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Tuesday
May272008

American Airlines and the Allied Pilots Association: A $3 Billion Question

On October 26, 2007, I wrote Just Put It On Ice: American’s Ability to Pay ≠ APA’s Expectations. I followed on in December of 2007 when I wrote Maybe the Allied Pilots Association Is Really Onto Something where I attempted a cynical response to address the union’s scope proposal. Today, May, 27, 2008, American management put a number to the cost of the APA’s numerous proposals and discussed it on their negotiations website.

When I made a back of the envelope attempt to price out the opener based on the proposals on the table in October (no new scope or new pension proposals had been made by APA at that time), I made the comment that this was one rich deal. And that the cost would be a three-comma number. And for making that educated guess, I received many comments from certain APA members (and I encourage you to (re)read them). Well, American estimates that the “all-in” number including wage increases, productivity improvements, scope standing in the way of revenue earned today that would be prohibited tomorrow and further improvements in the network carrier’s best pension program is: a cool $3 billion.

Yes, $3 billion annually as the number excludes the one-time payment of a signing bonus proposed by the APA . Whereas there may be some issue with the company’s costing, the number dwarfs even the “unaffordable” $700-800 million estimated by the Allied Pilots Association of its proposal. Based on a career spent around labor negotiations, the $3 billion zip code sounds about right.

A Failure In Leadership

And please do not write that a company gets the union it deserves.

I too listened to the APA podcast referenced by American in its statement today. I smiled as I listened to the enlightened Lloyd Hill suggest to Jason Goldberg in the canned interview that significant contractual improvements can be made during difficult economic periods. In fact, Hill referenced the contract won in the early 90’s. I guess he was suggesting that today’s issues are easier to navigate than the slowdown in the economy and the outbreak of the Gulf War at that time. NOT.

If I am a 50 year old American Airlines’ pilot today, I would be starting to get a little nervous. Erecting billboards; picketing the Board of Directors, Wall Street, and the airline's best customers; spreading misinformation across every available medium; may seem to have an effect and help to generate leverage. These reckless actions haven’t increased the union’s leverage and they won’t. All they are doing is cleaning the lens for everyone to better evaluate the APA’s asks and truly question their motives. This time, APA and all airline labor will learn that the leverage they are seeking to gain is held by capital and oil.

It has been said on this blog’s comments that I have a disdain for airline employees. My response is that I have nothing against airline employees, but I do have a disdain for reckless union leadership. And while reckless leadership can be found at many airlines today, there is none more reckless than the Allied Pilots Association. And every day that there is a new public action undertaken or announced by them, I am reminded of Eastern Airlines and the actions of one Charlie Bryan.

There Is Nothing to Mediate

When I wrote Just Put It On Ice last October, my back of the envelope calculations suggested that American management is faced with a pilot contract that should be cut by $500 million. Therefore based on the APA ask, my best guess is that the company and the union were $1.5 – 2 billion apart. But the company was not, and has not been, asking for reductions. So let’s call it $1.0 – 1.5 billion apart at the time. I certainly appreciate that my estimates have no weight. But if the company’s estimates discussed today are remotely close, what is there to mediate?

With differences of this magnitude, there is little to discuss and nothing to mediate. Even with the best one-sided economic analysis that the union can make, the gulf between APA’s ask and AA’s ability to pay cannot be closed sufficiently to even consider a meaningful mediation process. Other than mediating our way to a Presidential Emergency Board in 2 years or so I see little to be gained. And we still have not even discussed how we might improve the earnings of the vast majority of American’s employees.

As I wrote earlier, I am beginning to think that there is a silver lining in the high cost of fuel in that it will force a changed industry structure. Maybe there is the same silver lining in reckless union leadership at certain carriers during this fragile period in that the collateral damage would be limited. And the opportunities for the remainder of the industry to pick up the pieces will be greater – and in an American-less US industry, much greater.