American Woos Unions, Seeking Cooperation

FORT WORTH, Texas_Terry Finley's paychecks grew ever larger in the 1990s, as he and other mechanics at American Airlines enjoyed the rewards of pay increases won in bitter contract negotiations between their union and the company.

American, the nation's largest carrier, could afford the raises. Parent AMR Corp. earned more than $1 billion in 1996 and again in 1998 and came close in other years.

Finley's prospects looked even brighter when he was promoted to crew chief. His first day as a supervisor was Sept. 11, 2001. By day's end, terrorists had crashed two American Airlines jets, all U.S. commercial flights were grounded, and the industry entered a tailspin that continues today.

Over the next 18 months, American cut thousands of jobs and pressured employees to sign six-year contracts that included deep cuts in pay and benefits.

"Everybody is mad about their pay," Finley said. But he said they also believe that American's management is trying to fix the company without punishing employees by going through a bankruptcy filing that could wipe out pensions and lead to deeper pay cuts.

"They know if they want their job, they've got to be more efficient and help American make money," he said.

Finley and many of his co-workers say they understand the anger that led mechanics at Northwest Airlines to reject concessions and go on strike, which was followed quickly by the company filing for bankruptcy protection. The American employees say they have chosen cooperation over conflict.

AMR has lost $7.5 billion since the beginning of 2001 and faces huge debt and pension obligations. But with the grudging support of its three unions, the company cut costs sharply and might be profitable if it weren't for high jet fuel prices.

Gerard Arpey, who was promoted to AMR chief executive in the middle of the 2003 fight over concessions, has courted the unions. Arpey invited labor leaders to regular briefings with the chief financial officer, who says the unions get the same information he gives to AMR's board.

Arpey said he involves the unions before making key decisions and works with them to find money-saving and revenue-generating ideas.

In a move that would have been unimaginable a few years ago, leaders of the pilots' union agreed this month to begin talking to management about changes that could result in the company's 13,000 pilots working longer hours.

Dissident leaders called the move "premature at best, and pure insanity at worst." But union President Ralph Hunter said he wanted to act now rather than wait until AMR, which has about $3.4 billion in cash and short-term investments, is in worse shape.

The most visible example of labor-management cooperation at American is in Tulsa, Okla., at one of the airline's three major maintenance hangars. The company and the Transport Workers Union are trying to come up with $500 million a year in cost savings plus new revenue - through last week, they had counted $93 million - to save the jobs of 7,000 workers.

American is the last major U.S. carrier that still does most of its own heavy-duty maintenance. The centerpiece of the Tulsa plan is to cut costs enough to let American bid for outside maintenance work, much of which is now going to shops in other countries where labor is cheaper.

Dennis Burchette, president of the mechanics' union local at the hangar, said managers let him see their budget and earned good will by settling long-standing grievances. He called the strike at Northwest "a travesty."

"It's a no-win situation for any of the employees," Burchette said. He blamed Northwest's management and hoped for a better outcome at American.

Union officials at the Fort Worth maintenance center, with 1,900 workers, also hope to add outside work to keep the plant busy and avoid layoffs. On the factory floor, workers say resentment over the 2003 pay cuts lingers, but they credit management for reaching out. They say they are trusting management for a simple reason: necessity.

"Look at the carnage going through our industry, and we're surviving," said Rick Grant, a 17-year American employee. "How can you not think about that? We chose one route, and (Northwest mechanics) chose another."

Some of the victories in the battle to cut costs may sound minor to an outsider, but workers say they save valuable time. For example, parts are now grouped in kits and kept near the plane instead of making the mechanic order each part and wait for somebody to deliver it.

It's not clear whether the union's conciliatory mood will help American avoid more painful cutbacks or even bankruptcy. CEO Arpey has avoided saying whether he would ask employees for wage or other concessions, but many analysts believe they are inevitable with American's three largest rivals now in bankruptcy and shedding costs and pension liabilities.

American was one of the leanest major carriers after winning labor concessions in 2003, but recent bankruptcy filings by Delta Air Lines Inc. and Northwest Airlines Corp. indicate that American once again has among the highest costs in the industry.

Even if fuel prices fall, they will fall for everybody, and American's costs will remain among the highest in the industry, said Robert Mann, an airline consultant who advised American's pilots in 2002-03. He predicted American's management will ask for productivity improvement and will downsize through attrition and, eventually, layoffs.

But Michael Boyd, an airline consultant and former American employee, said American might increase revenue enough - demand for travel is strong - to avoid painful labor cuts despite competition from bankrupt carriers.

Jeff Brundage, American's vice president of labor relations, said the company's employees learned in 2003 that contracts won't protect jobs, wages or pensions if the company fails. "Restructuring American is what makes us secure for the long term," he said.

Brundage said the changes now underway will make the company profitable. The union employees are keeping track of that prediction.

"I look at the stock price every day," said Finley, the crew chief at the Alliance hangar. "We all do."

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