American Seeks to Halt Worker Pay Raises

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.


FORT WORTH, Texas --

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.

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