When the pilots union at Northwest Airlines staged its 17-day walk-out last summer, Wall Street sighed "here we go again". In February, the American Airlines pilot group, upset by its management's acquisition of Reno Air, which it considered a violation of its contract, conducted an 11-day sick-out, ended only after a court intervention.
The tone for labour relations across the US airline industry over the next 18 months is expected to be set by Delta and United Airlines, both on the verge of new contract negotiations. "They're the two to watch. They'll be tough. You can't predict where they'll end up," says William Swelbar, a Washington-based aviation consultant.
If Delta and United can reach agreements amicably, it could signal a new era of pilot-management relations. But the signs are not good. In the build-up to Delta's contract talks, there are signs of a fight. The pilots are expected to begin contract talks this month for a new overall contract that can be amended next May but have already sued management for using a regional jet belonging to subsidiary Comair to operate flights on a new Delta Shuttle route. The carrier says it was forced to use this equipment because of slot constraints and that it hopes to operate regular jet services on all flights. Delta has also declared it will sell or lease 11 of the 777s it has on order with Boeing and return the two in its fleet because of what it considers to be unreasonable wage demands by pilots to fly this equipment.
At United, where pilots are also preparing for negotiations to renew their contract, amendable next April, there seems more cause for optimism. But some US airline and union groups are debating the role of regional jets, regarded with some suspicion as a threat to pilot jobs. Others seek to cash in on the record profits that most majors have been posting. Although many airlines might be prepared to make greater concessions on wages in return for higher productivity, the issue of pilot fatigue is under the spotlight, with differing views from the two sides. It all adds up to a potential cocktail of fraught labour-management relations that will keep many analysts wary over the next few months.
"Many things have changed for the better over the years, but management-pilot relations, on balance, are not on that list," says Sam Buttrick, airline analyst for Paine Webber. Philip Baggaley, a managing director of credit rating agency Standard & Poor's, agrees. "Relations haven't changed that much."
The reasons for this are the same now as they were in the early days of US deregulation, says Jerry Glass, a Washington-based labour consultant who advises carrier managements. "Unions bargain as if times are always good, and management always bargains as if times will get bad. Things always get bad, but unions always hope for good times."
Pilot costs
According to Glass, pilot costs represent between one-fourth and one-third of carriers' labour costs, which themselves make up one-third of total operating expenses. In the current cycle, pilots have considerable leverage over carrier managements because demand for them is so strong, says Daniel Kasper, director of the Cambridge, Massachusetts, office of consultants LECG. "Not a lot of them are walking the street," he says.
Baggaley finds that pilots' bargaining strategies are a lagging indicator of carrier profitability. "It takes a couple of years of serious losses for them to give something up. If there are a couple of years of record profits, they want big raises," he explains.
Expectations of large salary increases are certainly the case with Delta's pilots, who gave the company a concessionary contract in 1996 and seek a big pay-back this time. The major issue in forthcoming contract negotiations will be pay, says Andrew Deane, the communications chairman for Delta's pilot union master executive council. "We took a number of concessions before 1996. If you took a snapshot of our wages in 1981, and bought them forward with a cost-of-living increase, you'd see our wages today are depressed 30%."
At American, suspicion between pilots and management has reigned supreme, although that is more readily attributable to bad blood between previous chairman Robert Crandall and the Allied Pilots Association (APA), which brought the pilots to the brink of a strike in 1997 before the government intervened. But the appointment of chairman Don Carty did not prevent the pilots from showing their disapproval when American moved to buy low-cost regional carrier Reno. Neither side came out well in the resulting sick-out, most observers believe.
After imposing a restraining order on the union, the federal district court judge fined it $46 million, one of the largest ever imposed on a US labour group. The APA seeks an appeal. "It was a lose-lose proposition," says Baggaley. "The judge's fine could financially hurt the union, and the pilots will still be there spoiling for a fight when the next contract comes around. But I'm not sure American wants the penalty to be applied. They probably like the fact that the pilots' action was established to be illegal, that a precedent was set. But the problem is they'll still have to live with the pilots. It could make the situation more difficult."
Virtually all observers agree, however, that the decision established ground rules. "It makes guerrilla warfare less likely," says Baggaley. Glass adds: "Unions have to be very careful about rogue employees engaging in any kind of illegal activity. The decision sent a message to management that a tool is available to combat illegal slowdowns."
Most observers are also critical of the Delta pilots' stance in their 777 negotiations. Both sides made several offers for pay rates and work rules before talks broke down; management says it offered the union an industry-leading rate, 5% above American's pay for its 777 pilots. According to union chairman Deane, Delta's pilots deliberately took a high opening position in the negotiations.
"We knew we could whittle it away and come up with something half-way in between. We anticipated both sides would work seesaw fashion to the proper amount. Instead, the company decided to make it a public negotiation. It looked to us as if the company didn't care if it got a solution in this negotiation."
But Delta's management stance on 777s called the union's bluff, suggests Brian Harris, aviation analyst at Salomon Smith Barney. If Delta is unable to resolve this issue and cannot fly the 777, Harris believes the airline will be at a competitive disadvantage against other 777 operators. John Kennedy, a Delta spokesman, agrees. He adds, however: "We are still negotiating with great hope that we can reacquire the type and fly it as originally intended."
Playing hardball
Deane believes Delta's management "will attempt to play hardball. But I don't think we'll be willing to roll over". Kennedy says Delta's goal is to offer better compensation and benefits than the other US majors.
The dynamics of the United negotiations will be different, mainly because of the company's employee stock ownership plan (esop). Pilots, who with other employees will own the majority of UAL stock by next April, have had an active role in United's management since the ESOP five years ago; most recently, the pilots and the International Association of Machinists played a pivotal part in the elevation of UAL president James Goodwin to chairman as successor to Gerald Greenwald, who retired. United's pilots gave up a lot in pay and pensions in the last contract negotiations, says labour consultant Glass. "I expect they'll want it all back and more," he says.
Baggaley predicts the United pilots will focus on money and not on the ideology of employee ownership. "They had a strong say in the appointment of a new chair and they should be feeling good. They'll have tough negotiations, but I don't think there will be the animosity that exists in other cases," he says.
| Status of major US pilot contracts | ||
| Airline | Contract amend date | Regional jet restrictions |
| American Airlines | August 2001 | Up to 67, 70-seat RJs |
| Continental Airlines | October 2002 | No RJ restrictions |
| Delta Air Lines | May 2000 | No limit on RJs up to 70-seats |
| Northwest Airlines | June 2002 | Up to 36 69-seat RJs. Northwest can also have 30 RJs with between 44 and 55 seats as long as its narrowbody fleet stays at 332. RJs can then be added proportionately to growth of narrowbodies. RJs can only be flown to Northwest hubs |
| United Airlines | April 2000 | Up to 65 50-seat RJs |
| US Airways | January 2003 | Up to 35 69-seat RJs. This is phased in over three years or nine of US Airways' total active fleet - whichever is greater. |
Source: Airline Business
