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America West, Pilots Ink Deal

The new contract will help the airline expand service and secure federal loan gurantees.
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Shares of

America West Airlines

(AWA)

jumped Tuesday after the company announced a new three-year contract with its pilots union, enabling the nation's eighth-largest carrier to push forward with its ambitious growth plans.

While the deal wasn't unexpected, shares rose 50 cents, or 4.2%, to $12.31.

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"The democratic process has run its course and the pilots have spoken," said Duane Woerth, president of ALPA. "We are pleased that the pilots have made the decision to adopt this contract and embark on a new beginning."

The new contract includes a 14% pay increase over the next three years, but some of those costs will be defrayed by increased productivity. Under the new agreement, pilots will fly more hours per month, helping aid America West in its plan to expand into new markets in the coming years.

Last Friday, America West outlined its growth plans for 2004, saying it had secured financing for four new Airbus A320 aircraft, which it will use to expand capacity by 10%. To support the increase in available seat miles, as capacity is known in industry parlance, the company said it planned to hire 1,000 new employees.

With the growth plan in place, the pilots' ratification of the contract took on a greater importance, since America West needed the labor concessions in order to secure a federal loan guarantee from the Air Transportation Stabilization Board, which was created after the World Trade Center attacks to provide liquidity to the airline industry. Without a new labor deal, America West ran the risk of defaulting on part of the loan, further weakening its balance sheet.

Two weeks before the two sides reached a tentative agreement on terms on Dec. 16, the ALPA had rejected a previous labor contract by a slim 725-to-720 margin. But because pilots would have lost signing bonuses that would be deposited into their 401(k) plans without a new contract in place, the pressure was on to end negotiations, which had been ongoing for nearly four years.