Bigger Paydays for Airline Execs Leave Pilots Demanding a Share

Pilots at United Airlines and other major carriers are seething over pay increases and bonuses recently awarded to executives, a sign the U.S. airline industry may be headed again for labor turbulence after years of relative peace.

As U.S. carriers eke out their first profits in years, they're rewarding executives with stock, bonuses and raises.

While such measures don't seem outlandish to investors on Wall Street, they're raising the ire of workers in the airlines' hangars and cockpits and providing a rallying cry to unions at US Airways, United and American Airlines.

"We're in a very unstable situation where there could be a good deal of upheaval," said Bill Gould, former chairman of the National Labor Relations Board.

United Airlines employees are particularly irate at the 40 percent pay raise and new five-year contract given to Chief Executive Glenn Tilton in September, a year before his previous employment agreement was due to expire.

Citing the new deal, the leadership of the pilots union at United unanimously voted this month to "insist negotiations begin immediately to restore pay, work rules and benefits" even though pilots are locked into their present contract until 2009.

"If Glenn's contract was amendable, we assume ours is too," said Capt. Steve Derebey, a United pilot and spokesman for the Air Line Pilots Association.

The Elk Grove Township-based airline refuses to entertain any such talks, however.

"We worked very hard with ALPA to consensually and successfully negotiate the current contract," United said in a statement. "We look forward to doing the same when this agreement becomes amendable."

The tough talk by the unions comes at a precarious time for the airline industry. Though airlines previously in bankruptcy or near to filing for Chapter 11 protection are finally making money again, analysts say they are in no position to reopen labor agreements, much less restore pay to pre-9/11 levels.

United is just nine months removed from a three-year-long bankruptcy stay and continues to struggle to bring down costs. The airline posted net income of $119 million for the second quarter, just its second quarterly profit in six years.

"Things aren't robust, earnings aren't great, balance sheets aren't stable. That's the problem. This should be the very flush part of the business cycle, and these guys are barely squeaking by," said Robert Mann, principal with R.W. Mann & Co., an aviation consulting firm based in Port Washington, N.Y.

Still, pilots at US Airways are planning to picket the airline's hubs in Charlotte and Phoenix on Nov. 16 to protest the nearly $5.6 million in pay and incentives given to the airline's CEO, Doug Parker, in 2005.

They want to gain pay concessions as they negotiate a single contract for pilots from the two airlines--America West and US Airways --that merged last year to create the new carrier.

"We're fighting for our professional lives here," says Capt. Arnie Gentile, a US Airways pilot and union spokesman.

And as they enter contract talks, pilots at American Airlines are dead set on restoring the $660 million in annual pay that they gave up in 2003 to keep the carrier out of bankruptcy.

Labor relations at the nation's largest airline soured after Texas-based American awarded a performance bonus worth nearly $100 million to about 1,000 managers.

"It killed our working-together program, shot it in the head," said Capt. Denis Breslin, an American pilot and spokesman for the Allied Pilots Association. "If that company's so successful that management gets their bonus, then it's time to return our investment in full."

Susan Gordon, an American Airlines spokeswoman, said the bonuses were linked to performance and "structured to promote the long-term interests of the company and the employees." She said the airline is committed to maintaining an open dialog with its unions.

Paying for 'the best'

The issue pits emotion against economics. Pay cuts from airline workers provided the bulk of the cost savings that kept troubled carriers aloft during the industry's recent recession. But after losing a cumulative $35 billion between 2001 and 2005, the major airlines say they can ill afford to reopen labor contracts just because they've posted profits this year.

Arizona-based US Airways would wipe out the $400 million to $500 million in profit that it has earned this year if it gave in to pilot demands.

"If we went down that path, you wipe out any progress we're making," said Andrea Rader, a spokeswoman for US Airways. "If we went back [to the old pay scales], we're going to be bankrupt within a year."

"I don't think the carriers can afford to get back to the spending habits that they had before Sept. 11, and they have to stay extremely focused on cost reduction," added David Castelveter, spokesman with the Air Transport Association, a trade group representing the major U.S. carriers.

Castelveter defends the raises and incentives given to airline executives this year as necessary to prevent turnover.

"Compare airline CEOs with the automotive and technology industries, and you'll find they're grossly underpaid," he said. "If you want the best, you've got to pay for the best."

Even so, the pay boosts have been public-relations disasters. To workers whose salaries have shrunk by one-third or more, the increases are evidence of a double standard.

"How come our contracts aren't worth the paper they're printed on, but management's contracts are etched in stone?" said Capt. Kevin Dohm, a United pilot who's based at Chicago's O'Hare International Airport.

Action limited by contracts

Airline unions are seizing the issue. Capt. John Prater, newly elected head of the Air Line Pilots Association, vowed to press pay concerns during the first 120 days after he takes office Jan. 1.

"We will give notice to the industry that ALPA members will not subsidize their business plans," he wrote in a letter to pilots. "We will recapture the conceded contractual ground."

But translating such talk into action may prove difficult, labor experts say. Federal law prohibits airline unions from striking or bringing economic pressure on the carriers until their contracts are amendable. That's the case now for pilots at American Airlines, but won't take effect for workers at United and US Airways until 2009.

While airline executives may hold the upper hand over workers legally, they can't afford to let the ill will fester, experts say.

"You really need to listen to people on the line," said Mann. "You can choose to overrule them, but you would be crazy not to listen."

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