CEO Seeks to Halt Worker Pay Raises
- From: Too_Many_Tools <too_many_tools@xxxxxxxxx>
- Date: Sun, 07 Oct 2007 21:35:03 -0700
I'm confused....if labor is the largest cost, why is management
getting bonuses?
Aren't they a cost to the stockholder too?
TMT
American Seeks to Halt Worker Pay Raises
Sunday October 7, 1:45 pm ET
By David Koenig, AP Business Writer
American Airlines Faces Battle to Limit Labor Costs, Among Industry's
Highest
FORT WORTH, Texas (AP) -- American Airlines, profitable again after
racking up $8 billion in losses since 2001, faces a three-front battle
to limit labor costs that are among the highest in the industry.
The three unions representing American's employees want to make up for
double-digit wage and benefit cuts back in 2003, when the company was
on the brink of bankruptcy. They argue that their sacrifices saved the
nation's largest airline and they deserve to be rewarded now with big
pay raises.
Not so fast, airline executives say.
This week, American and the ground workers union broke off talks on a
limited contract extension and pay increase. They'll resume
negotiations in November.
Last week, American offered pilots pay increases -- if they fly more
hours. The proposal would not raise basic wage rates.
Leaders of the pilots' union declined to be interviewed about the
proposal. But a union spokesman said pilots have "high aspirations"
for the current round of bargaining, which is expected to run until at
least next spring.
And late this year or early next year, American will begin talks with
the flight attendants' union.
"It looks like it's going to be truly old-style confrontational
bargaining," said Tommie Hutto-Blake, president of the flight
attendants' union.
It would be hard to overstate the importance of the negotiations to
the company's bottom line. After five years of losses, American posted
a $231 million profit in 2006.
Although high fuel prices get more headlines, labor is still the
largest single expense for American's parent, AMR Corp. Wages and
benefits accounted for 31 percent of all spending in the first six
months of this year.
According to MIT researchers, American's labor costs last year were
the highest in the industry -- 14 percent more than runner-up
Northwest Airlines Corp., and 26 percent more than the average of the
five largest low-cost carriers, including Southwest Airlines Co. and
JetBlue Airways Corp.
"We need to be creative because American is not in a position of
strength on the cost side," said Jeffrey Brundage, AMR's senior vice
president of personnel. He said the company's goal "is lowering our
unit labor costs and hopefully doing it in a way they can accept and
that doesn't involve pay cuts."
The outcome of negotiations could affect AMR's ability to pay down
billions in debt. Philip Baggaley, an airline analyst for Standard &
Poor's, said American will be more cautious about ordering new
airplanes if it can't get satisfactory labor deals. "They'll tend to
fly the older planes longer."
Of its three labor groups, American has enjoyed the friendliest
relations with the Transport Workers Union, which represents more than
25,000 baggage handlers, mechanics and other ground workers. The union
and company worked together to boost productivity at maintenance
hangars.
Two weeks ago, the company offered the union unspecified pay raises in
exchange for extending their contract into 2010. A deal would have
freed American to focus on contentious negotiations with the other two
unions.
But the talks broke off Wednesday. When negotiations resume in
November, they will be more difficult, covering an entirely new
contract instead of just a handful of issues.
Next up on American's to-do list: Negotiations with pilots. In June,
the Allied Pilots Association proposed pay raises of 30.5 percent and
a 15 percent signing bonus. But that came from the union's previous
president, and his successor wants even bigger raises.
The new president, Lloyd Hill, declined an interview request. Union
spokesman Gregg Overman said the union will present Hill's proposal
later this month.
"We will be setting high aspirations, and we'll focus on restoring the
profession," Overman said.
Any discussion of labor relations at American is colored by the stock
bonuses that the company gave the past two years to several hundred
executives and managers. The shares were worth about $250 million when
issued.
The company considers the stock part of compensation for managers, and
notes that there were no payouts between 2001 and 2005. Many rank-and-
file workers still laboring under double-digit pay cuts from 2003 are
outraged by the bonuses, and the unions feel pressure to deliver pay
raises in new contracts.
"Management has seen fit to reward itself handsomely the last couple
years," Overman said. "In many respects, we're only taking their
lead."
AMR executives say the company can't afford to meet the pilots'
initial demand. They say American is being undercut by carriers that
used the bankruptcy process to cut their labor costs. In interviews
last week, executives said pay could still be addressed later in
negotiations, but they were careful to set low expectations for the
pilots, who earn $136,000 a year on average, according to the company.
"These are high-paying jobs," said Brundage, the AMR personnel
executive. "These jobs are not as good as they were in 2000, but they
are terrific jobs ... they work less hours than any other major
carriers, and they make more."
Jamie Baker, an airline analyst with JP Morgan, said there is a 20
percent chance that American's pilots would get wage cuts, not raises.
Baker's reasoning: If negotiations bog down and a mediator is called
in, he would compare American's wages with lower pay at other
airlines.
Pilots, however, have clout, as Northwest was reminded this summer.
After sickouts led to hundreds of canceled flights, management agreed
to expand overtime pay for pilots.
"It clearly shows pilots have the power to administer sharp economic
pain. If (American's pilots) want a pay raise, they'll get one," said
Vaughn Cordle, who runs AirlineForecasts LLC, a research firm that
values airlines for hedge funds.
A 10 percent increase in American's total labor costs would wipe out
the entire profit that AMR is expected to earn this year. Cordle said
that would depress the stock price and force the company to sell off
parts of the business, such as American Eagle or its AAdvantage
frequent-flier program.
Airline labor contract negotiations are covered by a federal law that
gives the president and Congress power to block strikes. Contracts
don't expire; they become amendable.
Some legal experts say the law gives management the upper hand.
Certainly strikes such as the 1993 walkout by flight attendants at
American are rare.
"These negotiations are marathons, not sprints," said Jerrold Glass, a
former US Airways executive and now a consultant to airlines -- but
not American.
"You can have a bad week, and people say things they regret," Glass
said, "but in the airline industry virtually every negotiation ends
peacefully."
.
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