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From the Online Wall Street Journal
For AMR, a Pilot-Salary Fight Looms
[FONT=Times New Roman,Times,Serif]Unions Look to Restore Pay
As Airline Industry Emerges
From Financial-Crisis Period[/FONT]
[FONT=times new roman,times,serif][FONT=times new roman,times,serif]By MELANIE TROTTMAN
February 20, 2007; Page A12
[/FONT] [/FONT]
Last year, AMR Corp., the parent of American Airlines, made its first profit in six years. Now, its most powerful union is looking for a pay raise.
Negotiations between American and its 12,000-strong pilots union kicked off last September and are already proving to be an uphill battle. Pilots are looking to recoup their portion of $1.6 billion in annual pay and benefit cuts made four years ago to save the airline from bankruptcy. They are seeking added compensation on top of that.
Meanwhile, American's chief executive, Gerard Arpey, said the streamlined carrier must get more efficient, hinting that pilots may have to boost productivity to make headway on their demands.
Ralph Hunter, president of the Allied Pilots Association, expects talks to reach a stalemate and go to mediation before any deal is reached. "There is a growing perception among our pilots that this thing will not be resolved without a strike," he said, though that is rare and couldn't happen until after the contract becomes amendable in May 2008. The negotiations have already contributed to a defeat at the airline, which recently lost a bid to fly a nonstop route to China after pilots refused to consent to work the long hours.
The negotiations at American are helping to usher in the industry's first cycle of management-labor contract talks in a newly profitable and reshaped era for passenger airlines. The outcome will be critical in shaping the framework of airline balance sheets in years to come. Labor costs are one of the two biggest expenses for airlines, accounting for one-third of the Fort Worth, Texas, company's $22 billion of operating expenses last year.
"American's difficulty is, they're the first ones out of the box in a recovering scenario where the unions are really unhappy and will be looking to make a point," said Daniel Kasper of economic consulting firm LECG Corp. American "can't afford to restore concessions," Mr. Kasper said. He said the company has kept its pension plan, unlike many competitors who filed for bankruptcy-court protection, contributing hundreds of millions of dollars to do so.
Other airlines will face the same dilemma over the next few years as their union contracts come up for negotiation. Over the past six years, talks were conducted in crisis mode as airlines fought for survival and won pay and benefit cuts from unions. Some unions were forced into such cuts through bankruptcy-court proceedings, seeing their pay slashed more than once. Employees also saw work-rule adjustments requiring them to be more productive.
Now that the industry is turning profitable -- AMR's profit was $230 million last year -- employees are seeking payback. Flight attendants at Northwest Airlines Corp. recently asked a bankruptcy judge to reconsider their pay cuts in light of the airline's narrowing financial losses. Negotiating pilots at US Airways Group Inc. recently picketed company headquarters, citing management's refusal "to move off of a bankruptcy-era contract."
Pilots at Southwest Airlines Co. are also seeking more. They already are the highest paid among U.S. passenger airlines but also the most productive. American's pilots are the fourth-highest paid, but they don't rank as high in productivity, according to Air Inc., an Atlanta career-consulting firm for pilots.
"We've got to keep getting better" at operating efficiently, said American's Mr. Arpey. "We lost $8 billion prior to our 2006 profit, took on an enormous amount of debt, and cut our capital spending. We have to stay focused on repairing our balance sheet." Mr. Arpey said he needs to reach a contract that is palatable both to workers and shareholders. Already, he said Wall Street investors have questioned his decision to dilute their shares by issuing equity to help fund employee pension plans.
The balancing act could be especially challenging for American, which is one of only two of the six biggest traditional hub-and-spoke airlines that didn't opt to file for bankruptcy in the latest downturn. Competitors who did were able to extract deeper pay and benefit cuts from their unions, as well as other cost cuts that included lower lease rates on aircraft and on airport gates. Continental Airlines Inc., the other carrier that remained solvent during the recent downturn, had already benefited from a bankruptcy reorganization in the 1990s that led to a more productive work force and a newer, more fuel-efficient fleet.
To help offset that disadvantage, American formed a "working together" initiative in which management and unions began collaborating on ways to cut costs and boost revenue. The Transport Workers Union, representing mechanics and ground workers, has racked up since mid-2003 more than $500 million in savings and revenue, including $95 million in revenue last year, in part by conducting maintenance checks more quickly and using American's facilities to do maintenance for third parties.
But the road to working together has become rocky in recent months, largely because of a compensation plan that could pay nearly 1,000 managers more than $200 million in mostly stock this April. The payouts are linked to a share price that has risen sevenfold over the past four years. AMR's shares closed at $38.97 Friday on the New York Stock Exchange.
Union workers have yet to see payouts on their profit-sharing plans, since earnings haven't risen high enough to trigger that reward. It doesn't help that employees of Continental Airlines got $111 million in profit-sharing checks this month after a $343 million profit last year.
American said it happens to link a large part of executive compensation to stock performance. Union employees had the option to buy stock in recent years for just $5 a share, American said. Mr. Hunter, of the pilots union, counters, "There needs to be an equal rate of recovery for management and union workers."
Recently, the airline failed to win rights to fly nonstop from Dallas-Fort Worth to Beijing after pilots refused to sign a deal that would allow them to fly the longer hours they had agreed to on the airline's Chicago-Delhi flight. Mr. Arpey takes the blame. "I made a lot of presumptions that in retrospect were foolish to make. I put the pilots union in a difficult position," he said.
The two other unions at American, while working more closely with management, have also begun asserting their demands. The mechanics union will open its talks by November, and is "hoping for substantial improvement," said President James Little. The flight attendants have said they are unlikely to open talks until their contract becomes amendable in May of next year, but they have expressed frustration with the management payouts.
Write to Melanie Trottman at [email protected]1
GV
For AMR, a Pilot-Salary Fight Looms
[FONT=Times New Roman,Times,Serif]Unions Look to Restore Pay
As Airline Industry Emerges
From Financial-Crisis Period[/FONT]
[FONT=times new roman,times,serif][FONT=times new roman,times,serif]By MELANIE TROTTMAN
February 20, 2007; Page A12
[/FONT] [/FONT]
Last year, AMR Corp., the parent of American Airlines, made its first profit in six years. Now, its most powerful union is looking for a pay raise.
Negotiations between American and its 12,000-strong pilots union kicked off last September and are already proving to be an uphill battle. Pilots are looking to recoup their portion of $1.6 billion in annual pay and benefit cuts made four years ago to save the airline from bankruptcy. They are seeking added compensation on top of that.
Meanwhile, American's chief executive, Gerard Arpey, said the streamlined carrier must get more efficient, hinting that pilots may have to boost productivity to make headway on their demands.
Ralph Hunter, president of the Allied Pilots Association, expects talks to reach a stalemate and go to mediation before any deal is reached. "There is a growing perception among our pilots that this thing will not be resolved without a strike," he said, though that is rare and couldn't happen until after the contract becomes amendable in May 2008. The negotiations have already contributed to a defeat at the airline, which recently lost a bid to fly a nonstop route to China after pilots refused to consent to work the long hours.
The negotiations at American are helping to usher in the industry's first cycle of management-labor contract talks in a newly profitable and reshaped era for passenger airlines. The outcome will be critical in shaping the framework of airline balance sheets in years to come. Labor costs are one of the two biggest expenses for airlines, accounting for one-third of the Fort Worth, Texas, company's $22 billion of operating expenses last year.
"American's difficulty is, they're the first ones out of the box in a recovering scenario where the unions are really unhappy and will be looking to make a point," said Daniel Kasper of economic consulting firm LECG Corp. American "can't afford to restore concessions," Mr. Kasper said. He said the company has kept its pension plan, unlike many competitors who filed for bankruptcy-court protection, contributing hundreds of millions of dollars to do so.
Other airlines will face the same dilemma over the next few years as their union contracts come up for negotiation. Over the past six years, talks were conducted in crisis mode as airlines fought for survival and won pay and benefit cuts from unions. Some unions were forced into such cuts through bankruptcy-court proceedings, seeing their pay slashed more than once. Employees also saw work-rule adjustments requiring them to be more productive.
Now that the industry is turning profitable -- AMR's profit was $230 million last year -- employees are seeking payback. Flight attendants at Northwest Airlines Corp. recently asked a bankruptcy judge to reconsider their pay cuts in light of the airline's narrowing financial losses. Negotiating pilots at US Airways Group Inc. recently picketed company headquarters, citing management's refusal "to move off of a bankruptcy-era contract."
Pilots at Southwest Airlines Co. are also seeking more. They already are the highest paid among U.S. passenger airlines but also the most productive. American's pilots are the fourth-highest paid, but they don't rank as high in productivity, according to Air Inc., an Atlanta career-consulting firm for pilots.
"We've got to keep getting better" at operating efficiently, said American's Mr. Arpey. "We lost $8 billion prior to our 2006 profit, took on an enormous amount of debt, and cut our capital spending. We have to stay focused on repairing our balance sheet." Mr. Arpey said he needs to reach a contract that is palatable both to workers and shareholders. Already, he said Wall Street investors have questioned his decision to dilute their shares by issuing equity to help fund employee pension plans.
The balancing act could be especially challenging for American, which is one of only two of the six biggest traditional hub-and-spoke airlines that didn't opt to file for bankruptcy in the latest downturn. Competitors who did were able to extract deeper pay and benefit cuts from their unions, as well as other cost cuts that included lower lease rates on aircraft and on airport gates. Continental Airlines Inc., the other carrier that remained solvent during the recent downturn, had already benefited from a bankruptcy reorganization in the 1990s that led to a more productive work force and a newer, more fuel-efficient fleet.
To help offset that disadvantage, American formed a "working together" initiative in which management and unions began collaborating on ways to cut costs and boost revenue. The Transport Workers Union, representing mechanics and ground workers, has racked up since mid-2003 more than $500 million in savings and revenue, including $95 million in revenue last year, in part by conducting maintenance checks more quickly and using American's facilities to do maintenance for third parties.
But the road to working together has become rocky in recent months, largely because of a compensation plan that could pay nearly 1,000 managers more than $200 million in mostly stock this April. The payouts are linked to a share price that has risen sevenfold over the past four years. AMR's shares closed at $38.97 Friday on the New York Stock Exchange.
Union workers have yet to see payouts on their profit-sharing plans, since earnings haven't risen high enough to trigger that reward. It doesn't help that employees of Continental Airlines got $111 million in profit-sharing checks this month after a $343 million profit last year.
American said it happens to link a large part of executive compensation to stock performance. Union employees had the option to buy stock in recent years for just $5 a share, American said. Mr. Hunter, of the pilots union, counters, "There needs to be an equal rate of recovery for management and union workers."
Recently, the airline failed to win rights to fly nonstop from Dallas-Fort Worth to Beijing after pilots refused to sign a deal that would allow them to fly the longer hours they had agreed to on the airline's Chicago-Delhi flight. Mr. Arpey takes the blame. "I made a lot of presumptions that in retrospect were foolish to make. I put the pilots union in a difficult position," he said.
The two other unions at American, while working more closely with management, have also begun asserting their demands. The mechanics union will open its talks by November, and is "hoping for substantial improvement," said President James Little. The flight attendants have said they are unlikely to open talks until their contract becomes amendable in May of next year, but they have expressed frustration with the management payouts.
Write to Melanie Trottman at [email protected]1
GV
