Scope: The Key to American’s Unsolvable Labor Problem

I’ve been getting deep into the weeds looking at American’s fight with its mechanics and fleet service workers recently. Many years after the merger, there is still no joint contract, and prospects are grim. While I looked broadly at the issues in June, today I’m going to focus in on what seems to be the biggest sticking point: scope. There doesn’t appear to be an easy way to solve this problem, and both sides are digging in for a long fight in which everyone is likely to lose.

“Scope” is simply the term used to describe the work that the unions’ employees handle. It also defines what work can be done by those outside the union. Bringing together two workgroups in a merger is always hard, because it requires harmonizing those scope rules, among other things. However, merging the two groups representing the mechanics and fleet service agents has been particularly challenging for a few reasons.

To avoid putting you to sleep, I’m going to highlight just one part of the represented groups here. I’m focusing on the jet mechanics that handle both base maintenance (in the hangar outside the operational environment) and line maintenance (in between flights or overnight in the operational environment). That means I’m leaving out facilities maintenance, ground service equipment maintenance, and fleet service (ramp agents). This is not to pick favorites, but it’s just to illustrate the point more clearly.

What They Have Now and What American Proposes

To understand the issues here, we first have look at what’s in the current agreements.

The IAM represents the legacy US Airways mechanics. Their contract says the following:

• IAM mechanics must perform 50 percent or more of billable hours of base maintenance for the company.
• There is a minimum headcount of base mechanics of 675.
• For line maintenance, IAM employees must handle the work at Boston, Charlotte, Las Vegas, Los Angeles, New York/LaGuardia, Philadelphia, Phoenix, and Washington/National. In addition, seven other stations must be handled by the IAM but the company can determine which ones those are. Update: To clarify, all line work has to be done at those stations. No line maintenance can be outsourced.

The TWU represents the legacy American mechanics. Their contract is structured very differently (and strangely):

• TWU mechanics must handle the work that equates to at least 65 percent of dollars spent on base maintenance. Update: That can be all base maintenance if they want to allocate it that way.
• TWU mechanics must handle the work that equates to at least 85 percent of dollars spent on line maintenance. Update: That can range between 85 and 100 depending upon how much base maintenance they outsource. The total has to be 65 percent.

Those are two very different ways of measuring how much work can be sent elsewhere. I think everyone would agree that the “dollars” metric is a really bad way to structure a contract. The work outsourced to foreign countries is obviously a whole lot cheaper than the work done in the US. So the percentage of actual work that is outsourced by people or hours will be a lot higher than 35 percent. This gives incentive to the company to seek out ever-cheaper outsourcing options as a way to shift more work elsewhere. Even more perversely, any raise given to the union members will actually increase the amount of outsourcing allowed.

Fortunately, the proposal coming from American to the joint group is structured more like the IAM agreement. Here’s what American is pitching:

• TWU/IAM mechanics must perform 50 percent or more of billable hours of base maintenance for the company.
• For line maintenance, TWU/IAM employees must handle the work at Boston, Charlotte, Chicago/O’Hare, Dallas/Fort Worth, Los Angeles, New York/JFK, New York/LaGuardia, Miami, Philadelphia, Phoenix, San Francisco, St Louis, and Washington/National. In addition, thirteen other stations must be handled by the TWU/IAM but the company can determine which ones those are.
• No more than 12 percent of line maintenance hours can be done outside the US.
• Every mechanic working at the time of contract signing is guaranteed a job for life at the station where he/she works (as long as it doesn’t close, and there is a standard force majeure clause as well).

As you can see, American basically took the IAM scope and added in additional line maintenance stations to account for the legacy American operation. (FYI, from what I understand, line maintenance work at 29 stations is currently in-sourced, so this guarantee is slightly less than what happens today.)

More importantly, everyone who has a job is guaranteed to keep it, or at least keep a job in the same “classification.” That doesn’t sound bad, right?

A Four-Way Fight

The real problem is we have at least four different divisions that want different things as I see it. (None of this is from official statements, mind you. So keep that in mind. This is my opinion.)

How do I get to four groups? I split labor into three. Remember, the TWU and IAM will both continue to represent their own groups going forward. They have just come together as “The Association” to jointly negotiate a contract. Just because they are negotiating together doesn’t mean they want the same things.

I assume that the TWU cares more about protecting jobs because it’s the one that’s going to see the biggest changes in the scope clause. This shift from measuring dollars to hours and the numbers attached to it means the TWU has some complex math to do. And their math — I do not know specifics of how they get there — currently suggests that 2,200 base mechanic positions and 700 line mechanic positions could disappear over time. That’s around a quarter of the jobs that exist today, I believe. Those are probably doomsday numbers and losses wouldn’t be that high in reality. But the union thinks the math could allow it to get that high based on the proposal, then that’s going to be a huge problem. Keeping those dues-paying numbers up is the lifeblood of a union.

The IAM probably cares less about that since it is already basically operating under this scope clause. Of course it wants to keep jobs, but it may be more concerned about maintaining the richer benefits in the current contract which are more at risk.

Then there are the employees themselves. They are guaranteed jobs, so there is likely more interest on the front line to agree to a deal like this since it’s an issue for future employees. (This is how b-scales came to be back in the day.) But I’ll take a leap and guess that the front line is less motivated to fight union leadership to be able to actually vote on a contract, because American made the huge mistake of giving that big mid-contract pay raise a couple years ago. With potential wage gain in a new contract lower than it would have been without that raise, members are going to be more content letting leadership fight it out.

Lastly, we have the company which wants to find a way to deal with its long-term over-staffing problem. It is fine giving the concession that it will guarantee all jobs now, but it has to know that through retirement and attrition, it’s going to be able to settle at a number that’s below where it is today.

Shades of the Summer of 2000

If you think this feels like shades of the summer of 2000 at United, you’re not wrong. In the summer of 2000, United’s pilots slowed the airline down to put pressure on management to get a long-overdue contract done. The airline had experienced several years of large profits as the economy expanded rapidly during the dot com boom. There was talk about a new era where airlines wouldn’t lose money the way they did before. Captain Rick Dubinsky, the pilot leader, summed up his strategy this way:

We don’t want to kill the golden goose. We just want to choke it by the neck until it gives us every last egg.

After a long and painful summer filled with massive delays and cancellations that pushed customers away, United’s management gave in. The pilots strangled that goose until they got every last egg, but there was collateral damage. Those pilot hands weren’t gentle. That goose was oxygen-starved and weak. Once the economy turned down in 2001 (made worse after 9/11), the goose was put on life support. The pilots had to give all those eggs back — and more — just to save it.

Today feels similar. We’re getting to what’s likely to be the tail end of a long economic boom. Airlines are making a lot of money, and American CEO Doug Parker has made another big mistake by claiming the airline will never lose money again. The pilots and flight attendants agreed upon a post-merger contract, so they aren’t the focus right now. But they are champing at the bit to get their piece of the pie in the not-too-distant future. The mechanics are the ones who are in position to start exerting pressure on the airline through a slowdown to get what they want during this long summer.

What Will Get Things Moving

Will management cave at the end? It shouldn’t. That was a mistake when United did that in 2000. If United was going to cave, it should have done so before seeing massive revenue and operational degradation during that terrible summer. But if American’s management does try to wait it out, then the unions will do the same. The only thing that can really change this is shifting circumstances… and that takes time.

Management and The Association have already gone through National Mediation Board (NMB) mediation without luck in solving the big issues. Just this month, The Association accused management of making the NMB suspend further negotiations. (I don’t believe that accusation is true.) Even if negotiations continue, I don’t think they’ll have the desired effect today. There really isn’t much that will push either side to capitulate right now.

Instead, it’ll feel like the movie Groundhog Day. The unions will make a lot of noise, snipe at the company, and try to gain sympathy in their fight to get a better contract than what American has offered. After all, why settle now when times are good? But American is so big that the unions won’t ever be allowed to strike. They’ll just keep rattling those sabers and possibly slow the airline down on occasion. Meanwhile, the company seems pretty content with its proposal, but it’s not nearly as vocal in the public eye about these things, as you’d expect. The longer this goes on, the more adept the company will become at limiting the impact of any slowdown.

But what happens in the next couple years when the economy does turn down? It has to happen at some point. Doug’s original plan about never losing money again is already off track. He indicated American should make $3 billion in a bad year, $5 billion in a decent year, and $7 billion in a good year. In 2018 — a year that should have been a good year — American only had a pre-tax profit of $2.8 billion excluding special items. This year won’t be much better.

When that pendulum swings back the other way, then maybe the tone will change. That deal that includes no job losses (but potential position losses after people leave) might sound a whole lot sweeter. Then again, that might not still be on the table if American is hemorrhaging in a recession. Besides, if it goes that long without an agreement, the relationship might be so toxic between union leadership and management that no deal could happen without a change at the top on one or both sides. It wouldn’t surprise me if it came to that.

Update 8/5: Incorrect details about the two existing contracts have been updated above.