Friday, March 28, 2014

American Air to Shrink Regional Carrier After Pilots Reject Contract: American Eagle Pilots Opposed Proposal to Freeze Pay Scales

American Airlines Group Inc.  said it would sharply shrink its regional carrier American Eagle Airlines after its pilots voted down a contract proposal.

About 92% of American Eagle's 2,700 pilots voted, with 70% opposing the 10-year contract proposal, which would have frozen their pay scales until 2018, eliminated profit-sharing and increased health-care costs. In return, American Airlines would have put the Eagle pilots on firmer paths to jobs at American Airlines—which offers the chance to fly bigger jets for more money—and would have committed at least 170 aircraft to the Eagle unit.

Instead, after the contract rejection, American Airlines said it would contract other carriers to fly new regional jets it has on order and begin retiring some of the smaller, less efficient aircraft American Eagle currently flies. American has said it is considering reducing Eagle's fleet of 225 aircraft by more than 100 by retiring or moving those planes to other regional carriers, said Bill Sprague, head of the Eagle chapter at the Air Line Pilots Association. When those changes will occur is unclear, he said.

Pedro Fabregas, American Eagle's president, said in a letter to employees on Friday that he was disappointed with the vote, "but now is the time for us to collectively accept our pilots' decision and move forward." He said that American Eagle won't go away as an airline but that it will "need to make appropriate changes to our business to…ensure our costs are in line with our reduced fleet."

Mr. Sprague told reporters that the Eagle pilots generally couldn't accept such a long contract that locked in pay scales that "are clearly unacceptable." He said Eagle pilots haven't seen meaningful contract gains since 2004 and that new pilots begin at less than $23,000 a year. Keeping those compensation levels would threaten Eagle's ability to attract new pilots, particularly amid an increasing shortage of passenger-airline pilots in the U.S.

He said that as Eagle shrinks, its pilots should be able to find work at American Airlines or discount airlines that are growing, such as JetBlue Airways Corp. or  Spirit Airlines Inc. 

Eagle pilots voted on the contract proposal over the past three weeks. Voting concluded on Friday morning. American Airlines plans to rename its Eagle unit Envoy later this year, as it keeps the Eagle brand for its regional flying, which will increasingly be done by other carriers.