As discussed in Part I of Enhancements, American Airline’s management has proposed five provisions in their 1113 term sheet they describe as “enhancements.” However, these provisions are contingent on the pilots of American Airlines consensually agreeing to the other 67 plus contractual concessions management is proposing, most of which can only be described as draconian and many just seem plain punitive.
But are these five asterisk marked items really enhancements or are they just further concessions? In Part I of Enhancements, it was illustrated how management’s proposed sequence protection is nothing close to approaching an enhancement. It was just another management-designed concession cloaked in the cover of calling it an enhancement.
But what about pay increases? Have they finally provided the pilots with something that may incentivize the pilots to agree to their other 67 plus requested concessions?
Under management’s proposal they propose providing the pilots with 1.5% annual pay increases for five years after the first year of the agreement if the pilots consensually agree to all the other concessionary provisions of their 1113 term sheet.
One of the requirements of their 1113 term sheet is that the pilots agree to management’s proposal of a six year duration agreement.
In 2003 management also proposed a six year agreement that was eventually agreed upon as a five year duration contract that ran from May 2003 until May 2008. As of the date of American Airline’s bankruptcy filing on November 29, 2011 management and the pilots’ union had been in negotiations for three and a half years past the amendable date of May 2008. Prior to that contract, management and the pilots union had negotiated what eventually became the 2003 agreement for nearly two years past its previous amendable date.
Prior to the 2003 agreement, the last pay increase the pilots of American Airlines received was a 2.5% increase in 2000. As part of the 2003 agreement, the pilots of American Airlines agreed to an immediate 23% pay reduction in May of 2003 from their 2000 pay rates. In May of 2004 the pilots received a 6% restoration of part of the 23% pay reduction since many of the work rule concessions of 2003 were now fully implemented which resulted in additional cost savings that offset 6% of the previous 23% pay reduction. They also received 1.5% pay increases for each of the following five years of their five-year agreement beginning in May of 2004.
On the amendable date of the 2003 agreement in May of 2008, the American Airlines pilots’ hourly base pay rates purchasing power was 66.5% of the pilots 2000 pay rate purchasing power as a result of the 17% pay reduction in 2003 and the effects of inflation and the lack of base pay rate increases that kept up with inflation since 2000. The CPI (Consumer Price Index) averaged 2.8% from 2000 until 2008. The American Airlines pilots averaged a 10.6% decrease in hourly base pay rates since 2000 whereas the CPI had increased 24.7%.
Since the amendable date of the 2003 agreement in 2008 the American pilots’ hourly base pay rates have been further eroded due to further effects of inflation and the fact that American’s pilots have not had any pay increases since 2008.
From 2008 until today, inflation has averaged approximately 2.8% annually or a compounded total of 11.7%. This has further reduced pilot pay rates to a total of 59.5% of inflation adjusted 2000 base pay rates.
Today, as adjusted for inflation, the pilots of American Airlines make slightly less than 60% of the purchasing power they did in 2000. That’s right! Every pilot’s base aircraft pay rate has been reduced by 40% since the year 2000 when compared to inflation.
Now, American Airlines management is offering an “enhancement” of “pay increases” in exchange for the pilots consensually agreeing to management’s 1113 term sheet, including a six year duration agreement.
Pay increases? Or further pay erosion? As illustrated above, pilots have endured over a decade of pay erosion due to lack of pay increases that have kept up with inflation. Management understands the power of this end result and once again apparently hopes to use it against the pilots.
Looking around the industry and particularly at American Airlines, pilot contracts are taking years past their amendable dates to renegotiate. At American, it has been four years since the amendable date of their pilot contract and at many other carriers it is even longer. It is safe to assume that if the pilots of American Airlines agree to a six year duration contract, the contract will be in effect for at least eight years and quite possibly, more like ten years.
If you were to use an average of nine years before the pilots of American Airlines were able to negotiate a follow-on contract to the one American management is now proposing and assuming inflation would continue to average 2.8% annually through the term of the agreement then the total compounded inflation would be 28.2% for those 9 years. Meanwhile, under management’s 1113 term sheet they have offered five annual pay increases of 1.5% a year, 1.3% less than forecasted annual inflation. Management is offering a 7.7% compounded pay raise through the term of the agreement while inflation will be approximately 28.2% over those nine years.
Under management’s proposal, assuming a 6-year contract will ultimately be a 9-year contract, the current hourly base pay rates for pilots will only be worth 86.4% of their current purchasing power. When compared to 2000 pay rates, the last time pilots received a pay increase approaching CPI, their hourly base pay rates in effect prior to the next contract being ratified when adjusted for inflation will only be worth 51.4% of their 2000 pay rates. That’s right, nearly 50% less than they were making in 2000 for doing the same job.
Under management’s proposed 1113 “enhancement,”American Airlines pilots will endure another 13.7% erosion of their current hourly base pay rates and will see their purchasing power worth only 51.4% of their 2000 hourly base pay rates. If American pilots will simply agree to management’s draconian and often times punitive proposals, management will provide the pilots of American Airlines with this “enhancement.”
As illustrated in a prior discussion, the pilots of American Airlines already trail the only true “new generation” carrier by nearly 10% and with management's “enhancement,” pilots will see a further reduction in their purchasing power of nearly 14%.
Is it any wonder the public has recently been reading that the leadership of the pilots' union is publicly stating that American Airlines management is not trying to conclude a consensual agreement but is instead pursuing another court designed strategy?
What in this proposal provides an incentive for an American Airlines pilot to want to agree to the other 67 plus concessions? Further pay reductions?
Is management bargaining in good faith? Are they treating the pilots fairly and equitably? Are they credible in trying to conclude a consensual agreement?
