US Airways Walks Tightrope in AMR Merger Plan (AMY J)

By SUSAN CAREY

US Airways Group Inc.’s LCC -1.79% move to garner support from three unions at AMR Corp.’s American Airlines for a merger between the two companies is designed to woo American Airlines workers but stop short of saddling a combined carrier with contracts that would hobble operations.

US Airways’ chief executive said the company has a “unique opportunity” to pursue a merger with American Airlines and has the backing of unions representing 55,000 workers at the rival carrier. Jack Nicas reports on Markets Hub. Photo: Getty Images.

US Airways’ offer would provide pilots an immediate 5.5% raise and 3% increases a year for five years, according to American’s Allied Pilots Association union. After that, the contract could be reset to an average of the compensation at rivals United Continental Holdings Inc.UAL -1.84% and Delta Air Lines Inc.DAL -0.65% Meanwhile, no American pilots would be furloughed.

Those terms are more generous than what AMR has offered, helping explain why the unions publicly threw their support on Friday behind US Airways’ proposal to merge.

Under bankruptcy-court protection, AMR is seeking concessions from union members. It has resisted entertaining a merger, aiming at exiting Chapter 11 as a stand-alone company. The airline’s bid to trim its union expenses by $1.25 billion a year through rescinding current contracts is set to be heard in a bankruptcy proceeding starting Monday in New York.

“We are confident that our business plan provides for real growth and real opportunity for our employees, especially for our pilots—opportunities that are not based on hollow promises with no foundation in reality,” an American Airlines spokesman said Sunday.

US Airways, which has been circling American for months, said Friday that in return for the support of the three main airlines at the Fort Worth, Texas, carrier, US Airways would request fewer concessions than AMR is seeking and provide enhancements in pay and benefits of its own workers. A potential merger, according to people familiar with US Airways’ thinking, would generate $1.5 billion in revenue gains and cost savings annually.

A challenge for US Airways, based in Tempe, Ariz., is to avoid promising labor so much that a combination would founder because labor costs weren’t reduced enough to make the new airline competitive.

A person familiar with the matter suggested that US Airways intends to give the unions a piece, “but not all,” of its cost savings. Even with the improved terms for employees on both sides, the synergies “remain robust” and “well in excess of $1 billion,” the person said.

One question still looming over a merger is whether AMR, which the bankruptcy court has granted exclusive rights through September to field a reorganization plan, might seek a court injunction to swat down US Airways’ efforts to insinuate itself into the mix. American isn’t going to tip its hand on its legal strategy, a person familiar with the airline said.

Another person close to the matter said US Airways “has no official standing,” since AMR has exclusivity to promote its reorganization plan and because US Airways has made no formal merger offer to back up its agreements with American’s unions.

Getty Images

Travelers check in at a US Airways ticket counter in Phoenix.

Under AMR’s plan, American’s 10,000 pilots, the airline’s highest compensated employees as a group, are facing 400 furloughs. AMR also wants $370 million a year in concessions, including more hours in flight, elimination of premium pay, reductions in medical benefits and outsourcing of pilot hours to regional airline affiliates and carriers with which AMR has code-sharing agreements. The plan would give pilots a 1.5% pay raise annually for five years.

The US Airways plan includes higher productivity measures that normally would lead to 1,100 American pilot layoffs. But the union believes merger growth and new airplanes slated for American’s fleet would bring the combined carrier up to industry standards and avoid furloughs, a spokesman said.

US Airways’ offer to the union representing 17,000 American flight attendants calls for voluntary buyouts—an option AMR refused—and no furloughs, according to an internal memo from American’s Association of Professional Flight Attendants. The group would receive an immediate 2.5% raise, 1.5% annually for the next five years and maintain current vacation and sick-leave policies.

American is seeking the elimination of 2,300 flight-attendant positions.

Details of US Airways’ offer to the Transport Workers Union, which represents 26,000 American mechanics and ground workers, couldn’t be determined.

Under AMR’s plan the union faces 8,500 job cuts. But a person familiar with the matter said that number could be halved under US Airways’ offer.

James C. Little, international president of the union, said Friday that the TWU is close to an agreement with American on a “last, best offer” that would avoid abrogating the union’s contract in court. The union is supporting US Airways’ deal as an alternative.

Meanwhile, US Airways’ pilots union is enmeshed in a dispute dating back several years over seniority for pilots of the former US Airways and America West Airlines. The carriers merged in 2005 but the pilots have been unable to reach agreement on a common seniority list, stalling efforts to reach a common labor agreement. Their separate contracts are well below industry norms.

On Friday, the US Airline Pilots Association, which represents both groups, said it took heart in comments by US Airways Chief Executive Doug Parker that all workers would receive higher wages and compensation.

“What’s good for the goose is good for the gander,” said Capt. James Ray, a union spokesman. “There has to be an upside for the pilots at US Airways.”

 
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About internalmarket

This blog and its accompanying Twitter account have been established as social media learning tools for the Internal Communications and Employee Engagement class at Columbia College Chicago. Through this blog, we will share our observations about current events, change management and employee communications theory, and the application of social media in shaping employee engagement.
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