers," Mr. Baker said.
"Furthermore, Delta, the industry leader in pilot pay, is not aggressively pursuing a strategy of wage relief with its pilots, leaving it as the probable benchmark for AMR and [Continental] pilots."
That certainly is the approach American's pilots are using.
"The US Air situation is particularly unique -- the company is claiming that outside of these kinds of givebacks from their employees that they're going to have to declare bankruptcy, and nobody knows what will happen," Mr. Stephens said. "So you have to put them off to one side."
Labor consultant Ray Abernathy, who has worked with American's flight attendants' union and Continental's pilots in the past, said he fears that airlines will use their problems to win changes in the Railway Labor Act.
That law, which controls negotiations in the rail and airline industries, provides a process that governs how management and labor bargain, including the steps necessary before a union can call a strike.
American chairman and chief executive officer Donald J. Carty and other top industry executives have been lobbying for a change in the law that would bar strikes. Instead, unresolved issues would go to third-party arbitration.
Mr. Abernathy, a Washington-based consultant, warned that the current airline industry situation should not be used to lobby for permanent changes in the system that will weaken organized labor.
"My fear in this current bargaining is that American Airlines is going to want to use these transitory events to build a case against the pilots to force the situation into a crisis and then appeal to the president and the Congress to eliminate forever the right of airline unions to strike," Mr. Abernathy said.
In a recent report, industry analyst Sam Buttrick of UBS Warburg LLC said labor costs may be too high now with industry revenues too low. But the industry would still be unprofitable even if pilot compensation were cut 75 percent in 2002, he said.
Mr. Buttrick said that both labor and management have to share the responsibility for fixing the airline industry's problems. "Put blame where blame is due," Mr. Buttrick said.
"Labor can't be blamed for bad management decisions any more than management should be held responsible for the unproductive deadweight in labor contracts. If it's broke, fix it -- and that goes for both management and labor."
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(c) 2002, The Dallas Morning News. Distributed by Knight Ridder/Tribune Business News.
Publication date: 2002-06-17
© 2002, YellowBrix, Inc.
Ps: I hope they will reach a contract a.s.a.p.
(10)
American Airlines/safety problems
Just a coment!
