American Airlines pilots approved a new five-year contract that included 23 percent pay raises but did not have a profit-sharing plan.
With a 94 percent turnout, the contract passed 66 percent to 34 percent, the Allied Pilots Association said.
The contract, which will cover pilots at both American and US Airways, includes immediate pay raises that are retroactive to December and annual increases of 3 percent starting in January through 2019.
“Today’s results provide immediate and significant pay increases to our pilots, and represent another step forward in our integration,” said American president Scott Kirby in a statement. “We are especially pleased that American is in a position to support pay increases that recognize the contributions of our pilots this early in our integration.”
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By approving the contract, the pilots and American will avoid arbitration where a contract would have been awarded that was worth $600 million less annually than the contract that was approved on Friday.
“The pilots made a business decision,” said APA president Keith Wilson. “They focused on consolidating the gains this [contract] gives them and we’ll move forward on the path to get more improvements to be in line with the industry.”
No profit sharing
Although the contract gives American pilots the highest pay rates in the industry, they will still trail Delta Air Lines pilots in total compensation since Delta has a profit-sharing plan in place. The new American contract does not have a profit-sharing plan.
APA president Keith Wilson said pilots are going to see their colleagues at other airlines getting large bonus payments from profit sharing plans in 2015 while American pilots will not.
“We understand that membership is looking at this near term as the industry is doing well,” Wilson said. “We want to participate in that because for so long we’ve been always the ones that have sacrificed the most, all the work groups have, when the airlines didn’t do well.”
Earlier this week, American announced record profits for its fourth quarter and earned $2.8 billion in 2014. American chief executive Doug Parker has said previously he believes employees would rather have permanent pay increases instead of profit-sharing plans which may or may not pay out.
The APA had negotiated a profit-sharing plan in previous contracts, but it paid out only once as the airline struggled to make money after 2001. Union leaders negotiated away profit-sharing for a 2.5 percent wage increase in 2013 based on projections that then-US Airways Chief Executive Parker and his management team made for the merged company.
Wolfe Research analyst Hunter Keay said since American does not have to pay profit-sharing, it will provide a $1.5 billion earnings advantage for American over Delta and a $600 million advantage over United Air Lines.
“We believe this is as permanent and structural of an advantage an investor could ask for with regard to airline labor,” Keay wrote in a research note to investors on Friday. “[American] can also now do things like buy back a ton of stock and pay dividends without fear of having cash deployment used against them at the negotiating table.”
Investors, however, did not react positively to the news of the pilot contract ratification as shares of American [ticker: AAL] dropped 6 percent to close at $49.08 on Friday. However, all airline stocks declined on Friday after a week of quarterly earnings announcements.
Some pilots vote no
According to the certified voting results, the Dallas/Fort Worth base vote total was 66.32 percent in favor and 33.68 percent against with 2,485 pilots voting. The former US Airways hubs in Charlotte and Philadelphia voted in favor of the contract along similar percentages and the Phoenix hub overwhelming approved the contract by 91 percent.
Only the pilots base in Miami voted against the contract with 993, or 54.62 percent, rejecting the contract while 825 pilots, or 45.38 percent voted in favor.
Union leaders had hoped to improve work rules in the new contract, including changing how pilots are compensated for layovers. Wilson said pilots are concerned with unnecessarily long layovers during trips where they are away from home for extended periods of time but not getting paid for it. However, management rejected the union’s proposal to address the issue in the new contract.
The next priority for the APA is coming up with a seniority integration list. An arbitration panel will hear arguments from former American, former US Airways and former America West pilots later this spring and then will likely determine a seniority process. That is expected by late this year or early next year.
“Hopefully, this time next year we are one airline similar to Delta and United are now and we’ll move forward,” Wilson said.
Andrea Ahles, 817-390-7631