Bloomberg News

American, Pilots Speed Talks as Crew Shortage Adds Urgency

October 14, 2011

(Updates with bond analyst’s comment in 11th paragraph.)

Oct. 14 (Bloomberg) -- American Airlines and its pilots union are working to reach a contract agreement over the next several days, spurred by a manpower shortage that forced the carrier to cut flights and close a crew base.

Talks are set to run through the weekend at an undisclosed location away from American’s Fort Worth, Texas, headquarters, according to the Allied Pilots Association. The union’s board will convene tomorrow to provide guidance if an accord is near to end more than five years of negotiations.

Pilots are a bellwether group in industry bargaining, and a proposed contract may help American in its bid for new deals with flight attendants, mechanics and baggage handlers. American has said it needs new agreements to help parent AMR Corp. return to profit after annual losses since 2008.

“A new pilot deal would mark a healthy step in the right direction for a company desperately in need of good news,” Hunter Keay, an analyst at New York-based Wolfe Trahan & Co., said in a note today. “The mere signal of progress and change could provide a sense of optimism and momentum that carries over to other unions and, more importantly, to willing lenders.”

Keay, who rates AMR “underperform,” said he expects a tentative agreement before the company announces third-quarter results on Oct. 19. Analysts estimate that AMR will post its 14th loss in the past 16 quarters.

Third Try

The current round of pilot talks marks the third time in recent months that union and airline negotiators have met for a week’s worth of “intense” bargaining in hopes of securing an agreement.

“They are still at it,” Sam Mayer, an Allied Pilots Association spokesman, said today in an interview. “They are working hard. We are hopeful this final push will lead to an agreement that works for both sides.”

Missy Cousino, an American spokeswoman, said in an e-mail that “talks continue to be productive.”

AMR fell 0.7 percent to $2.94 at 4 p.m. in New York. The shares have tumbled 62 percent this year to lead declines in the Bloomberg U.S. Airlines Index.

American is seeking productivity enhancements that will help reduce industry-leading labor expenses at the third-largest U.S. airline, while its unions want to recoup part of the $1.6 billion in annual concessions made in 2003 to keep AMR out of bankruptcy.

‘Inordinately High’

“AMR’s inordinately high labor costs already are crushing it, and time and options are running out,” said Vicki Bryan, a senior bond analyst with Gimme Credit LLC. “Air travel is slowing, fares are falling and AMR is rapidly losing market share.”

Bryan, based in Houston, rates AMR’s debt as “underperform.”

Covering the immediate pilot shortage will require the airline to win union waivers of some contract provisions. American said yesterday that unusually large numbers of pilot retirements left staffing levels “critically short.”

APA President David Bates said in an Oct. 7 statement that the gap between the sides on pivotal unresolved contract issues was “substantial.” Since then, American has said it will cut seating capacity 3 percent this quarter, shut a San Francisco crew base for more than 300 pilots and retire as many as 11 jets next year because of the staffing shortfall.

Once American amends its pilot contract, the carrier will still need time to train replacements as crew members are prepared for moving up to bigger jets, said Robert Mann, president of consultant R.W. Mann & Co. in Port Washington, New York.

“A quick contract is not going to solve that problem,” said Mann, a former executive at American. “You could get some relief on flying, but couldn’t solve the training center problem. That is the weak link right now.”

--Editors: Ed Dufner, John Lear

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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