How a Deal Could Be Made to Save American Eagle

DALLAS (TheStreet) -- In covering airline labor talks for the past 25 years, I have always believed that a deal is always possible. Moreover, in the case of American Airlines (AAL) regional partner American Eagle, no one benefits from its demise except for its competitors.

So despite the talk about letting the airline shut down and letting American Airlines put its E175s somewhere else and letting the ground services division run the thing, which in terms of revenue it pretty much already does, this horse has not left the barn.

On Wednesday night, leaders of the Eagle chapter of the Air Line Pilots Association rejected a proposed agreement, choosing not to send it out to members for a vote. The rejected agreement would have frozen pay rates until 2018 and then provided 1% annual raises for six years. The master executive council said it anticipated management would make good on a plan to shut the company down.

American Eagle President Pedro Fabregas on Thursday said the company won't shut down but will reduce flying over time. "Our ground handling operation continues to thrive and we have added new business and employees there at a rapid pace," Fabregas wrote, in a letter to pilots.

I am reminded of nothing so much as Bob Crandall's 1993 promise, made during some intense labor negotiations, to shut down American Airlines so that AMR could focus on other things, such as ground handling.

Bridget O'Brien, a colleague from The Wall Street Journal, wrote a memorable lead that went something like this: "What would AMR Corp. be without American Airlines? Profitable."

Nevertheless, when Crandall retired as perhaps the greatest airline CEO ever, AMR was still in the airline business. Funny how that happens.

Bill Sprague, chairman of the Eagle pilots, told me Thursday that pilots have no reason to doubt Fabregas' threat. "Every indication from them is that the company is not going to come back." he said. "I was advised they were moving on to Plan B. That's the only information I have in front of me right now."

Still, Sprague also said a few other things that caught my attention. First, he made sure to mention that "negotiations were amicable." Earlier, Sprague told Terry Maxon of The Dallas Morning News that Fabregas "appreciated me calling him directly and giving him the news" after pilots rejected the Eagle offer on Wednesday. This shows that Sprague and Fabregas have maintained a cordial relationship. Good to have in cases like this one, because it means one guy can always pick up the phone and call the other guy.

Also, Sprague told me about two big problems in the rejected contract.

One is that the deal the Eagle pilots signed in bankruptcy included indexing to the contracts of other regional airlines. That deal, currently in effect, has seven years to go and it provides an opening for indexing in 2017.

But the rejected deal, altered after the US Airways/America West management took over American, had no indexing. Indexing is important in the regional jet industry, which pilots flee due to low salaries. Conceivably, the salaries will rise. Either that, or an entire generation of small regional aircraft will quickly disappear because high fuel costs make it too costly to operate them.

A second problem concerns the "flow-through" provision, Flow-through enables pilots from a regional airline to move to the mainline partner, in this case American. The terms of the flow-through are better in the rejected contract than in the existing contract, because more slots are available in each American training class and because no interview is required. You just move over if you want to, based on seniority.

"The real carrot for us is increased flow-through," Sprague said. But flow-through cannot be guaranteed, because no one knows what will happen in the airline industry. Despite all the expected retirements at American and US Airways, no one can be sure that American will continue to offer sizable training classes for new pilots each month.

Sprague would like a deal that offers some sort of guaranteed indexing in the event that American does not hire at a rapid pace. Right now, "They want us to take it on faith, to carry all the water for the flow through," he said.

So those are two areas where more discussions might be warranted.

Sam Pool, a LaGuardia-based first officer representative and MEC member. said the flow-through provision is the key lure of a regional airline because "nobody ever sets out in life to be a regional airline pilot."

Eagle's flow-through provision "is not good enough," Pool said. The proof is that "we've had it for 15 years and (many of us) are still here." He said management once touted the flow-through provision as "golden handcuffs" because "it used to keep pilots from going to Delta (DAL) and United (UAL) and Southwest (LUV) , and then (American) bought Reno and TWA and didn't move our guys up.

"Now our guys are still here, and that makes us uncompetitive with other regionals, (whose) pilots went to major brands," Pool said. "Management said 'stay here and we will take care of you.' Fifteen years later, they are just getting around to thinking about it."

One other thing, about that name change from American Eagle to Envoy: I think somebody put the cart before the horse.

Written by Ted Reed in Charlotte, N.C.

To contact this writer, click here.

Follow @tedreednc

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