American, pilots say they both win in labor proposal

Tuesday, July 25th 2000, 12:00 am

By: News On 6

American Airlines Inc. and leaders of its pilots' union praised a proposed agreement Monday that would rid the Allied Pilots Association of having to pay $45.5 million in damages to the airline and would win some labor peace for the Fort Worth carrier.

Both sides played down the importance of the agreement to erase the damage judgment, levied by U.S. District Judge Joe Kendall after a February 1999 sickout that disrupted the airline's schedule.

American said the agreement would take care of the union's major concerns – the sickout litigation and job security over the use of regional jets – and would allow growth at American and commuter affiliate American Eagle. American and American Eagle are owned by AMR Corp.

"It had to be a win-win," said Donald J. Carty, chairman of American and AMR. "From the company's perspective, I'd be tarred and feathered if we had settled all this without some benefit for the company. On the other hand, the leadership of the APA felt rather strongly they couldn't simply trade the settlement of this litigation for something that was punitive to the pilots. The beauty of this deal is that it's good for the pilots, too."

Union president Rich LaVoy said the airline and union had to settle the issue of regional jets before the two sides could move forward.

"I think this is clearly one of the most contentious issues that we've had to deal with over the last several years. I think if you get a chance to truly understand it, this really is a mutually beneficial deal," Mr. LaVoy said.

While management can add many more small jets at American Eagle, it also must expand the main airline to allow maximum growth at Eagle, Mr. LaVoy said.

The agreement, which must be ratified by the union rank and file, provides that American pilots will fly any aircraft with more than 50 seats. American Eagle pilots, represented by a different union, can fly airplanes with 50 or fewer seats.

Before, the Allied Pilots Association contract gave American pilots the right to fly airplanes only over 70 seats, and many members worried that the growth of the smaller regional jets would threaten their jobs.

In 1997, members turned down a proposed contract and struck the airline over the issue of regional jets. The settlement of that strike gave American Eagle the right to buy up to 67 regional jets with 45 to 70 seats, and the company ordered 42 50-seat jets and 25 70-seat jets.

Mr. Carty and Gerard Arpey, American's executive vice president of operations, said the new deal means that AMR will not use the 70-seat jets on order.

As part of the deal, American won approval for productivity changes that will cut its training costs by "millions of dollars" a year, Mr. Arpey said.

The tentative agreement gives pilots, scheduled to receive a 2.5 percent pay increase on Aug. 31, a 3 percent increase. On Aug. 31, 2001, when no pay raise is scheduled, the pilots will get another 2.5 percent.

The contract, which is now amendable on Aug. 31, 2001, would be extended another year to Aug. 31, 2002.

The airplane agreement would take off limits on the number of jets that Eagle can fly, except that Eagle's total fleet cannot exceed a percentage of American's fleet. But as American's fleet gets bigger, the percentage allowed for Eagle increases.

Mr. Arpey said that if American's fleet fell below 679 airplanes, Eagle's fleet was limited to 40 percent of American's total. But Eagle's percentage can grow as American's fleet grows, to a maximum of 56 percent of an American fleet of 800 airplanes or more.

As of June 30, American had 712 airplanes, while American Eagle was flying 272 jets and turboprop aircraft – 38 percent of American's fleet.

American is expected to order more wide-body Boeing 777s for its international routes and smaller Boeing 757s for domestic and international routes this week at the Farnborough 2000 International Air Show in England.

The American agreement on regional jets takes place as several airlines, including United Airlines Inc. and Delta Air Lines Inc., are negotiating contract extensions with their pilots' unions.

Phillip Beall, chairman of the Allied Pilots Association's Dallas-Fort Worth base, said the American union hopes to see other unions make similar gains.

"We're trying to set a standard for our peers at other major airlines to capture 51-seat-and-up flying for their pilots," he said.

As a symbolic gesture, the American pilots' union will donate $1 million: $750,000 to create a scholarship fund for the children of American Airlines employees and $250,000 to Habitat for Humanity. American as a company would match the $250,000 Habitat contribution.

"Management, APA members and other employee groups would also provide manpower for community projects," the union said in a statement.

The union currently has $20 million set aside in an investment account as a deposit for the damage payment while Judge Kendall's decision is on appeal.

Mr. Arpey cited the long and costly litigation still ahead if the union fought the decision in court.

"Our internal lawyers have suggested to us we were looking at many, many years of litigation," he said.

The two sides reached the deal as rumors continued to swirl about a possible merger of American and smaller Northwest Airlines Inc. Although Mr. Carty would not discuss any pending acquisitions, he denied that the agreement was linked to a potential merger.

American and the union were talking about an extension long before "any speculation about any further industry consolidation," he said.

In a letter to employees, Mr. Carty defended the decision to drop the $45.5 million in damages, levied after pilots angry over American's purchase of Reno Air Inc. called in sick by the thousands. About 6,700 flights and 600,000 passengers were affected.

Mr. Carty told employees that litigation would take a long time and that American could gain more in improved employee relations than it would gain from winning the litigation.

"Indeed, let's look at what's being gained in this agreement, that is, the opportunity to grow our airline more rapidly, and the opportunity to begin building a future without a cloud hanging over the relationship between American and the pilots' union," Mr. Carty stated, "in a sense, wiping the slate clean."

Sam Buttrick, airline analyst at PaineWebber Inc., called the deal "a constructive balanced agreement. I think American Airlines gets significant 50-seat regional-jet expansion and some reduced costs. The pilots settle the damage issue, get a raise and eliminate the risk of 70-seat regional jets."

In addition to improving its situation internally, "I think it's tactically attractive for American" to have settled the issue of who flies the regional jets as Delta and United are negotiating their pilot contracts, Mr. Buttrick said.

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