American Airlines Gets into Maintenance Line

A little more than year ago, when Carmine Romano wanted to add workers or take them off a line at American Airlines' aircraft maintenance base in Tulsa, he ordered it and it was done. As vice president of the base, those decisions were his alone.

But not anymore.

"I tried to run the business effectively, and he'd come in and chew my butt," Romano said, pointing to union president Dennis Burchette sitting next to him.

Burchette's response? "He'd make a business decision without taking into effect the people and things I was dealing with."

It was the classic management-labor conflict at the world's largest commercial carrier, played out with grievances, complaints and bad feelings simmering on both sides.

That has changed during the last year as management and labor have found a new reason to work together: American Airlines' plan to turn its maintenance facilities into profit centers.

At a time when struggling airlines are laying off mechanics and sending planes to Central America and other far-flung destinations for heavy maintenance--complete disassembly, inspection and reassembly--American Airlines' strategy is a definite departure.

American Chief Executive Gerard Arpey's plan calls for his Ft. Worth-based carrier to save millions by working on its own planes, and also make money by doing maintenance for other airlines.

To make the plan work, management and labor have forged agreements to work cooperatively in ways unprecedented in the airline industry.

Top management and labor leaders in Tulsa now meet regularly, including each Friday for sessions that often take place at the union hall. Disagreements are still fierce, but the ultimate goal is one shared by both sides.

"Now, we sit down, talk about it and say here's where we want to be, what's the best way to get there?" Burchette said, adding that they sometimes change roles. "The union's talking like business people, and they're acting more like union people. That's when you wonder what the hell's happening."

Arpey is betting American's maintenance bases can provide attractive, cost-efficient choices for airlines around the world, including some of American's competitors. Avianca, Miami Air and North American are among the carriers that have had work done by the airline.

For decades major airlines did nearly all their own maintenance. That has changed as pressure has increased to shave costs whenever possible. Heavy maintenance on United Airlines' Boeing 777s was shifted to China's Ameco Beijing last year, while work on the airline's 737s is done in Indianapolis by AAR Corp., a third-party contractor.

United is not alone. Delta Air Lines has some of its maintenance done by Air Canada, while JetBlue Airways sends its aircraft to El Salvador for work.

United still has its maintenance base in San Francisco, where the carrier also does some third-party work, including engine repair. But no airline is embracing maintenance as a potential profit center the way American has.

Moving work to third parties, particularly when maintenance is done offshore, reduces labor costs. If wage rates are the only factor, American cannot compete, Arpey concedes.

"Where we believe we can drive competitive advantage is in the number of hours it takes to do a particular task because of our experience level, our history, our volume, our investment in plant equipment and technology," Arpey said. "And that airplane has to come out on time and operate reliably . If it doesn't, that labor rate advantage goes away in a hurry."

Joint leadership

To make American's maintenance efficient the airline formed joint leadership teams at the airline's three maintenance bases. Union and management leadership work together to set priorities, highlight problems and look for solutions. Consultants hired to repair fractured worker-management relations helped the two sides learn to work together.

And in 2005 the Tulsa base's labor and management spent a weekend offsite at an event union and management now refer to as the "pajama party." A $500 million goal in savings and increased revenue was set then, and pledges were made on both sides.

The carrier promised to avoid layoffs, while workers committed to embrace continuous improvement efforts. Processes would be standardized, efforts made to eliminate waste. Workers promised to adapt to change.

American also does some limited outsourcing, including some engine and landing gear work. All the other work on the aircraft is done by the carrier's mechanics. Their contract with the airline limits the amount that can be done elsewhere. "There's ways they could try and increase it, but it would be a bone of contention," Burchette said.

In recent years more than 4,000 maintenance jobs had been eliminated, as American struggled to stem multimillion-dollar losses.

Unlike many competitors, the airline has been able to avoid bankruptcy. But a series of challenges that have buffeted the industry, including brutal competition from discount carriers domestically and record fuel prices, have kept American from showing a profit since 2000.

Now, mechanics that retire or leave for other work are generally not replaced. That rankles some, said Burchette, president of Local 514, Transport Workers Union of America.

"They've offered job guarantees, but the airline has shrunk," he said. "That's hard for some to accept. I've got 700 members still laid off. Traditionally, the union would say every time a guy retires I want one of my guys brought back."

Nor has everyone in the union embraced the changes, he said. Some union veterans still grumble about the new rules and goals, dismissing them as just another in a long line of management notions that will disappear with the next leadership switch.

"We're trying to change 60 years of culture in a very short amount of time," Burchette said. "But the [industry] environment helps us. When you see what happened to Northwest and you see United, Delta, US Air . . . people open their eyes."

On the other side, some supervisors have yet to embrace the idea that they must work cooperatively with the rank and file, Romano said. "Instead of being in command and control, they're asked to be a coach."

The Tulsa base, which employs nearly 7,000 workers, hopes to achieve its goal of $500 million in cost reduction and revenue generation by year's end. The Kansas City, Mo., base, with about 900 employees, hopes to generate $150 million in new work and savings by the end of next year, while the Ft. Worth facility has set a $400 million goal by the end of 2008.

Pulse line

In Tulsa, among the most ambitious efforts has been the development of a new line for heavy maintenance. Instead of parking an aircraft, assigning hundreds of workers to it and letting them spend weeks taking apart and putting the plane back together, the airline has developed a pulse line.

"They came up with it--the workers," Romano said. "All of them. Planners, engineers, inventory control, supervisors, management."

Now, an MD-80 plane moves through three stages, each assigned the number of mechanics needed for the tasks done at that step in the process.

At stage one the plane is taken apart, inspections begin and repairs are made. Every seat is removed, panels and overhead bins taken out and the plane is scoured. It is then towed to stage two, where heavy repairs are made, the plane is put back together. It is then moved to the third stage for testing.

The line, put in place earlier this year, has cut heavy maintenance time from an average 19 days for each aircraft to 12 days. And, the number of employees appears to match the workload at each stage.

"Nobody, to our knowledge, pulses complete overhaul," said Frankie Meza, American's continuous improvement manager at the Tulsa base. "We believe we're the only ones doing it to this magnitude."

Other steps, while not on the same scale, are also contributing to the bottom line. Tool storage was among the areas reorganized. Smaller shelving units on wheels similar to those seen in a bakery replaced high racks that required a forklift to reach items at the top.

The workplace was redesigned to be more efficient. A supervisor lost his office, and now has to settle for a desk next to the crew chief. Workers gave up their break area, as space was overtaken by a more efficient layout for parts and tool storage.

The distance someone has to walk to collect tools and parts shrank from about 4,000 feet to 1,000, said supply area supervisor Tim Martindale.

Reducing the number of steps a worker takes may seem inconsequential, but the cumulative effect is more time spent doing the needed work, he said. It also allows the airline to do the same job with fewer people.

"I lost six stock clerks last year, and we're not replacing any of them," Martindale said. "We increased our productivity and workload, even though we went down in headcount."

Parts inventory is tracked better, and there is better tracking of tools used each day, he said.

Workers are beginning to understand and accept that even with fewer people the base can be more productive, Meza said. "People are seeing that not only can they sustain gains, but working together they can make even more improvements. It's becoming a way of life for them."

While more of the industry has embraced outsourcing, American is simply trying to maximize the multimillion-dollar investment it has made in its maintenance bases, Arpey said.

"We're not doing this because we're more altruistic or patriotic," he said. "We're doing it because we believe we have a legitimate shot at creating competitive advantage and maybe a profit center."

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