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TheStreet Open House

US Airways Pilots Back Merger But Question Merger Contract

CHARLOTTE, N.C. ( TheStreet) -- US Airways (LCC) intends to offer its pilots a new contract with substantial pay raises, seven years after they signed a concessionary contract in bankruptcy. But pilots are concerned that, in some ways, the new contract is inferior to the one they have now.

The airline said the value of the pay raises dwarfs any objections pilots may have to minor contract changes.

The U.S. Airline Pilots Association, which represents the 4,300 US Airways pilots, is in an uncomfortable position. US Airways, seeking a merger with bankrupt American (AAMRQ.PK), has already reached a tentative contract agreement with the Allied Pilots Association, which represents 8,000 American pilots. That contract would also apply to the US Airways pilots, who say they neither want to stand in the way of a merger nor to be shortchanged by one.

"US Airways is not currently in bankruptcy," said USAPA President Gary Hummel, in a letter to members on Monday. "It cannot reasonably expect its pilots to concede on critical contract provisions as a result of someone else's bankruptcy proceedings. US Airways management would not have been presented with this opportunity (to merge) were it not for our billions of dollars in concessions.

"While the initial agreement struck between APA and US Airways was tailored to satisfying the bankruptcy court and the creditors, our ongoing analysis of the combined carrier shows significant revenue synergies and ancillary revenue potential that should be more than sufficient to address our concerns," Hummel wrote.

Among the concerns, US Airways pilots worry that some flying they do now, such as European flying from Philadelphia, could be lost in a merger; that they are not protected from being assigned to smaller aircraft; that their health care payments would increase and insurance payouts decrease; and that pilots on a "reserve" list, where they are available to fly as needed, would be guaranteed fewer hours of pay per month.

Also, the contract includes a "parity review" or comparison to Delta (DAL) and United (UAL) in six years, which USAPA spokesman James Ray said is "way too long" because synergy benefits should be realized sooner than that. Ray said commitments to preserve US Airways pilots' flying should be part of the contract.

"US Airways pilots would feel more comfortable if management would sign a memorandum stipulating that," he said.

Steve Johnson, US Airways executive vice president, said pilots should focus on the significantly higher pay under the APA agreement.

"A merger would unequivocally be in the best interest of our employees," Johnson said in an interview. "As a $40 billion airline, the new American would have the same revenue-generating capabilities as Delta and United. That would enable us to compensate employees in a way that looks a lot like how those airlines compensate their employees. Our pilots' union should stay focused on making that happen and recognize the tremendous opportunity a merged carrier would be for US Airways pilots."

The new contract would immediately take a 15-year narrowbody captain's pay to $173 an hour, compared with the $142 an hour earned by former America West pilots and $125 earned by pilots at predecessor US Airways. The two carriers merged in 2005. That would mean annual pay increases up to $40,000 annually, with widebody captains' pay increasing by about $50,000 annually.

As for fears that US Airways pilots could somehow lose their most valuable flying in a merger, Johnson said flying in the four biggest domestic hubs -- Charlotte, Chicago, Dallas and Philadelphia - would increase significantly, creating opportunities for pilots. Flying assignments would be determined by seniority, possibly with "fences" that protect pilots from losing assignments they already have, under agreements negotiated between the pilots themselves.

"Any concerns of our pilots about downsizing the airline or shifting flying away from Philadelphia, Charlotte or Phoenix or from the US Airways fleet are unwarranted," Johnson said. "We have said that we will maintain the US Airways and American hubs and continue to serve all cities served by American and US Airways, continue to operate both airlines' fleets and take delivery of all aircraft on order.

"The combination of these two highly complementary systems will create a dramatically stronger airline network and make all of the hubs more competitive," he said.

Still, the pay rates in the tentative agreement with APA are lower than those in a tentative contract agreement between Delta and its pilots. For instance, a Delta narrowbody captain would receive $209 hourly in 2015, while an American captain would receive $183. The APA deal was signed before the Delta deal was reached; also, the Delta contract enables higher productivity due to increased use of smaller jets at lower pay rates.

In general, in their 2004 bankruptcy contract, US Airways pilots made big concessions on pension and pay, and lesser concessions on work rules and benefits. American pilots are being asked primarily for concessions on work rules and on "scope" protections, which restrict flying done by partner airlines, typically on smaller aircraft. They are also making pension concessions, but not to the extent that US Airways pilots did.

In negotiations with APA, US Airways is represented by four pilots, two from the US Airways pilot group and two from the pilot group at the former America West. Although the two groups have been unable to agree on terms for seniority integration, Ray said "all four are working together as a team."

Both APA and USAPA foresee that in a merger, seniority integration would be subject to the 2007 McCaskill-Bond statute, which mandates negotiations and, if that fails, binding arbitration.

Unlike the 2005 US Airways/America West merger, the US Airways/AMR merger would involve a joint pilot contract signed before arbitration occurs. This would afford former US Airways pilots, dissatisfied with a previous arbitrator's ruling, a "do-over." But they would commit to accept a new ruling, with no assurance it will be in their favor, and a long stalemate would come to an end.

While union leadership favors that course, it is not palatable to Eric Ferguson, a leader of the America West pilot group, who said binding arbitration has already occurred.

"USAPA is either fatally prone to wishful thinking or deliberately fabricating nonsense," Ferguson said. "The development of the prospective transaction with American does nothing to relieve USAPA, or the APA as its eventual successor, of its duty to represent the former America West pilots."

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

>To follow the writer on Twitter, go to http://twitter.com/tedreednc.

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