American Pilots, Management Agree to Keep Talking on a New Labor Deal: American to Shrink its Envoy Air Commuter Unit by Transferring Small Jets to Other Vendors

The Wall Street Journal
By Susan Carey

Nov. 23, 2014 2:59 p.m. ET


American Airlines Group Inc. and the union that represents its 15,000 pilots said they would continue to negotiate terms of a combined labor agreement, putting off for now a plan to reach a deal through binding arbitration. The new goal is to resolve the impasse by mid-December, the two sides said.

Separately, American said it plans to transfer at least 50 of its small regional jets to other vendors from its wholly-owned Envoy Air unit, due to a pilot shortage at Envoy. Some of the planes will go to wholly-owned Piedmont Airlines and outside contractor Trans States Airlines, the parent company said.

American raised the stakes in the talks with its main pilots union late last week, when it told the Allied Pilots Association that it needed to agree by Nov. 21 to accept the framework of the carrier’s Nov. 11 offer to APA as the basis for talks, not the union’s later counterproposal. Otherwise, American suggested it would move to arbitration, an outcome the union would be forced to go along with.

American’s proposal includes bigger raises than what the aviators are guaranteed to receive in the arbitration procedure. APA countered by asking for larger pay increase to make up for the fact that American pilots aren’t being offered profit-sharing.

The union’s 22-member board of directors met for three days last week to discuss the situation and adjourned Thursday night after directing negotiators to have further talk with management. It seems the union agreed to work off American’s earlier offer, according to a person familiar with the matter. But to sweeten the deal, American withdrew a proposal unpopular with the pilots that would have enabled the company to raise the number of seats in some of the regional aircraft.

This isn’t a normal airline-labor negotiation. The American pilots already have a six-year labor accord they agreed to when American’s former parent, AMR Corp. was in bankruptcy proceedings. US Airways management, which orchestrated AMR’s emergence from Chapter 11 through a merger of the two carriers, agreed to improve the terms in response to the pilots’ backing of the combination. US Airways aviators signed onto it as well, and both pilot groups received substantial raises a year ago when the merger closed.

But to create a true joint agreement, all the work rules must be aligned. In the absence of a negotiated agreement, the parties agreed to let an arbitration panel come up with those co-mingled rules, ensuring that they don’t raise the airline’s labor costs more than $87 million a year.

American agreed to give the pilots, even in an arbitrated outcome, a 3% raise on January 1, and two 3.5% increases, the first in early 2017 and the final one in early 2018. In addition, in 2016, the pilots would be brought up to the average of what pilots earn at United Continental Airlines Inc. and Delta Air Lines Inc. That could represent an increase of about 13% increase.

What American proposed to the pilots, as an amendment to the existing contract and a reflection of its financial performance, is an 18% raise on Dec. 2, plus 3 % a year for four years, starting this January, extending the pact by a year. The idea was to bring the group to Delta Air Lines Inc. pilot wages plus 3%. But the pilots, mindful that Delta pilots are in line to receive 15% of their annual earnings this year in profit-sharing, wanted 10% over Delta, rather than 3%.

The APA said its leaders and negotiators concur “that a negotiated agreement is preferable to an arbitrated outcome.” American, in a statement, said both sides have made progress and will continue to work toward a deal outside of arbitration.

American’s 24,000 flight attendants faced a similar choice, and early in November defeated a tentative new contract by a scant 16 votes out of more than 16,000 cast. The next step is arbitration, which is scheduled to begin Dec. 3. The attendants will be leaving money on the table because the outcome in arbitration is proscribed and is less than what American was offering.

Envoy, American’s largest wholly-owned commuter carrier, has been gradually hollowed out since the pilots there rejected a tentative labor agreement early this year. American has awarded desirable flying of large regional jets to other airlines and now is working on transferring some of Envoy’s remaining small regional jets to other airlines. As a result of the latest moves, Envoy is going to lose almost 100 planes to other airlines that have lower costs.

- Source: http://online.wsj.com