Wednesday, December 24, 2014

American Airlines Announces Additional Pay Raises: Airline Concludes Contract Talks With Pilots Union, Leaves Offer on the Table for a Time

The Wall Street Journal
Updated Dec. 23, 2014 6:02 p.m. ET

American Airlines Group Inc., trying to build employee trust and heartened by strong financial results in the first year after its merger, said Tuesday that it will raise pay scales by 4% for any unions that reach joint postmerger labor contracts and lift nonunion pay by the same.

“Taking this step just one year into our integration speaks volumes about just how well American is performing,” Doug Parker , the airline’s chief executive officer, said in a staff memo. “We had been intending to make this announcement in late January, when we announce our 2014 results. But since we already know this year’s results will be very strong, we decided instead to get the news out now.”

The company also offered the 4% raise to its pilot union—representing 10,000 American pilots and 5,000 US Airways aviators—which still hasn’t been able to reach a deal with the company on a new contract. Following its latest offer, American said pilot contract talks are now shut down, and the company has pledged to put the issue to arbitration.

The pilot union said Tuesday its directors will meet next week to determine the union’s response to American’s revised proposal.

As a result of the December 2013 merger of American and US Airways, pilots at both airlines agreed to a deal in which they would negotiate terms of a combined labor deal. If a mutual agreement can’t be reached, an arbitration panel will determine the terms.

In November, American offered its pilot union, the Allied Pilots Association, an 18% raise this month, plus 3% a year for four years. The idea was to bring the group to Delta Air Lines Inc. pilot wages plus 3%. But American 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 pilot union last week countered with three options: adding 7.5% in pay over four years; accepting American’s proposal but having annual pay remain 3% above Delta’s; and a wage scale with a profit-sharing plan.

Scott Kirby, American’s president, said the company’s November offer remains open, along with the 4% extra raise, if the Allied Pilots Association union agrees to it before arbitration proceedings begin in late February. Mr. Kirby said last week’s union counterproposal “was more expensive than even this enhanced offer.”

Both Messrs. Parker and Kirby are dead-set against profit-sharing, contending that it is better to reward employees with industry-leading wage rates rather than lower wages supplemented by compensation that varies with airline profitability.

If American chooses to start the arbitration process, the pilots would be forced to go along. The parameters of an arbitrated settlement already are known—and are less generous: a 3% pay increase on Jan. 1, followed by an estimated 13% increase in January 2016, followed by 3.5% increases in January of 2017 and 2018.

Separately on Tuesday, pilots at Envoy Air, one of American’s wholly owned regional carriers, ratified a 10-year labor accord that freezes their pay scales while allowing them to eventually move up and fly larger planes at superior pay rates for American. About 91% of the 2,400 Envoy pilots voted, and three-quarters approved the deal. Earlier this year, the aviators rejected a contract, spurring American management to begin moving more of its short-haul flights to other regional providers.

American’s 24,000 flight attendants last week won back from the company $81 million in pay increases lost when they narrowly rejected a proposed contract in November. That vote led to arbitration, with the foregone conclusion that the group would get just $112 million in annual improvements instead of $193 million. But the Association of Professional Flight Attendants union persuaded Mr. Parker to reconsider and last week the company raised pay rates by about 6.5%, effective Jan. 1. As a result of Tuesday’s additional increase, flight attendants pay will climb another 4%, bringing them well over the wages of attendants at Delta and United Continental Holdings Inc.

Mr. Parker said for union groups that haven’t yet reached merged contracts, “they will now see larger increases when those joint ratified contracts are achieved.” That includes mechanics, ramp workers and others.

American, based in Fort Worth, Texas, and now the world’s largest airline by traffic, is in line to earn about $4.2 billion this year. The company, largely run by former US Airways executives, is highly motivated to buy labor peace, given its newfound profitability and the fact that US Airways consummated a previous merger in 2005 that was complicated by labor problems. Those executives also recognize that the three largest unions at the old American were early and enthusiastic backers of US Airways’ controversial takeover of American when the latter emerged from bankruptcy-court protection a year ago. Management is working to build a common culture and avoid earlier labor woes, which is tricky because many American employees have been at odds with their former leaders for years.


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