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American’s unions learn a hard lesson

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From the viewpoint of an outside, casual observer it appears to me the unions at American Airlines have learned a hard lesson.

They had an opportunity to make a deal and didn’t take it choosing instead to ignore what common sense should have told them was a desperate situation. It may have cost them dearly.

The Allied Pilots Association rejected a contract that offered job security, pension protection, annual raises and a signing bonus. Problem was union negotiators wanted to rub American’s nose in it. When they walked out of negotiations for lunch back in November they informed the other side later by text message they wouldn’t be returning. Then, they took a break for Thanksgiving. Management worked over the holiday to prepare the bankruptcy filing while the union ate turkey.

What were some of the sticking points to a contract deal? For one thing, there was a demand by the union traveling pilots be guaranteed rooms away from ice machines. Oh really? Another demand was that a pilot base remain open in San Francisco. It seems apparent the union did not fully appreciate the urgency of the situation and over-played its cards. The clear message to management was there was no deal to be made. So, the AMR board of directors concluded, and rightly so, time would not heal the wounds and bring some reasonable bargaining to the table. Labor negotiations would drone on and on and American would slide closer and closer to being flat broke.

It’s pretty obvious the unions, with justification, still had very hard feelings about the concessions they made in 2003 to help American avoid bankruptcy only to have management turn around and give themselves a $100 million stock bonus. That was a pretty stupid move if you ask me regardless of the explanations management gave trying to justify what they did. Talk about adding insult to injury.

Regardless of the hurt and bruised feelings, one must still ask why unions continually rejected contracts offering immediate upsides and were vastly superior to what they were likely to get should American file bankruptcy. It’s readily apparent common sense did not prevail.

A sad fact is that American lost more than $12 billion in the last decade and no company can continue to hemorrhage money at that rate indefinitely. According to American it has an $800 million per year disadvantage on labor costs and there was just no way to continue to ignore that fact.

Of course the unions deny they are the reason for American’s bankruptcy, and that’s partially true. There is plenty of blame to go around however. High fuel costs which result from an old fleet that is not as fuel efficient as newer planes play a significant part also. There are substantial pension liabilities to retirees as well as medical costs associated with that. But let’s face the facts. 

Many of the things management could have done to streamline the company would have been blocked by union contracts. Leases on the older jets could not just be voided without penalty in order to upgrade the fleet. Under the rules of bankruptcy the necessary things can happen.

Thousands will lose their jobs eventually if what has happened at other airlines is any indicator. Courts and creditors will demand American get competitive in every part of its business which will affect pay and benefits across the board. Jobs in maintenance and fleet service will more than likely be outsourced eliminating many positions.

Eventually, American will be a much smaller but perhaps stronger airline. No doubt this will be a painful time for many American employees but things had to change one way or another. It’s just too bad it had to be the hard way.


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