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Union rejects American Airlines contract offer

The Transport Workers Union, which represents mechanics and other ground workers, has rejected a two-year contract offer from American Airlines, squelching what could have been a rare victory for the airline on the labor front.

The contract would have included a 5 percent raise upon signing, and a 3.5 percent raise after one year. It also would have committed both sides to explore additional compensation tied to the company's performance.

It also would have added paid holidays, increased holiday pay and added sick and vacation time. And a new profit sharing plan would have paid 30 percent of net income to employees up to the first $250 million; 25 percent between $250 million and $500 million; and 20 percent of all profits more than $500 million.

Union officials representing fleet service workers were willing to accept the deal, but several other employee groups represented by the union rejected the proposal.

"The company is in the process of re-evaluating our current situation and is considering what future course of action will be appropriate," the airline said in a statement on its labor negotiations Internet site.

American has been negotiating with ground workers since last fall. The airline is also holding talks with pilots, and will begin contract discussions with flight attendants next month.

Employees are eager to restore wages and benefits that were lost to concessions five years ago. But airline executives are desperate to keep labor costs in check, particularly given the high price of jet fuel.

Although it posted a profit in 2007, most analysts expect American to lose money in 2008.