Progress Seen In American Airlines Pilot Talks

June 16, 2011

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Pilots at American Airlines report strong progress in what have been long and difficult contract talks, aiming to recoup wages and benefits lost during painful restructuring.

Although the two sides still have a number of hurdles to clear before a deal is possible, the notable spring thaw in relations with AMR management is a positive sign for the carrier hobbled by years of acrimonious bargaining with its three biggest unions.

"Having a confrontational relationship is not really in our best interest, nor has it been successful," David Bates, president of the Allied Pilots Association said.

"It's a tough environment to bargain in," he said, noting that American lost USD$436 million in the first quarter with fuel expenses up 24 percent at USD$1.8 billion.

American's inability to accelerate fleet modernisation, position itself for a possible merger and boost its share performance has been partly due to difficult relations with pilots, according to some industry experts.

"Everybody needs to get this done. American has labour contracts open with pilots and flight attendants and the mechanics. They just need to get their contracts done, put forth a strategic plan that is defendable and go forward," said analyst Helane Becker.

AMR shares, which closed at USD$5.63 on the New York Stock Exchange, are off 30 percent over the past 12 months. By comparison, most rivals' shares are down less or trading in slightly positive territory.

Talks between management and the union representing 11,000 American pilots began in 2008 and quickly turned bitter. Rising executive pay has been a sore point for labour with the company losing money and unions in extended contract negotiations.

AMR CEO Gerard Arpey earned USD$5.2 million in 2010 in salary and stock-related compensation.

Bates' election last year ushered in a more conciliatory approach to management that is rooted in a belief the airline must be sound financially for pilots to succeed at the bargaining table.


The two sides have reached a half-dozen tentative agreements since January on secondary issues such as the use of crew rest facilities and drug testing. Most recently, they exchanged proposals on work-rule scheduling.

The company has expressed optimism at the new pace and tone of negotiations with the next round scheduled for this week in Fort Worth, Texas. Another session is scheduled in July.

American pilots accounted for more than a third of USD$1.6 billion in annual wage and benefit concessions won by the carrier from pilots, flight attendants and mechanics in 2003. Many pilots took pay cuts of up to 50 percent and lost rank and seniority. Today's pilot pay rates nearly mirror those from 1993.

American was the only major airline to avoid bankruptcy during the industry's worst-ever downturn, but its labour costs remained higher -- USD$1.72 billion in the first quarter -- than rivals who extracted deeper pay and benefit cuts and shed pension costs in court.

Bates, whose more conciliatory approach to bargaining than predecessors is paying off, believes the union can start recovering what it gave away.

"But it will take more than one contract," he said.

Jeffrey Brundage, American's senior vice president-human resources, said the carrier has "seen real progress in its talks" with pilots in terms of an approach and "in getting closer to a workable agreement."

Brundage said negotiations require a lot more work but the decision to lower the rhetorical temperature and orient talks toward long-term mutual interests were crucial.

"What you're watching -- and not just American -- you're watching a transformation in how that business is done," Brundage said.

Every major contract in the heavily unionised airline industry is in or is up for negotiation this year, raising the stakes and tensions for workers and management.

"You're looking at several groups of employees that are in the middle of a very high-stakes set of negotiations," said Robert Mann, an airline consultant. "And I think their sensitivities are raised by the negotiating environment in which they operate."

Airlines and unions both insist that bluster and strike threats have little place at the bargaining table.

The "typical knee-jerk" reaction by labour "has shown not to work," but management trying to "squeeze the last nickel" out of negotiations is a losing strategy, too, said former Continental Airlines chief executive Gordon Bethune. "Give them the nickel."