AMR's In-House Maintenance Commitment Set to Decline

DALLAS ( TheStreet) -- No matter how the AMR ( AAMRQ.PK) bankruptcy turns out, it is nearly certain to diminish the scope of a widely praised effort by the carrier and its workers to keep aircraft maintenance in-house and in the United States.

At one time, the cooperative effort by the airline and the Transport Workers Union to reduce cost by boosting efficiencies was a showpiece and an indication that American, after veering away from bankruptcy in 2003, had staked out a different path than competitors who were becoming more and more likely to reduce costs by outsourcing the maintenance work they had traditionally done themselves.

Now the amount of outsourced maintenance at AMR seems destined to increase no matter whether US Airways ( LCC) succeeds in a takeover bid or AMR management retains control.

The relative safety advantages of in-house maintenance over outsourced maintenance, and of domestic work over foreign work, are frequently debated. It is clear, however, that the long-established model of in-house maintenance has been key to ensuring that U.S. commercial airline travel has become probably the safest form of transportation in the history of the world.

At American, the effort to keep work in-house largely reflects the influence of former CEO Gerard Arpey, who retired in November as the carrier sought bankruptcy protection. Arpey firmly held convictions that bankruptcy is immoral and that airline employees should maintain airplanes.

"Gerard always sounded like he was trying to do the best things for employees," said Gary Peterson, president of Local 565 of the Transport Workers Union. "We agreed to a lot of joint process initiatives. But it sometimes appeared that a lot of senior executives weren't on board with his plan. They talked about the working-together concept, but a year or so down the road, they fell back into the old ways."

According to the most recent statistics from the U.S. Bureau of Transportation Statistics, American and partner American Eagle outsource less than any other carriers. In the first nine months of 2011, American outsourced 23% of its $1.8 billion worth of maintenance, while American Eagle outsourced 24% of $235 million in maintenance. Industry average was 45%.

Southwest ( LUV) outsourced 60% of $522 million; JetBlue ( JBLU) outsourced 59% of $242 million; US Airways outsourced 58% of $788 million; United ( UAL) outsourced 49% of $1.4 billion and Delta ( DAL) outsourced 39% of $1.7 billion.

In the case of US Airways, some further explanation is required. The International Association of Machinists, which currently represents mechanics, replaced the Teamsters at America West Airlines, which outsourced all of its heavy maintenance. The IAM has brought some work back and is seeking to bring back more. Also, US Airways outsources far less heavy maintenance than Southwest, although the overall outsourcing percentages are similar, perhaps because, during two US Airways bankruptcies, a variety of component work was outsourced.

At the moment, TWU members are voting on an AMR contract proposal: Results will be announced Tuesday. Under that contract, AMR's share of outsourced maintenance could rise to 35%, but it would still be the lowest in the industry.

"The proposal states that TWU represented employees will handle at least 65% of all of our maintenance work based on the man hours currently performed in-house," said AMR spokesman Bruce Hicks.

TWU's Peterson said the proposed contract would "allow 100% outsourcing of all next generation aircraft (that) AA has ordered but not yet taken delivery of, (including) all soon-to-be-acquired Airbus and Boeing 787 aircraft." AMR has said it will close the Alliance base in Fort Worth, which maintains widebody 767s and 777s. The Tulsa base, which maintains narrowbodies, will remain open.

AMR has not said where it will maintain hundreds of narrowbody A320 aircraft ordered from Airbus. Said Hicks: "No specific decisions have been made (regarding) the new fleet maintenance work as new aircraft become a bigger portion of the American Airlines fleet, (but) obviously our TWU-represented workers will be handling the majority of that work."

Nevertheless, TWU officials have said the US Airways offer ensures more Tulsa jobs than the AMR offer. US Airways said its offer would save 6,200 more jobs than AMR would, but it has not specified the number of jobs by work group.

At US Airways, as well as at American, the mechanic's contract is being reworked, but within the framework of traditional labor negotiations.

"We have open contracts," said IAM spokesman Joe Tiberi. "The airline seems to prefer to negotiate with employees it doesn't even have yet, but our focus is on getting a deal now.

"We are not going to be distracted by US Airways' overtures to American," Tiberi added. "We are not going to waste time entertaining somebody's merger fantasy."

-- 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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