AA Inks Deal With Pilots

<H1> AA Inks Deal With Pilots</H1>By Jay Campbell

<I>Forth Worth, Texas </I>- As details on the new American Airlines pilots contract emerged last week, analysts agreed that while it will not position the carrier with the competitive cost structure it had hoped for, the airline will nonetheless be better off.

Reports indicate that the deal-appropriately struck on Labor Day-includes a moderate pay raise, first-ever stock options and enhanced pension plans. In exchange, the carrier would be allowed to operate the medium-haul Canadair Regional Jet through American Eagle and would require increased productivity from the pilots. The agreement is good through August 2000.

American stated only that negotiations had been concluded and that details of the new accord could not be confirmed pending ratification by the Airline Pilots Association board. The APA board is scheduled to meet this week to consider the deal.

"It's not a great deal for American because it didn't provide the savings they sought, but it is probably the best deal they could reasonably expect given their record profitability," said Paine Webber analyst Sam Buttrick.

Goldman Sachs analyst Glenn Engel said the deal "sounds like a cost disadvantage, but it will at least keep costs from rising as the other carriers begin to have wage snapbacks."

The agreement does not match the cost concessions gained at Delta through the creation of Delta Express (<I>BTN</I>, Aug. 19) or, the ones made at United through employee ownership and Shuttle by United. Speculation that American might create a low-cost unit has been squashed.

Analysts believe the agreement does not significantly reduce American's cost per available seat mile-second only to USAir among majors-but they did acknowledge that the carrier continues to enjoy a revenue premium because it attracts higher-paying business travelers.

Cost reductions or not, the most important result of the agreement could be that it will free the carrier to expand. AMR chairman Robert Crandall stated recently that the pilot talks were holding the airline back and that no aircraft would be ordered until a deal was struck.

Analysts said the airline might soon place an order for widebody aircraft to shore up its international operations, in addition to an order for some Canadair Regional jets. For the most part though, the expectation is that American, like the rest of the domestic industry, will continue to hushkit its older aircraft rather than place any large orders.

"American has been the most disciplined of the majors in curtailing capacity growth," Buttrick said. "With this agreement, we expect the carrier to resume modest growth in the 2 to 2.5 percent range in 1998."

AA president Donald Carty is receiving much of the credit for ending the dispute, which dragged on for two years and culminated in 18 days of federally mediated talks in Washington.

"At least it's over," said one airline analyst who asked not to be named. "I think most people thought that American would either give up a lot more, or they would take a strike and lose hundreds of millions of dollars. Nobody thought they would get a good deal.