FEBRUARY 13, 1997
At midnight Friday, the pilots for American Airlines will go on strike unless their union and the airline can negotiate a new contract. American's president said the company would go bankrupt within 90 days if the strike starts and pilots have said they have been without a contract for four years. Elizabeth Farnsworth leads a discussion about the strike, with Julius Maldutis, of Salomon Brothers, and Joseph Blasi, professor at Rutgers University.
BETTY ANN BOWSER: American Airlines' pilots are seeking a new four-year contract that would pay them more money. Currently, their average salary is $120,000, the highest in the industry. But there are also two other issues on the table. The pilots union wants American to give its members discounted stock options, and they want the right to fly new commuter planes the company expects to buy in the near future. Currently, American's commuter airline, American Eagle, is flown by pilots from a different union with dramatically lower salaries, around $35,000 a year. The union and American's management reached a tentative agreement last year, but the rank and file pilots rejected it. And the company's president told Congress today the pilots are being unreasonable.
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Allied Pilots Association, the union representing American Airline pilots
ROBERT CRANDALL, Chairman, American Airlines: We have only two choices at this moment. We can either cave in and give the pilots union exactly what it wants, or we can take a strike. A strike in 90 days would destroy the company.
BETTY ANN BOWSER: American Airlines carries about 200,000 passengers every day, making it the country's largest domestic carrier. This afternoon the union president said he will put one more comprehensive proposal on the table later today, but he thinks a strike is likely.
JIM SOVICH, President, Allied Pilots Association: Let me make it as plain as I can. Our pilots don't want to strike. Our pilots will strike, and in the absence of a settlement at midnight tomorrow night, our pilots will be on strike.
ELIZABETH FARNSWORTH: President Clinton could under federal law intervene to forestall the strike, but at his news conference this afternoon he chose only to encourage the two parties to come to an agreement. Now two perspectives on what's at stake in the pending strike. Julius Maldutis watches the airline industry as a managing director at the New York investment firm Salomon Brothers. Joseph Blasi is professor of Management and Labor Relations at Rutgers. In 1987, he co-authored a Labor Department-sponsored analysis of the Eastern Airlines settlement. Thank you both for being with us. Joseph Blasi, do you think that this strike will settle before the deadline tomorrow night?
JOSEPH BLASI, Rutgers School of Management and Labor Relations: (New Brunswick, NJ) I don't think this strike will settle. I believe this is really more about a war of wills between the company and the union, and especially I think Mr. Crandall has drawn a line in the sand basically saying if you don't give in to my demands, I don't really want to have an airline with you.
ELIZABETH FARNSWORTH: And Mr. Maldutis, do you think it'll settle?
JULIUS MALDUTIS, Salomon Brothers: (New York) I am hopeful that it'll settle, that cooler heads will prevail. I know that some of the rank and file members who rejected the contract, the tentative agreement, that is, are quite concerned that this airline will go on strike because today no airline can sustain a strike.
ELIZABETH FARNSWORTH: Mr. Maldutis, what are the main sticking points here? What has to be resolved before tomorrow night?
JULIUS MALDUTIS: Well, I think not only the issue of wages but also, as it was pointed out, the issue of the regional jets, which the company would like to fly. The union objects to this, so those are the two or three major sticking points.
ELIZABETH FARNSWORTH: Mr. Blasi, do you have anything to add to that? I know the company's buying some new smaller jets for those American Eagle flights that used to fly or are still flying turbo props.
JOSEPH BLASI: Well, I think it's not just the question of permission to fly the jets. The pilots seem to view the flying of the regional jets by other pilots who have lower pay and lower benefits as essentially a way to out-contract their work and shrink the airline from under their feet. I also think there's a question of how many stock options the pilots want to get for keeping their pay demands low. But I, like Mr. Maldutis, want to say that I hope this is settled. This will really be a very destructive thing if it goes into a strike.
ELIZABETH FARNSWORTH: All right. We're going to get into how destructive in a minute. You said you think this is a battle of wills. What do you mean?
JOSEPH BLASI: I think that this is one of the airlines, unlike United, which has tried to come to a social contract between labor and management, this is the one of the airlines where labor and management have not gotten along for a very long time. There's a lot of bad feelings on both sides. There's bad memories on the part of the union in terms of the "B" scale, the lower pay scale, which the company and the union accepted a number of years ago, and Mr. Crandall has not been interested in the kind of more cooperative relationship with employee stock ownership and employees having rights on the board of directors and such that you have at United Airlines. It must also be added that the union hasn't really been excited about a United Airlines type of solution.
Essentially, I think that both sides really have asked that the other side completely accept their point of view, and they've had such a bad relationship it's been hard to get beyond being painted into those two corners.
ELIZABETH FARNSWORTH: And, Mr. Maldutis, what's the economic background here? The airline has been very, very profitable in recent years, isn't that right, and the pilots don't think they're sharing in that?
JULIUS MALDUTIS: Well, actually the airline--and you have to be very careful when you analyze the numbers because AMR Corporation consists of three components--the airline, the computer reservation system called SAVER, and AMR Services--if you just look at the airline alone, its after-tax profits were only $628 million last year. If you look at the history, there are only two years in the last seven years that the airline was profitable. Now, the industry was racked with massive losses from 1990 through 1993. The industry has not even come back to an acceptable level of profitability. One very important fact, airline stocks today sell at eight times roughly projected 1997 earnings. The market as a whole is selling at eighteen to nineteen times.
The financial markets' view the airline industry as an unacceptable investment because it is unable to produce an acceptable level of profitability. I think that there is a great danger--and this concerns me immensely--that if there is a strike, this is going to be a defining moment in the history of American Airlines, and it could go very well the way of Eastern and Braniff and other carriers, where labor was not able to come to an agreement with management. I, for one, am amazed that the pilots refuse to arbitrate. The mechanism is there. Arbitration can produce an acceptable agreement that both parties can live. They refuse arbitration. I am hopeful that the President intervenes and we avoid a strike.
ELIZABETH FARNSWORTH: All right. Let's talk about that for a minute. Why do you want the President to intervene, just because you think that's the only way to avoid a strike?
JULIUS MALDUTIS: I think as the professor points out the positions have hardened. I think we are seeing a great deal of rhetoric. I am hopeful that we do have an agreement that's negotiated. I think it's going to come at the 11th hour, but in the event that there is a strike, I think the President's going to have to step in.
ELIZABETH FARNSWORTH: And, Mr. Blasi, what are his options? He can either do--he can ask for or urge binding arbitration, or something a little more serious, right?
JOSEPH BLASI: The President has a number of options. First of all, he could simply jawbone. He could pressure the parties to get together for an informal talk. Secondly, he could pressure them into binding arbitration, as he did several years ago with the American Airlines flight attendants strike. Thirdly, the head of the National Mediation Board can ask the President to create a presidential emergency board which would then immediately call a 60-day period in which there couldn't legally be a strike. And that magic request would essentially stop a strike even before it started, or after it started. But I want to quibble a bit with Mr. Maldutis because I don't really think this is about economic issues mainly. I think it's about labor and management finding a way in this airline to agree on a joint strategy of the airline. And the question of arbitration, I think if you're trying to build a cooperative relationship, you don't go to a third person necessarily to build it for you.
I really think that while there are some unreasonable demands on the part of the pilots and maybe some extreme demands on the part of the pilots, that we have to remember that the head of American, Mr. Crandall, has done something which I feel is really quite unprecedented in American labor relations, basically saying I don't want to have a company unless you give into my point of view. I don't think that that kind of aggressive attitude is constructive for what needs to be building a cooperative relationship.
ELIZABETH FARNSWORTH: And, Mr. Blasi, do you think the President should intervene?
JOSEPH BLASI: I think the President should do some jawboning, but I think that if he does direct intervention right now, he might, in fact, prevent both parties from building this relationship. But in terms of intervening on the point of jawboning, on pressure, perhaps inviting people into the White House so they can cool down the high temperature, there's something to be said about the weight of the President's office. What I would like to see, however, is for the parties to actively start talking to each other for both parties, and we really haven't seen that today. What we've seen today is lots of proposals. In fact, I heard a news report of a very big concession by the pilots, with the company saying, no, I want to see good faith bargaining on both parts. I think both parties have some extremist positions that have to be trimmed a bit.
ELIZABETH FARNSWORTH: Mr. Maldutis, if there is a strike, what is the effect on the airline and the economy, the U.S. economy?
JULIUS MALDUTIS: If you look at the financial figures that were provided by the pilots union to the financial analysts last week, they clearly indicated--and I agree with the figures--that by tomorrow, American Airlines will have suffered almost $180 million of lost revenues. Now the real damage starts if there is a strike next week. Travelers are making alternate trave plans. You're going to see a vast number of communities lose essential air service. It's going to have a tremendous impact on the hotel industry, tourism industry. We are not talking about a carrier that's a small carrier by U.S. standards. This is the largest or second largest, depending how you measure, airline in the United States and, in fact, in the world. So it's going to have a devastating impact, in my judgment, on a vast number of industries and companies.
ELIZABETH FARNSWORTH: Mr. Blasi, the effect on the airline, the pilots and the economy?
JOSEPH BLASI: The effect on the economy I think will be very, very bad. I think a lot of people, a lot of citizens, will be angry. I think after a strike starts certainly the President will come under enormous pressure. The effect on the airline I think after about a week or two of a strike, this will bite very seriously, and I think it will cause further deterioration in the relationship. I worry that if there's a strike that both parties will have a very hard time coming to any agreement. I think it's important that people realize that neither the President nor the National Mediation Board can force both parties to agree. If these parties continue their emotional war, they could just fritter away the company. The only way the government can force the parties to agree is if the President--a presidential mediation board came up with a recommendation, both parties rejected it, and then Congress, through an act of law, imposed it on them both. But a lot of blood could be spilled, figuratively speaking, before that comes to pass.
ELIZABETH FARNSWORTH: And, Mr. Blasi--oh, go ahead, Mr. Maldutis.
JULIUS MALDUTIS: Prof. Blasi, then given that, what you have outlined, and I agree with you, why not arbitrate? Let's arbitrate the issue. We all agree that there is a great deal of hard feelings that has arisen here. Let's arbitrate, because the end result is going to be a disaster. And I think this is going to be a defining moment for this company. This company is either going to grow, or it will fade away from the aviation scene. I think that that is the real alternative that everyone, including organized labor, has to face.
ELIZABETH FARNSWORTH: Mr. Blasi.
JOSEPH BLASI: I want to comment on the arbitration issue, if I may.
ELIZABETH FARNSWORTH: Yes, please do.
JOSEPH BLASI: I mean, I hear Mr. Maldutis in terms of pushing for arbitration, basically repeating Mr. Crandall's line. I want to stress again, I think the problem here is that both parties have to build a voluntary relationship that works. The effect of this on the rest of the airline industry is that USAir has to go through a concessionary restructuring agreement like United did to get that company moving. Continental Airline pilots are going to enter another situation. We can't resolve all of the problems in our airline industry by having some marriage counselor come in and impose something on the parties.
JULIUS MALDUTIS: We don't have the time.
ELIZABETH FARNSWORTH: Okay. That's all the time we have for this too. Thank you both very much.
JULIUS MALDUTIS: Thank you.
JOSEPH BLASI: Thank you.
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