The following is the first in a series of two critical articles on the subject of American Airlines (AA) management’s claim that they need a “New Generation Contract.” What’s that? Is it just their latest creative methodology to extract unnecessary and overreaching concessions they want, or a true attempt to get a competitive pilot contract?
In 2003, during the timeframe most other legacy carriers were entering bankruptcy the pilots of American Airlines consensually agreed to $660 million in annual concessions, 31% of their contract. This agreement was and still remains the largest consensually agreed to concessionary contract in aviation history.
During the negotiations leading up to this concessionary agreement, management designed and promulgated the model from which the pilots’ concession would be determined. They insisted that the 2003 agreement must end up being competitive with the latest ratified pilot contracts in the industry because the newest contracts in the industry represented where the industry was headed - the new generation.
At the time, both USAir (US) and United (UAL) had entered bankruptcy and their pilot contracts had been driven down considerably below industry standard. Southwest (SWA) pilot’s meanwhile had one of the most productive pilot contracts in the industry with pay rates about 10% below those in effect at American Airlines at the time.
Management developed a model using USAir, UAL and the SWA pilot contracts as the financial benchmark because they were the three most recent contracts ratified in the industry. They were also the three lowest valued contracts in the industry, in essence, below industry standard.
Today management wants another chance at a “new generation contract,” however their methodology to determine what that is has changed considerably from their methodology used in 2003. Why? Because using the same methodology as they used in 2003 does not work to their advantage. They must change their methodology to tailor it to the kind of contract they are really trying to pursue, a less-than-industry-standard style contract.
Using the 2003 methodology, management would look at the latest ratified contracts in the industry—where the industry is headed—like they did in 2003. The latest ratified pilot contracts in the industry would be SWA, Alaska (AK), Delta (DAL) and Hawaiian (HA).
Continental (CO) and UAL pilots are still in negotiations and are anticipating reaching an agreement within the next twelve months as the integration of the new United concludes. USAir and America West (AW) pilots have been involved in a protracted seniority integration and have not been able to conclude an agreement. However, the USAir flight attendants just agreed in principle to an industry leading contract, giving rise to the probability that the new USAir pilot group will conclude an agreement in the future as well. (See page 2 of the “Delta Pilots’ Contract Comparison” for ratification timeframes).
Given that the CO, UAL, US and AW pilots will conclude an enhanced contract in the future, management’s 2003 methodology makes even more logical sense today.
Unlike 2003, when SWA pilots were paid less than American Airlines pilots, today SWA pilots make approximately 31% more than American Airline pilots ($216 an hour for a SWA 737 Captain and $165 for a AA 737 Captain. See page 14 and 15 in the “Delta Pilots’ Contract Comparison” for pay rates). Is it any wonder AMR management wants to change their methodology?
Both Delta and Alaska fly the 737; HA does not. Delta has a Captain pay rate of $181 an hour and Alaska has a Captain pay rate of $180 an hour for the 737, both are approximately 9.6% above American’s current 737 Captain pay rate of $165 an hour.
Both Delta and Hawaiian fly the 767; AK does not. Delta has a Captain pay rate of $189 and hour and Hawaiian has a Captain pay rate of $199 an hour for the 767, 5.6% and 11.2% respectively above American’s current 767 Captain pay rate of $179 an hour.
Using the same methodology as AMR management used in 2003, you would use the four carriers, SWA, DAL, AK and HA and the 737 and 767 for comparison purposes. Using their 2003 methodology, American’s “New Generation” contractual 737 pay rate would be somewhere between the DAL, AK and the SWA pay rate. The 767 pay rate would be somewhere between the DAL and HA pay rate.
Now management, along with some of the casual media, analyst or public observers might argue that SWA is an outlier, not to be used as a fair comparison. Pilots—especially American Airlines pilots—on the other hand, would argue for their responsibility, training and associated risks, SWA is not an outlier at all, but a realistic benchmark for the value of their professional services.
Recognizing that reasonable people can hold differing viewpoints on the role of SWA pay rates and further recognizing that this debate is unlikely to be resolved in the 1113 process, the overly conservative position to take for this discussion would be to exclude SWA pilot pay rates, even though there are many logical arguments to not do so. This in and of itself is obviously very debatable amongst the pilot group, but one chosen as the most conservative position to take to best illustrate the false nature of management's arguments.
Federal Express (FE) and United Parcel Service (UPS) pilot contracts are excluded as well which is equally controversial, considering pilots at those airlines provide precisely the same type of service to their employer as American’s pilots do for AA. For the sake of keeping this discussion as valid and unbiased as possible, freight carrier pilot contracts are conservatively excluded from consideration.
By dropping SWA and using the same methodology as in 2003, you would then be left using DAL, AL and HA as the comparators since they have the most recent ratified contracts. Each of the pay rates have been discussed above. Based on these three carriers, American’s 737 Captains are paid 9.6% less than these carriers and somewhere between 5.6% and 11.2% less on the 767.
Taking the discussion of “new generation” one step further, one can conservatively argue that new generation must be a comparator of those carriers that have used the 1113 bankruptcy process to implement many changes under the force of the bankruptcy process.
Of the three carriers, DAL, AK, and HA, only AK has never used the 1113 bankruptcy process. Therefore, another conservative position to take on determining a “new generation” contract would be to exclude AK as a comparator. Ironically, both of the remaining carriers, DAL and HA were the last two major airlines to use the 1113 bankruptcy process to negotiate contracts.
An American 737 Captain would still be paid 9.6% less than the newest generation 737 Captain pay rates and the same 5.6% to 11.2% less than a 767 Captain using new generation contractual pay rates.
Consistent with the same conservative approach, one could argue that both HA and AK are niche carriers serving a limited geographic area, though both are expanding their networks around the country. If you excluded both HA and AK you would be left with DAL as the comparator for what a pilot “new generation” contract should look like.
DAL has the following characteristics that support the argument that it is an appropriate comparator for a qualified “new generation” carrier:
During the negotiations leading up to this concessionary agreement, management designed and promulgated the model from which the pilots’ concession would be determined. They insisted that the 2003 agreement must end up being competitive with the latest ratified pilot contracts in the industry because the newest contracts in the industry represented where the industry was headed - the new generation.
At the time, both USAir (US) and United (UAL) had entered bankruptcy and their pilot contracts had been driven down considerably below industry standard. Southwest (SWA) pilot’s meanwhile had one of the most productive pilot contracts in the industry with pay rates about 10% below those in effect at American Airlines at the time.
Management developed a model using USAir, UAL and the SWA pilot contracts as the financial benchmark because they were the three most recent contracts ratified in the industry. They were also the three lowest valued contracts in the industry, in essence, below industry standard.
Today management wants another chance at a “new generation contract,” however their methodology to determine what that is has changed considerably from their methodology used in 2003. Why? Because using the same methodology as they used in 2003 does not work to their advantage. They must change their methodology to tailor it to the kind of contract they are really trying to pursue, a less-than-industry-standard style contract.
Using the 2003 methodology, management would look at the latest ratified contracts in the industry—where the industry is headed—like they did in 2003. The latest ratified pilot contracts in the industry would be SWA, Alaska (AK), Delta (DAL) and Hawaiian (HA).
Continental (CO) and UAL pilots are still in negotiations and are anticipating reaching an agreement within the next twelve months as the integration of the new United concludes. USAir and America West (AW) pilots have been involved in a protracted seniority integration and have not been able to conclude an agreement. However, the USAir flight attendants just agreed in principle to an industry leading contract, giving rise to the probability that the new USAir pilot group will conclude an agreement in the future as well. (See page 2 of the “Delta Pilots’ Contract Comparison” for ratification timeframes).
Given that the CO, UAL, US and AW pilots will conclude an enhanced contract in the future, management’s 2003 methodology makes even more logical sense today.
Unlike 2003, when SWA pilots were paid less than American Airlines pilots, today SWA pilots make approximately 31% more than American Airline pilots ($216 an hour for a SWA 737 Captain and $165 for a AA 737 Captain. See page 14 and 15 in the “Delta Pilots’ Contract Comparison” for pay rates). Is it any wonder AMR management wants to change their methodology?
Both Delta and Alaska fly the 737; HA does not. Delta has a Captain pay rate of $181 an hour and Alaska has a Captain pay rate of $180 an hour for the 737, both are approximately 9.6% above American’s current 737 Captain pay rate of $165 an hour.
Both Delta and Hawaiian fly the 767; AK does not. Delta has a Captain pay rate of $189 and hour and Hawaiian has a Captain pay rate of $199 an hour for the 767, 5.6% and 11.2% respectively above American’s current 767 Captain pay rate of $179 an hour.
Using the same methodology as AMR management used in 2003, you would use the four carriers, SWA, DAL, AK and HA and the 737 and 767 for comparison purposes. Using their 2003 methodology, American’s “New Generation” contractual 737 pay rate would be somewhere between the DAL, AK and the SWA pay rate. The 767 pay rate would be somewhere between the DAL and HA pay rate.
Now management, along with some of the casual media, analyst or public observers might argue that SWA is an outlier, not to be used as a fair comparison. Pilots—especially American Airlines pilots—on the other hand, would argue for their responsibility, training and associated risks, SWA is not an outlier at all, but a realistic benchmark for the value of their professional services.
Recognizing that reasonable people can hold differing viewpoints on the role of SWA pay rates and further recognizing that this debate is unlikely to be resolved in the 1113 process, the overly conservative position to take for this discussion would be to exclude SWA pilot pay rates, even though there are many logical arguments to not do so. This in and of itself is obviously very debatable amongst the pilot group, but one chosen as the most conservative position to take to best illustrate the false nature of management's arguments.
Federal Express (FE) and United Parcel Service (UPS) pilot contracts are excluded as well which is equally controversial, considering pilots at those airlines provide precisely the same type of service to their employer as American’s pilots do for AA. For the sake of keeping this discussion as valid and unbiased as possible, freight carrier pilot contracts are conservatively excluded from consideration.
By dropping SWA and using the same methodology as in 2003, you would then be left using DAL, AL and HA as the comparators since they have the most recent ratified contracts. Each of the pay rates have been discussed above. Based on these three carriers, American’s 737 Captains are paid 9.6% less than these carriers and somewhere between 5.6% and 11.2% less on the 767.
Taking the discussion of “new generation” one step further, one can conservatively argue that new generation must be a comparator of those carriers that have used the 1113 bankruptcy process to implement many changes under the force of the bankruptcy process.
Of the three carriers, DAL, AK, and HA, only AK has never used the 1113 bankruptcy process. Therefore, another conservative position to take on determining a “new generation” contract would be to exclude AK as a comparator. Ironically, both of the remaining carriers, DAL and HA were the last two major airlines to use the 1113 bankruptcy process to negotiate contracts.
An American 737 Captain would still be paid 9.6% less than the newest generation 737 Captain pay rates and the same 5.6% to 11.2% less than a 767 Captain using new generation contractual pay rates.
Consistent with the same conservative approach, one could argue that both HA and AK are niche carriers serving a limited geographic area, though both are expanding their networks around the country. If you excluded both HA and AK you would be left with DAL as the comparator for what a pilot “new generation” contract should look like.
DAL has the following characteristics that support the argument that it is an appropriate comparator for a qualified “new generation” carrier:
- It has used the 1113 bankruptcy process to develop a new generation competitive pilot contract.
- It is the largest fully integrated carrier in the world (the new UAL is not yet fully integrated).
- It is the largest Domestic Carrier providing 16.3% of the US domestic market share (Source BTS).
- In 2011, excluding special items, it reported a $1.2 billion annual profit.
- For 2011 it provided its employees $264 million in profit sharing.
Management coined the term, “new generation.” UAL, CO, US and AW have been in contract negotiations for years with each of their pilot contracts being negotiated over six years ago. Each of these pilot groups will certainly conclude an enhanced agreement in the future. They therefore cannot realistically be used for benchmarking today to determine the future because nothing about them is new generation.
Unlike in 2003, management doesn’t want to use the latest contracts in the industry. They want to use whatever they can whenever they want. There is no consistency, no logic and no foundation for management’s proposals. It's all about overreaching
The actual “new generation” comparison shows an American 737 Captain is already paid 9.6% less than a “new generation” 737 Captain and a 767 Captain at American is already paid 5.6% less than a “new generation” 767 Captain.
Is AMR management really seeking a competitive contract for their pilots or are they seeking something else?
Unlike in 2003, management doesn’t want to use the latest contracts in the industry. They want to use whatever they can whenever they want. There is no consistency, no logic and no foundation for management’s proposals. It's all about overreaching
The actual “new generation” comparison shows an American 737 Captain is already paid 9.6% less than a “new generation” 737 Captain and a 767 Captain at American is already paid 5.6% less than a “new generation” 767 Captain.
Is AMR management really seeking a competitive contract for their pilots or are they seeking something else?
