DALLAS ( TheStreet) -- At a time of crisis in the regional airline industry, leaders of the 3,000 regional pilots at American Eagle will decide Wednesday whether to authorize a union vote on a new contract agreement that accepts pay rate concessions in return for two key benefits: a fleet upgrade and an increased likelihood of flying for mainline partner American Airlines (AAL - Get Report).
The decision comes at a time when regional jet operators face multiple problems. Republic Airways (RJET) said Tuesday it will not extend leases on 27 smaller aircraft "due to a lack of qualified pilots." United (UAL) closed its Cleveland hub, primarily because it will halt 70% of its regional aircraft flights. New federal safety regulations limit the flexibility in pilot scheduling, requiring more pilot hiring.
The lack of pilots has been widely proclaimed. But Lee Moak, president of the Air Line Pilots Association, has called it "a shortage of qualified pilots who are willing to fly for U.S. airlines because of the industry's recent history of instability, poor pay, and benefits." Others say the problem is not too few pilots but rather an inability to profit from flying small airplanes with 50 or fewer seats.
The decision by the nine members of Eagle's master executive council (MEC) will have a significant impact on the regional jet industry, where Eagle is among the biggest players as the principal regional partner of American, the world's largest airline following a merger with US Airways."The company is saying they can't find pilots to fly as regional first officers at the same time as they are looking to lower our earnings potential," said Sam Pool, a LaGuardia-based first officer representative and MEC member. "It's ironic that with the media discussing the pilot shortage, here is a major player in the industry that is attempting to pay even less." Throughout the recent history of the airline industry, executives including Bob Crandall at American and Steven Wolf at US Airways have designed contract proposals linking concessions to the promise of growth and expanded career opportunities, enabled by new aircraft. American Eagle's proposal generally follows that pattern. It offers an increased chance for Eagle pilots to flow through to mainline American, where pilot salaries are generally higher, although some veteran Eagle captains would take steep pay cuts to start at American. Also, Eagle would promise to acquire new airplanes to replace the many 50-seat and smaller planes in its fleet.
The proposal doesn't reduce anyone's salary, but it reduces salary caps and freezes them until 2018 in a contract that would extend for 10 years. Pilots would get a 1% annual increases starting in 2018.
First officers, who receive notoriously low starting salaries throughout the regional airline business, start at Eagle at slightly above the industry average of $21,285 plus benefits. Under the agreement in principle, they would cap out after four years at about $38,000. Captains currently earn $70,000 to $100,000. Under the agreement, they would cap out after 12 years at about $90,000.
Bill Sprague, chairman of Eagle's ALPA chapter, said pilots already agreed to $40 million annually in concessions, primarily in work rule changes and reduced benefits, during American's bankruptcy. Now "we are back at the concessionary table while working for a company that has $10 billion in cash and cannot find pilots," he said. Without the concessions, he said, "They will place the aircraft elsewhere, allow us to shrink and shut us down."