Vital Talks Ongoing Between Labor Unions, Airline Mgmt.

Major U.S. carriers, battered and bracing for a Middle East conflict, have stepped up efforts to reach cost-cutting deals with labor unions.

Progress reportedly has been made at American Airlines--which some predict could be next to file for bankruptcy--on management's proposal for $1.8 billion in annual labor cost savings.

In a research note today to investors, J.P. Morgan Securities analyst Jamie Baker ascribed a 25 percent bankruptcy risk to American parent AMR Corp. "For AMR, we believe it all comes down to labor," he said. "Given a choice between a negotiated package of United rates plus a few dollars or taking its chances in bankruptcy, we would assume labor chooses the former."

Bankrupt United Airlines, the second largest carrier, yesterday was presented a proposal from the Association of Flight Attendants that would cut flight attendant costs by $1 billion over six years. "Our proposal provides flight attendant cost savings that enable the airline to achieve a durable cost structure that is directly competitive with lower-cost carriers in terms of overall flight attendant costs," said AFA United Master Executive Council president Greg Davidowitch. He added that "reviving failed strategies," presumably referring to management's plan for a new low-cost subsidiary, should not be the top priority.

An earlier proposal from United management asked for much deeper concessions than the latest offer from AFA. United has two more weeks to finalize deals with labor unions before possibly considering a request to the bankruptcy court to void existing labor contracts.

At Northwest Airlines, the Air Line Pilots Association this week received a proposal from management, reportedly to pare wages back to pre-1996 levels. "Management's proposal seeks significant and dramatic concessionary changes in virtually all areas of the current NWA pilot contract, including pay rates, work rules, benefits, retirement and scope," according to the union's Web site. "As previously stated, it is management's contention that such changes would not be temporary concessions, but rather permanent changes necessary to adapt to what it claims are permanent changes in the airline industry."

The union has not responded formally to management's latest proposal.

At Delta Air Lines, management and ALPA will begin discussions in the coming weeks on the pilots' contract. "Management presented a picture wherein they believe it is now necessary to address pilot costs," the union said on its Web site.

Delta CEO Leo Mullin, in laying out a plan for industry recovery earlier this week, said, "Airlines must continue a program of cost reductions that outsizes any undertaken in its history, fundamentally restructuring the way we do business internally. Employee numbers have already been reduced and labor contracts are being reopened at most airlines."

Continental Airlines, meanwhile, carefully is watching events unfold. In the months ahead, it will engage its pilots union on contract negotiations. "What is the average?" asked CEO Gordon Bethune in a BTN interview this week. "That currently is being defined. We will wait to see what it is and then get on with it."