With all but one major carrier marching through bankruptcy at least once, and union strife reaching critical points at Delta, Northwest, Comair and Mesaba, major and regional carriers can take lessons from the labor experience of American (AMR). The airline created a new labor relations strategy that proved critical in avoiding bankruptcy.

The only carrier to restructure without using bankruptcy laws and abrogating labor contracts and pensions, American outlined its vastly improved labor-management relations during the recent Regional Airline Association (RAA) convention in Dallas. This "new paradigm" got an avid hearing at RAA -- as it should, considering the dire shape of labor relations throughout the industry.

Pressure to improve labor relations is increasing across the board, especially as Comair shares bankruptcy with its major partner Delta and Mesaba was denied permission to abrogate its labor agreements by the U.S. bankruptcy court in Minnesota. (RAN, May 22) While Comair was able to gain concessions from its Air Line Pilots Association and International Association of Machinist members, the International Brotherhood of Teamsters-represented flight attendants did not accept the carrier's proposal. According to a report by Ford & Harrison's Thomas Kassin and Kevin Kraham published by RAA's magazine Regional Horizons, the airline sought bankruptcy court permission to abrogate its flight attendant agreement. However, the court rejected the request, charging that Comair had not been bargaining in good faith with its flight attendants, a decision the two labor attorneys called "seriously flawed." The matter is now under reconsideration with the court, as is a similar decision by Mesaba's bankruptcy court.

The industry's major challenge, said Kassin and Kraham, is maintaining or lowering costs which is the key to winning code-sharing contracts with major carriers. Providing the best service is the name of the game, according to major regional players who serve more than one major partner. (RAN, May 22) Kassin and Kraham said that cost pressures will likely force an industry consolidation, ultimately creating new labor woes. They said part of the problem is the fact that union leaders at some carriers are refusing to recognize fundamental economic changes in the industry. Exacerbating an already tough situation are escalating fuel costs. Even so, it appears that labor and management can work together to achieve a healthy company, as illustrated by SkyWest's 30-year policy of incorporating labor in its management -- and, now, by the labor-management model established by American to avoid bankruptcy.

Jeff Brundage, senior vice president of human resources for American, said his airline was teetering on the brink of bankruptcy in 2001 when it realized that both unions and management didn't even know how to negotiate from the standpoint of common ground. Their mutual perspective was predicated on disagreeing.

"For 80 years, airlines and unions built an incredible infrastructure for disagreement," said Brundage, who began his aviation career as a pilot for Pocono and Atlantic Coast airlines and who later worked for the Air Line Pilots Association. "We really knew how not to get along. We recognized there was no structure in place to do anything but disagree. About the only thing we could agree on was the fact that scope clauses, job security and contracts aren't really worth much in bankruptcy. We have used the last four years to develop a structure for agreement. We still disagree and we still go to arbitration but we have replaced the old structure with something new."

Brundage said American spent 2001-2002 reducing costs to the tune of $2 billion in a year, something it felt was critical to employee buy in on any initiative that was needed to further reduce cost. "We told employees that we would come to them as a last resort," he said. "We also believed that if a company has made a pension committment we ought to live up to it. So, we said to the unions, if you will help us, we will help you and do everything we can to retain those committments. We knew we had to prove to employees we'd done everything we could to reduce costs without coming to them. Even with that, we were still headed toward a potential bankruptcy and we knew we had to change the labor paradigm to avoid it. We had nine contracts, 250 union negotiators and 125-130 management negotiators. Historically, labor relations was about getting concessions and dealing with each union separately -- even with different units of the same union, seperately. We decided to put them all together because our timeframe was so tight. This put every union on a level playing field."

Bringing the unions together, American made its business case, showing how it had already saved $2 billion in non-labor costs but still needed $1.8 billion in savings. The company priced out all aspects of a labor agreement and created a menu so unions can decide for themselves how they wanted the airline to restructure. "Some took wage cuts, some benefits cuts, others work conditions," said Brundage. "The unions were all different. However, the pilots [represented by the Allied Pilots Association (APA)] had the most at stake but they ratified the agreement. The TWU narrowly ratified but it went down to defeat with the flight attendants."

The cliff hangar story continued when the company filed with the SEC and unions said they wouldn't sign off on it. Congressmen were involved and American shortened the contract by a year and instituted an annual incentive and profit sharing plan. Meanwhile, Gerald Arpey took over as American's new CEO. At that point, the TWU and APA were on board but the flight attendants balked. Eventually, they, too, signed on and the next step was to implement the turnaround plan, which called for drastically lower costs to compete.

The company and unions created a national Joint Leadership Team (JLT) consisting of senior labor and management officials and designed to meet monthly to discuss marketing, maintenance, customer service, and route issues. "In short, [JLTs replaced] the old command and control structure with a business dialogue," said Brundage. "We provided the resources so the JLT could lead by example and it was so successful that city after city created their own JLTs, then sales wanted in as did the ramp and maintenance people. All this broke down the cultural barriers in the company."

Brundage indicated that while there are still bumps in the road, the company is plodding along JLT by JLT "because they think it is a better way to work." The company ultimately developed a joint business education committee allowing the company to communicate directly with workers, with union blessing, to teach them the economic side of the business. The effort took business issues and discussed them from both the management and union perspectives to develop a strategy on how to resolve them.

"We also did something unique," he said. "We elevated labor to become part of the decision-making process. The old way was to decide and then announce. Now we involve before deciding, discuss before implementing, share before announcing -- which is not that easy to do given the SEC implications. This created a momentum. We took third party work and brought it back in house."

The company also made each of its bases a profit center rather than a cost center. "We created a tactical performance standard to determine the key metrics -- what are the benchmarks, how do we perform versus the metrics and what is the potential for improvement," Brundage said. "We didn't tell them how to gain those improvements, just what the goal was. Together, we established what was best in class, setting that as the bar. All that data was funneled up to the task teams at the JLT level. They looked at revenue, customer service, productivity. This was not about individual contractual obligations but what the costs are and on that basis got together to determine how to get from a cost center to a profit center."

The result, he said, was expected savings and productivity enhancements in the neighborhood of $500 million. "We didn't give them a road map but they increased productivity so that the MD80 check went from 30 days to 23 and is now at 12 days, which equals three whole aircraft returned to revenue service for 365 days a year," he said. "What took 740 employes now takes 440 to complete. We now have 25 third-party customers including American Eagle. We are in-sourcing work from South America and returning aircraft to service within three to 20 days, versus what other MROs can do. In addition, they put the aircraft immediately back into service rather than having to complete more work themselves and then returning the aircraft to service. Eagle is doing the same thing."

Brundage said he sees the efforts of the last three years as the first auspicious steps of a very long journey. "This is a lot harder than the old way," he said. "Command and control was easier. We are now asking for a collaborative relationship." But it is paying dividends in both the short and long term.