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US airline pilots flex muscles: Aer Lingus-United JV; Continental and pattern bargaining

19-Mar-2010

Airline pilots are flexing their muscles at United while Continental posed a cut-to-the-chase offer to its pilots at the same time reaching a tentative agreement with dispatchers.

Outsourcing protests

United pilots were joined by pilots from five other unions to protest the Aer Lingus service between United’s hub at Washington Dulles International Airport and Madrid, the first of its kind for US-European Union service, since it involves a carrier not based in either country.

Pilots were protesting the outsourcing through international alliances, something they want Congress to act on "to save US jobs".

Meanwhile, Continental not only reached a tentative agreement with dispatchers represented by Transport Workers Union, it hoped to short circuit long-term negotiations with pilots by offering them the same Delta gave its pilots plus USD1. The four-year dispatcher’s agreement will be the subject of a ratification vote in the new few weeks. 

Continental offers Delta+$1

In an unusual move, the company, which has been negotiating with pilots since the summer of 2007 on a contract that expired in 2008, offers the group the richer, Delta-deal-plus-USD1 which now tops the industry for what it offers pilots. It said it could afford the deal and wants to move forward quickly to lock in a deal.

Pilots, too, want to lock in a new deal given the fact that the longer negotiations continue the longer they operate under a 2005 contract which is loaded with concessions – to the tune of an estimated USD213 million annually – that helped the carrier avoid bankruptcy.

Last week, Continental Chair Jeff Smizek said two issues are important to resolve from the company’s perspective – gaining scope relief limiting regional operations to 50-seater regional aircraft, and the ability to share revenue from the Star Alliance joint venture. The Delta agreement allows both larger regional jets and revenue sharing in which Continental, United, Lufthansa and Air Canada to jointly set schedules and prices as well as pool revenue. Continental cannot participate since its current pilot contract prohibits it. The deal could unravel since there is a Department of Transportation deadline for early next year for putting the JV into operation.

The pilot group, represented by the Air Line Pilots Association, said the latest offer was in response to its initial economic proposal that was delivered in December of last year. “The proposal consists of the current Delta Pilot contract modified with a $1/hour increase in pay rates,” said Continental MEC Communications Committee Chair Captain Brian Bagenski, in a statement. He noted that MEC Chair Jay Pierce was now at the Morocco meeting of the International Federation of Airline Pilots’ Associations.

“It also calls for the removal of the Board of Directors seat that seat that the Delta pilots use to protect their pilots’ careers, as well as other minor modifications to match our fleet types, bases, etc,” he added. “While a proposal of this nature was not unexpected, it will take some time for us to fully un-bundle and analyze this offer,” he continued. “We will not rush the process of negotiating a far reaching contract that runs over 400 pages and has an enormous impact on the lives of our pilots.”

“The offering includes the Delta pension and benefits section as well,” said MIT International Center for Air Transportation Research Engineer Bill Swelbar in his most recent blog. “This is important – very important – because benefit costs go into the calculation of the cost of an agreement.  We are finally at the point where we talk about the all-in cost – not just hourly rates of pay.”

Swelbar noted disapprovingly that this is quintessential pattern bargaining. “I hate pattern bargaining,” he said. “I think it is counter-productive as no one airline is the same. But, this pattern is a little different than pattern bargaining of the past – and deserves a closer look…. each and every collective bargaining agreement has sections that work in tandem with another section.  As one section was made more complex, other sections of the agreement were impacted.   What is interesting about Continental’s offer is the idea of a single collective bargaining agreement – one where the inter-dependencies are understood and identified – avoids many of the pitfalls of traditional pattern bargaining.  What the company points out in its submission letter is the Delta PWA ‘is a post-merger, post-concessionary pilot agreement at a legacy carrier that is also the world's largest airline, it will likely set the pilot contract standard for years to come.’”

This pattern-bargaining-with-a-twist could help achieve goals outlined in United’s fourth quarter conference call, in which management said it would be “managing for the bottom of the cycle” in the future.

United Chair Glenn Tilton fired a shot across the unions’ bow:“We have, what we believe to be flexibility that has been hard earned,” he said at the time. “We wanted to convey that, given the challenges of this industry, this management team and this board, have a fiduciary responsibility to take full advantage of every flexibility we have in our tool kits and when I said no sacred cows that’s exactly what we’re going to do. The industry has made expedient decisions, when it was seemingly affordable or comfortable to do so, and regretted them thereafter. So we understand the benefit of flexibilities that we might have to deploy competitively. We’re going to take full advantage of it.”

The good news is, said Swelbar, Delta pilots went into negotiations accepting the the structural changes the industry has undergone in the last decade and its pilot agreement needs “to embrace that change,” he said. “For example, because Delta serves many small and medium-sized markets in the U.S., there are few limits on the use of regional jets 76 seats and smaller.” That is good news for Continental which limits regional jets to 50 seats.  

There is a lot to like about the Continental approach, said Swelbar. “What I like about this offer from Continental is it does some tearing down of the cancerous practice in the airline industry of pattern bargaining,” he said. “It challenges both sides to come to terms in a more expedient manner than the current construct produces. It embraces Delta’s long-time approach to pay commensurately well in return for operational flexibility and productivity. Most of why I like the approach, is that it is different.  As I say...the old way just does not work.”


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