American Pilots Change the Flight Plan
By Ted Reed 09/06/10 - 07:00 AM EDT

DALLAS (TheStreet) -- The wide gap between American(AMR) and its pilots union narrowed when Dave Bates, 55, was elected president of the Allied Pilots Association.

Bates, a 25-year American 777 captain, is part of a new breed of union leaders who realize that for pilots to win, airlines must win too. Based in Miami, Bates replaced Lloyd Hill, a union leader who seemed to prefer obstructionism over cooperation.

Bates took office in July along with along with allies Anthony Chapman and Scott Shankland, who were elected vice president and secretary-treasurer. The terms are for three years; the election signifies a change in tone for the union. "We are going to do things significantly differently going forward," Bates told TheStreet in an interview. "I am very much invested in this airline. All of our pilots are. We want to see the airline grow and succeed. We've signaled to management that we want an entirely different business relationship, and our overtures to management have been well received."

Last month, Bates met with CEO Gerard Arpey to get acquainted. "It was a meet-and-greet, so we could get to know each other and develop a relationship," he said. Now, the two men are starting to exchange e-mails.

Following the sharp decline in travel that followed the Sept. 11 terrorist attacks, most airline employees made concessions inside or outside of bankruptcy court. Typically, pilots made the biggest share. For the leaders who presided over this process -- seeking to ensure their airlines' survival or, in the case of American, to avoid bankruptcy -- the reward was to be voted out of office and replaced by leaders who railed against the concessions.

But those new leaders accomplished little. Now, they have been replaced by more moderate leaders on the theory that you catch more flies with honey than with vinegar.

Bates' ascension follows last year's election of Wendy Morse as chairman of the United(UAUA) chapter of the Air Line Pilots Association. She too replaced a predecessor who appeared to be more engaged in obstruction than in conciliation.

The model for this new breed is Lee Moak, the ex-Marine who leads Delta's(DAL) pilots. Moak has taken the approach that working with his employer can benefit his members. He is considered one of the most important labor leaders in the history of the airline industry because his leadership enabled the Delta/Northwest merger to be successful. That eased the path to the merger of Continental(CAL) and United, which is expected to close next month.*

Jay Pierce, who leads pilots at Continental, is a Moak admirer. "We both recognize that our airlines need to be profitable," said Pierce. And Bates has said that Moak "has coordinated with his management team to increase flying opportunities for Delta pilots."

Though he wants to avoid confrontation, Bates makes it clear the pilots need improvements in the concessionary contract they signed in 2003. By and large, pilots concerns are the same as they have long been throughout the industry, but they are exacerbated by the concessions. The four-year deal became amendable in September, 2006. A federal mediator joined the talks in May 2008. "The biggest point of contention in the contract is that our pilots' earning capability has dropped dramatically over the last 20 years," Bates said.

American pilots now work at 1993 pay rates -- but they fly more hours. "We have a long way to go to catch up," Bates said. "We are not going to get it all in one day."

American has said it has a $600 million labor cost disadvantage compared with other network carriers and that its pilots are among the industry's most highly compensated, with two defined benefit pension plans. Southwest(LUV) pays higher hourly rates, but American said its total pilot costs per block hour are 15% higher than Southwest's.

"I am a 777 captain," said Bates. "We create an enormous amount of revenue premium over Southwest captains -- yet our hourly rates are lower than their narrow-body rates."
American pilots are also concerned about scope, which limits the number of regional jets the airline can fly.

At American's Chicago hub, Bates points out that it's a lot of "trouble finding an American jet." The number of locally-based pilots has declined from 2,200 in the mid-1990s to about 1,100 today. As airlines reduce capacity, American's fleet has fallen from about 900 aircraft to 619 today. The contract limits American to forty-seven 70-seat jets, while the use of 50-seat jets is largely unlimited.

A solution, Bates said, might be for American to buy hundreds of 100- to 120-seat jets, eliminate its American Eagle subsidiary and take over the routes flown by 50-seaters. American could then hire the Eagle pilots. The per-seat cost would decline and passengers would be happier with the bigger planes, but not so happy with the reduced frequencies. "I'm hoping that's part of the plan going forward, although I haven't yet broached it with management," Bates said.

Another issue is scheduling practices that keep 36% of American pilots on reserve. "The system is miserable," Bates said. "Guys live practically like gypsies, trying to keep their kids in school. I get hardship stories almost daily from our pilots."

Over the past three years, American sought scheduling changes, but the previous APA administration refused to discuss the issue.
-- Written by Ted Reed in Charlotte, N.C.