Tags: AMR | shares | Pilot | Contract

AMR Shares Tumble Most in Six Weeks After Pilot Contract Proposal

Tuesday, 15 Nov 2011 12:37 AM

 

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American Airlines parent AMR Corp. tumbled the most in six weeks in New York trading after trying to end a five-year stalemate with a contract proposal that offers pilots smaller pay increases than they had sought.

“The time has come to close this chapter and move forward,” American said yesterday on its labor website, urging the Allied Pilots Association to permit members to vote on the plan. The union’s board began a three-day meeting today.

Compensation and the scope of flying that rivals might do for Fort Worth, Texas-based American are the biggest unsettled issues in bargaining that began in 2006. American is seeking to cut labor costs and made the proposal as AMR directors prepared to gather tomorrow for their last scheduled session of 2011.

“Management is trying to put on a lot of pressure” to resolve the stalled talks, said Robert W. Mann, president of consultant R.W. Mann & Co. in Port Washington, New York. “If the gulf is wide, it’s not going to move. It will just go back for further discussion. It looks like the company is pretty frustrated right now.”

AMR fell 4.9 percent to $2.04 at 11:11 a.m. in New York after dropping as much as 13 percent in the worst slide since Oct. 3. The shares plunged 73 percent this year through yesterday.

Annual Losses

The union didn’t return phone calls and e-mails today or late yesterday seeking comment on American’s proposal. The third-largest U.S. airline has said it needs lower labor expenses to compete with its biggest peers as parent AMR heads toward a fourth straight annual loss in 2011.

Intraday stock plunges of as much as 41 percent whipsawed AMR last month on concern it would seek court protection, spurring the company to say that bankruptcy isn’t “a goal or preference.”

“APA negotiators haven’t offered viable responses to numerous options that company negotiators have suggested as possible solutions,” American said yesterday. “Instead of waiting and letting more precious time slip by, the company elected to put a comprehensive proposal on the table.”

Presenting a full contract offer bucks the usual pattern in airline negotiations, which typically proceed issue-by-issue. American has said a “window of opportunity” is closing to get a deal.

Bankruptcy Speculation

Under the airline’s contract proposal, any new jets with more than 50 seats added to American’s fleet would be flown by the airline’s own pilots. Current rules call for regional unit American Eagle to fly aircraft of that size, along with a limited number of 70-seat jets.

The offer would set separate pay rates and rules for pilots on aircraft of fewer than 125 seats, creating a “B” wage scale.

American also wants to expand a so-called code-share agreement with Alaska Airlines to fill gaps in its U.S. West Coast network. It would start similar relationships with US Airways Group Inc. on a Boston-New York-Washington shuttle where flight limits prevent American from adding its own service, and with JetBlue Airways Corp. in New York, so the carriers would be able to book American passengers on those flights.

Pilots are a bellwether work group in industry labor talks, and American is focusing on the APA while also negotiating with unions for flight attendants and mechanics. AMR has said it has an $800 million annual labor-cost disadvantage to its biggest U.S. peers.

Dispatcher Accord

American reached an agreement in principle yesterday with the Transport Workers Union representing 180 flight dispatchers. The carrier announced a similar accord on Oct. 26 with the TWU group for 10,400 baggage handlers and other airport ground workers. Both plans require ratification votes.

Bargaining with pilots stalled late last week, with the APA objecting to the company’s proposals as American made what it said were “significant” movements toward the union position in several areas.

“It’s a pretty wide gulf,” Tom Hoban, a union spokesman, said in a Nov. 13 interview.

According to the union, the company is proposing a “concessionary contract” that would save at least $100 million a year before any benefits from expanding code-share flights.

“As pilots look at the components of the proposal, there may be some who describe it as concessionary,” American said on its website. “The reality is that in virtually every area of the proposal, we have offered industry-leading terms.”

Pay Options

To help resolve differences, American offered two options on pivotal points such as compensation, productivity, pension and benefits.

Under one of American’s proposed pay plans, pilots would get a 4 percent average raise on the date the contract is signed, followed by a 3 percent boost after 15 months, and increases of 2 percent after 30 months and again after 45 months.

The second option offers a 5 percent average increase at signing, followed by a 4 percent jump after 12 months, a 2 percent increase after 24 months and 3 percent after 36 months.

Pilots had sought a 10 percent signing bonus, followed by 7 percent raises in each of the next three years.

“I don’t see us moving off that figure,” Hoban said on Nov. 13. “It’s a pretty reasonable offer.”

Jim Corridore, a Standard & Poor’s equity analyst in New York, said yesterday that an accord that includes the pilots’ pay plan would help drag AMR into bankruptcy. Absent “significant work-rule changes and productivity gains to cut costs, this contract is a loser,” said Corridore, who recommends holding the shares.

New union accords, including one for the 8,700 APA-represented pilots, are the final piece of a plan to return AMR to profit and make American competitive, according to the airline.

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