American Airlines President Explains the Downside to Giving Employees Raises

Mechanics at American Airlines don’t have a new joint contract yet after the merger. There are US Airways and American legacy work groups, and everyone wants the best of both contracts. That would be far more expensive than the airline is willing to pay – and more expensive than what competitors pay.

American Airlines President Robert Isom explained to employees in Philadelphia this week that they can’t just take the best, most expensive version from each airline for every item in the contract.

The airline unilaterally raised pay as much as 24%, so that mechanics wouldn’t be going without pay increases without a new contract. Isom said that while “it didn’t seem right to withhold that” $8000 or $10,000 a year or more from mechanics and fleet service workers.

However “it took a lot of the pressure to really get something done immediately off.” The airline needs to address things in the contract to complete the merger: time off (sick policies, holidays, vacation); retirement (defined benefit plans on one side, 401(k) on the other); pay disparities; medical plan differences.

If they hadn’t given everyone raises on their own already, that would be a huge incentive to get a new contract done that solves all the issues needed to merger the work groups. However that’s not what they did,

You could say ‘hey there is a giant landslide of good stuff that’s coming as a result of negotiating.’ Unfortunately we’ve limited ourselves because the big pay increase has already been given…

Isom doesn’t think they’re close to a deal “that’s almost there.” He says they’re offering six weeks of vacation, but some want seven. They want a defined contribution plan that’s more expensive than what’s offered today – but not defined benefit. there are disagreements on outsourcing. He says they’re trying to get everyone “to Delta plus three.” (Once again comparing themselves to Delta.)

While we’re about six months away from completing the tech to combined flight attendants into a single work group, the merger may not be done even then — even though as Isom says “what has been put on the table is better than anything Delta or United have… I would sign United or Delta’s contracts, or lack of a contract Delta doesn’t have a contract, I would take their work rules and I would take United’s and I would sign it today” because what they’re offering costs more than either of those airlines.

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  1. The downside is there is a risk the employees feel they now do not need to work hard and loaf since they got a good raise.

  2. It’s so great to work in union land
    You no longer have to worry about whether a rainy day equals a vacation day or a sick day. It’s just a PTO day (Paid Time off for the uninitiated.)
    Downside is, hours of sitting around “look busy” time when you complete your work on time so as to not make your union brothers look bad.

  3. This is clearly is an implication of how pathetic management has become running the legacy carriers. Despite all their degrees and predictive formulas, one has to wonder would they have been sharper if they developed their experience “coming up from the factory floor;” mentored at every level by knowledgeable people..? A good hint would be to see how many books by Peter Drucker are in their library.

    In parallel, when the ex-CEO of Norfolk Southern, Wick Moorman, took over Amtrak (for what turned out to be less than a year), he was advised by a very knowledgeable transportation writer to inquire and listen to the crews operating the trains, as they typically understood the situation far better than the cardboard suits who ran Amtrak–in their isolated HQ.

    In the case of AA’s latest woes, people will naturally take the extra money offered up front with no strings; however, management is delusional to believe this buys them any respect, or willingness to have their requests accommodated. That only happens if earned–on a two way street.

  4. Incredibly stupid management at AA. Duh, giving unilateral pay concessions doesn’t help union negotiations. Dumb as nails.
    Just like giving managers including the CEO across the board bigger bonuses and compensation packages does not make them better managers.
    Who in the world would buy stock and invest in such cyclical businesses run by such CEOs.

  5. Wow the comments here are really something coming from people who are not very informed.
    Super Leisure man – the notion that somehow its only Union workers that “loaf around” is crazy go look around (unions are a small percentage of the labor force in the United States.
    Captain Obvious – “6 weeks vacation isn’t enough” another major Airlines has 7 weeks vacation and a pension and 401K match.
    Mike – AA giving unilateral pay concessions is “Dumb as nails” I actually think AA showed good faith because almost 6 years without agreeing to a new contract would cause lasting bitterness that from Mechanics that might never be overcome because of mistrust of management.
    All that said bad about AA I would say at least look at AA 950 airplanes, Delta 857 airplanes, and United Airlines 749 airplanes, compared to Southwest. 718 airplanes. AA, Delta, and United all have roughly – 10,000 plus mechanics each yet Southwest is at 2,400 can anyone say WOW!!! Southwest has 25% of what their competitors have. Since 1978 deregulation that President Carter signed which was pushed by Ted Kennedy started the process of virtual airlines and abillity of the Airlines to just push off agreeing to contracts with the employees and Presidents not allowing the airlines to strike. The management has no real incentive to settle a contract if the Unions are not allowed to strike (see President Clinton 2x against AA Unions) so I would say at least Parker at the “new’ AA gave a raise to the mechanics in a good faith gesture to reach an agreement.
    P.S. Southwest Airlines mechanics still don’t have an agreed to contract by the Union membership after more than 6 years. (note the 6 years were mostly under supposedly pro labor President Obama but no way was he going to allow them to strike either)

  6. As we approach the 5 year anniversary (yes, five years) and you realize that they are still operating as two airlines, you realized just how F’d up this company is.

    Even the govt gets stuff done in less than 5 years (sometimes)

  7. There is no news here. No doubt AA execs were well advised by their union relations people, consultants, and lawyers about the downside of offering pay raises outside of contract negotiations. Some plans must have been in place to deal with these negatives and the completely predictable reactions and demands the unions now assert. If not AA execs should be fired for “good cause” (little or no severance benefits), lawyers sued for malpractice, and maybe even shareholder suits against the company.

    Perhaps AA is relying on the cumbersome processes of the Railway Labor Act, which governs airline labor relations, and any goodwill the raises have garnered amongst employees to keep workers for striking if an impasse in bargaining is reached and all of the procedures of the RLA, including mediation and arbitration, have been exhausted.

  8. @chris man how much are your union dues? Do you mainly loaf between visiting the locals?

  9. 6666666666666666666 weeks vacation n they want 7 now..gotta love the union and government sectors

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