A giant of the airline industry is weathering a quiet coup by labor groups, eyeing fatter checks and deeper dues. Big Labor wants to ground American Airlines.
It’s a familiar bout for much of American industry — management and labor locked in strained negotiations amidst a weakened economy and softened bottom line — but it’s the veiled mechanism of closed-room merger talks with rivals that has made the American Air experience unique in a sea of union power grabs.
In the years since the industry was deregulated in 1978, north of 150 carriers have filed for bankruptcy. Among the legacy carriers, of which a number had filed on multiple occasions, American was the lone outfit to weather the nineties and the financial crisis wrought by the September 11 terrorist attacks.
But it wasn’t taxes or government regulation that grounded the carrier. Not even surging energy costs or traveler antipathy with security hurdles.
While competitors Delta, United and US Airways were cutting red through wage and benefits renegotiations, American’s pilots union was demanding at the height of a recession 10 percent signing bonuses chased by 7 percent annual raises for three years.
When management countered with job protection, signing bonuses and 3.21 percent raises for the first year with an additional 1 percent raise each year thereafter for three years, labor looked to amend an earlier concession in which the company was able to shed $1.6 billion in costs. They wanted that back, and more.
Yet their refusal to make concessions even as every economic indicator revealed a sour business environment should come as no surprise to even the casual observer of union political maneuvers. Labor groups have no incentives to be serve as good actors in the market when federal bureaucrats appeal to union bosses’ lesser instincts of greed and excess, blocking right-to-work efforts and green lighting a controversial measure that provides for rushed workplace elections.
American’s labor costs had soared to fully 28 percent of its revenue, an industry high by several points. Those disparate labor agreements meant American shelled out $600 million more in wages than its closest competitors.
Having effectively hobbled the company with unsustainable labor costs, unions launched an open rebellion against management when it was revealed the company would pursue a Chapter 11 reorganization.
American’s aim was to restructure, as so many of its peers had done, and reset its course for one of solvency. But the carrier’s major workers groups had other designs: mutiny.
After US Airways, itself the beneficiary of a court-monitored restructuring, made public in April its interest in merging with the now-hobbled American, the latter’s unions began scheming with the rival carrier. If American wouldn’t subsidize their outrageous benefits, labor was determined to find one who would — the court and creditor’s committee be damned.
American holds the exclusive right to float a restructuring plan through September’s end, already indicating it would boost capacity on international flights to narrow its revenue gap.
But while the carrier’s creditor’s committee had greenlit the notion of a robust reorganization plan through which labor agreements would be modernized, the unions have begun pursuing an end-run around the structured precedent governing bankruptcy law through back-room negotiations with US Air.
Of course, the management-labor drama unfolding as American pursues its bankruptcy filing will strike a familiar chord for observers of Detroit, where vulture unions drove the car industry into a ditch and later won an ownership stake in GM and Chrysler.
Corporate mergers are a hallmark of the US economic system — indeed, even American’s executives appear amenable to pursuing one that addresses the fundamental problem of labor costs — though rarely do they preempt sound course corrections. Rarer still are mergers curiously pursued and meted by union brass.
Typical of the instinct to birddog steeper salaries regardless, and often at the expense, of an organization’s longevity or financial condition, American Airline’s labor unions are threatening the livelihood of thousands for the benefit of a few well-heeled labor bosses. The carrier’s employees had better buckle up for a rough ride if they get their druthers.
Sign up to the Human Events newsletter