Why American Can Avoid a TWU Strike

DALLAS ( TheStreet) - It is hard to imagine that American and its largest union, the Transport Workers Union, will be unable to reach a deal without a strike, because the relationship has been good for so long.

Additionally, American needs to show that it can indeed make a deal, as it continues talks with unions that have been more recalcitrant.
American Airlines

With open contracts at every major carrier, the airline industry is headed into a period in which labor relations will be the dominant issue. The general theme is that in every case, inside or outside of bankruptcy court, labor groups made concessions to keep airlines afloat between 2002 and 2005. Now, unions want to regain some or all of their sacrifice, despite the industry's fragile recovery.

American, one of the two major network carriers that did not seek bankruptcy protection, is slightly ahead in the sequencing. The Transport Workers, with 28,000 American workers in 11 bargaining units, requested a release from mediation on March 11. The Association of Flight Attendants, with 16,550 active members, asked to be released on March 16.

The NMB is studying the requests: some experts anticipate the TWU will be released before the APFA because it is further along in talks. In this case, a release would not foreshadow a strike, but instead would represent an effort to speed up a process that -- although it is moving slowly -- has produced several positive signs.

They include a letter to regulators last week from the TWU, which backed American's request for approval of antitrust immunity with partner Japan Air Lines. This type of gesture used to be commonplace for airline unions but now is rare, particularly at American. Moreover, of the four TWU-represented workgroups at AMR subsidiary American Eagle, three -- mechanics, fleet service workers and ground school instructors -- are currently voting on whether to ratify tentative agreements. At AMR subsidiary American, the two sides have recently made progress, reaching agreements on a half-dozen contract areas.

It is the contentious areas that remain, said John Conley, director of the union's Air Transport Division, in an interview. "It is instinctive that we find ways to reach commonality and work to return the industry to profitability," he said.

Not that many years ago, the cooperation between American and the TWU was the talk of the industry . In the spring of 2006, managers, union leaders and workers at maintenance bases in Fort Worth, Texas; Tulsa, Okla., and Kansas City, Mo., agreed to work together to generate a combined $1 billion in new revenue and cost savings by the end of 2008.

In Fort Worth, workers and managers were constantly in joint meetings. Working together, they came up with strategies like making parts in-house instead of buying from outside vendors. They figured out a way to place engines on hydraulic lifts in a pit, then move them up and down, so that seated mechanics could work on them, improving efficiency and reducing injuries. They decided to deliver cabin-ready oxygen masks to airplanes, rather than to take them out for maintenance and hope they would be returned on schedule.

As it turned out, the financial goals were not entirely met. The carrier said it reached goals of $500 million in Tulsa and $150 million in Kansas City, but has not reached the $400 million goal at Fort Worth or the $95 million goal for the line maintenance department. Still, the cooperation has enabled American to remain an industry leader in performing its maintenance in the U.S. rather than overseas.

"We set ourselves as the gold standard of the industry regarding efforts to achieve enhanced efficiencies and savings and to maintain work in-house and to draw work back in," Conley said. "Maintenance was the most highly visible, but we also did it in fleet service.

"It's to everyone's advantage to have a collaborative relationship," Conley added. Asked if the cooperative spirit still pervades, he responded: "I couldn't say 'it still pervades' as a blanket comment. It depends on who you ask." However, bonuses to American managers, after the TWU made concessions worth $620 million annually, as well as the intensifying contract talks, have gnawed at the cooperative spirit.

Without question, negotiations have reached a critical juncture. The parties have agreed on a half dozen issues, but compensation and pension benefits are still on the table, and some remaining issues are "must-haves" for the union. For instance, Conley said, "They have proposed outsourcing day cabin cleaning, (but) we are not of the frame of mind that will allow us to jettison 800 to 1,000 jobs." The TWU also wants to retain its defined benefit pension plan for current beneficiaries. The two sides have discussed offering 401(k) plans to new hires, but those talks broke down. Additionally, American wants a change in retiree medical benefits and wants more flying for regional partners including American Eagle.

American has emphasized the positive aspects of its labor talks, because it does not want to scare off potential passengers -- and because it needs a deal. "American Airlines' relationship with the Transport Workers Union remains strong and positive," said airline spokeswoman Missy Latham. "Negotiations are separate from operations and we continue to cooperate with one another." As aviation consultant Mike Boyd has said, "the TWU is one of the most rational, forward-thinking unions out there, and yet they are at the end of their rope -- American management has to address that."

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

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