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.


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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