American Air's Envoy: 'An Airline That Is Coming Apart'

NEW YORK (TheStreet) -- American Airlines (AAL)  regional subsidiary Envoy Air is losing pilots so rapidly that it is sending airplanes to other carriers that have enough pilots to fly them.

What could be worse? American apparently believes it would be even tougher to continue to operate under the pilot contract approved by prior management during its bankruptcy.

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So today, Envoy is in "a unique situation where an airline is coming apart," said aviation consultant Bob Mann. Some observers believe the airline cannot survive but that Envoy can continue to operate as a ground handling company.

Mann said that possibility should be taken seriously. "I think Envoy will be smaller for a period and then there will be a determination whether that is cost-effective," he said.

Envoy spokeswoman Martha Thomas said: "American has no plans to shut Envoy down. Envoy continues to provide reliable service, its employees serve American's customers well and the company remains an important part of American Airlines Group."

But she noted that 8,000 of Envoy's 14,000 employees work to provide ground handling to more than a dozen airlines including American.

Envoy today has about 2,400 pilots, down from about 3,000 at the end of 2012 and 2,700 at the end of 2013.

Some pilots are leaving to fly for mainline carriers including Alaska (ALK) , Frontier, JetBlue (JBLU) and Spirit (SAVE) , said James Magee, spokesman for the Envoy pilots.

Others, Magee said, are leaving for air taxi companies flying twin-engine turboprops, where they can work as captains, because the major carriers prefer to hire pilots with experience as captains. "They want to see that you have the decision-making ability of a captain," he said.

Magee said Envoy is able to hire new pilots, but that is a challenge because "when you announce that you are shrinking, it's harder to hire new pilots. They are looking for someplace that has rapid growth."

Envoy said last week that it will transfer 50 Embraer 145s from its fleet to three other regional carriers.

"This transfer is solely driven by forecasts showing an insufficient number of pilots at Envoy in 2015 to operate our planned schedule," said Kenji Hashimoto, American senior vice president of regional carriers, in a letter to pilots.

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"We are beyond disappointed," said Sam Pool, chairman of the Envoy chapter of the Air Line Pilots Association, in a recent letter to pilots. "The sacrifice of economic and operational flexibility that this workgroup provided to our parent corporation during the darkest hours of bankruptcy are now considered insufficient."

During the bankruptcy, pilots at the airline, then known as American Eagle, agreed to contract concessions valued at $43 million. Soon after the case ended, American's new management team asked for additional pay rate concessions, promising fleet growth and an increased likelihood of flying for the mainline in return.

The offer was rejected. American Eagle changed its name to Envoy and continued to shrink.

Asked if he could recall other airlines that had endured gradual public deaths, Mann mentioned TWA, which he called "the incredible shrinking airline." TWA's demise included a retreat to its St. Louis hub, a series of disadvantageous deals by owner Carl Icahn and three bankruptcies. The story illustrated the inability of some airlines to survive deregulation.

Envoy's decline is different. It embodies the devolution of the regional airline industry to one that depends on rock-bottom wages. "The entire regional industry is undergoing a change," Magee said. "Managements just want to lower compensation" because they believe that is the only way they can make a profit, he said.

ALPA President Lee Moak said recently that regionals pay pilots too little because mainline carriers don't pay the regionals enough for their flying.

"The regional carriers -- Republic  (RJET) , Mesa, Trans States, the wholly owneds -- all undercut each other in their air service agreements" with mainline carriers, Moak said in an August interview. "They don't have a lot of room in those contracts. (Wholly owned regional carriers are owned by major airlines).

"What they need to do is to go back to the (mainline) brands and say, 'We need to renegotiate these deals,'" Moak said. "The brands need to take ownership."

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

To contact this writer, click here.

Follow @tedreednc




At the time of publication, the author held no positions in any of the stocks mentioned. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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