American Airlines Merger Faces Multiple Labor Obstacles

CHARLOTTE, N.C.(TheStreet) -- American Airlines (AAL) CEO Doug Parker worked closely with the carrier's three major unions in order to ensure a merger with US Airways, an adroit strategy that played a major role in gaining the backing of Wall Street and the airline's creditors.

But the three major unions at US Airways were, to one extent or another, left out of the process. Eventually, US Airways flight attendants backed the merger, pilots sort of backed the merger, and mechanics and fleet service workers didn't back the merger at all.

Now, with the merger complete, the task of putting together the six principal labor unions will pose a challenge as US Airways workers, most of whom have worked under bankruptcy contracts for the past eight years, become more involved.

"They are passing this merger off as one where all the employees are happy and are all sitting around the table singing Kumbaya," said Bill Wise, president of Charlotte Local 1725 of the International Association of Machinists, which represents the airline's mechanics and fleet service workers. "That's not the case at all."

"To gain support from the American employee groups, Doug Parker waited until American all but emptied out the employees' wallets, then he rode in on a white horse," Wise said.

Wise said American is offering contract parity with other major airlines in the future, but noted: "We are the largest airline in the world. We should be setting the standard. We shouldn't be (behind) anybody."

The IAM has been negotiating mechanics' and fleet service workers' contracts since a year before existing contracts became amendable Jan. 1, 2012. The union, the largest at US Airways, represents about 3,500 mechanics and 5,800 fleet service workers.

Meanwhile, the two flight attendants unions, Association of Flight Attendants at US Airways and Association of Professional Flight Attendants, are already locked in a bitter public battle that seems likely to lead to a representation election.

At the US Airline Pilots Association, a bitter seniority dispute has divided pilots ever since the 2005 merger between US Airways and America West. The merger with American brought a plan to settle the seniority dispute under the 2007 McCaskill-Bond statute, which stipulates that seniority integration issues be resolved through negotiations and, if those fail, through binding arbitration.

But litigation has dogged the pilot seniority integration ever since a controversial 2007 arbitrator's ruling, and there is no indication it will cease due to a second merger.

In the case of the IAM, Wise said, US Airways needs contracts because it cannot secure single carrier status from the National Mediation Board until it has contracts with both the IAM and TWU. The two unions have agreed to joint representation, but "we will not touch a single American airplane or American baggage until we have a contract," Wise said.

The mechanics talks had reached the end game -- economic issues -- but stalled due to a 2013 Teamsters unionization effort and the merger. Now, American wants to pay top-scale US Airways mechanics less than top-scale American mechanics. The difference is about 62 cents an hour, or $1,300 annually. (Top-scale mechanics make about $70,000 annually.) IAM said US Airways mechanics deserve the same pay as their peers. The airline, according to Wise, argued that the discrepancy should be acceptable because US Airways mechanics have better health care and more holidays.

In both mechanics and fleet service talks, "We are waiting for the NMB to release us or call us back to the table," said Mark Baskett, vice president of IAM District 141. Baskett noted that American fleet service workers got raises last week, "while US ramp guys are still negotiating. Needless to say, the members are getting pretty restless."

US Airways spokesman Bill McGlashen said "the NMB will determine the next steps in the negotiations process" and declined to comment on the company's bargaining positions.

Among flight attendants, the question is which union will survive. APFA President Laura Glading played a major role in implementing the merger, which reshaped the airline industry and also brought her members a better contract than they would have had without a merger. But she also signed a contract in bankruptcy, always a dicey proposition in the harsh world of union politics.

Mike Flores, former president of the US Airways AFA chapter, said APFA made a mistake when it agreed to binding arbitration if the airline and the union cannot agree on contract terms. "That takes the negotiating process out of the equation," he said. "That avoids the mediation process under the Railway Labor Act and lets (the airline) go right to their end game." In arbitration, the two sides must agree on an arbitrator, much as lawyers agree on a jury in a trial. Selection of the arbitrator is key.

But an APFA spokesman said, "To look back and say that binding arbitration was a mistake is to look back and say the merger was a mistake, because you cannot have one without the other. We needed the cost structure in place to sell this deal to the creditors." Additionally, the spokesman said, binding arbitration benefits flight attendants as well as the airline, because it means negotiations will not stretch out indefinitely, as they have in some previous AFA mergers. "The sooner we get to a contract, the better," he said.

Flores said the AFA contract, which he negotiated, includes protections under Allegheny Mohawk protocol, which offers job and compensation protections in a merger. He said US Airways would like to get from under that provision. APFA said it would negotiate for the best aspects of each contract.

The pilot union merger is complicated not only by the seniority dispute but also because USAPA president Gary Hummel is facing a recall vote. Hummel backed the merger, which means a new contract that over six years would provide $1.6 billion worth of benefits, including pay raises of 13% to 35% over existing rates and lump sum payments around $10,000 each.

Hummel's opponents said he exceeded his authority in negotiating the contract terms and makes too many concessions to former America West pilots including allowing them to participate in merger talks with American pilots.

Written by Ted Reed in Charlotte, N.C.

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