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.

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26 Responses to Scope: The Key to American’s Unsolvable Labor Problem

  1. andersoncd says:

    My immediate question is are there safety issues involved here with AA and the mechanics strike?

    I have an overseas flight coming up with AA and whenever I read about AA’s labor issues, as the flying public, I think safety first!

    • Chris says:

      Very unlikely. Mechanics take their jobs VERY seriously and would never endanger the flying public. What they will do, however, is engage in a slow down such that things that wouldn’t normally prevent a plane from flying are suddenly mission critical and the plane can’t leave without that item fixed. You’ll get to your destination ok – you may just be delayed substantially in the process or booked on a different flight.

      • Kilroy says:

        From what I’ve heard about airline labor work stoppages, exactly this. Mechanics in these situations seem to “work to the rules/book”, do things really slowly (better check everything even more than normal) refuse to do any (approved and safe) methods to get things done faster, and basically use anything and everything as an excuse to keep planes on the ground and inconvenience the airline and passengers.

    • CF says:

      anderson – I don’t have safety concerns. This is all just a normal negotiating tactic.

  2. Tim Dunn says:

    Very well written.

    I would add that it was problematic to choose to settle post-merger contracts with pilots and FAs but exclude other work groups. That strategy, even if it makes sense from an economic standpoint given the very different work rules involved, pits one labor group against another. In reality, many AA workers are sympathetic to the mechanic and ramp service personnel’s plight.

    I am not sure there is any general economic downturn coming or that it should be counted on. It is a given that customers will continue to leave AA as competitors take advantage of the chaos at AA – some of which may not be directly impacting customers but which the media is covering closely.

    Finally, weather has finally turned largely pleasant for most of the US and airline operations are running very well. AA’s on-time and cancellation rate has fallen dramatically and is not much different than UA’s. It is hard to argue that labor issues are impacting AA when one of their key competitors is posting very similar operational metrics for multiple days in a row.

  3. Boof02671 says:

    You still didn’t address the medical insurance issue, where the IAM side has vastly better insurance at a cheaper cost. AA wants to eliminate that, to extend that to all 30,000 Association members, it would cost AA $39 million.

    They also want to freeze the IAM side out of the IAMNPF and replace it with a 401k, it would cost AA over $300 million to exit the plan

    • CF says:

      Boof – Not true. I mentioned that the IAM was likely more interested in preserving benefits. But the reality is that if scope gets resolved, I’d expect the rest to fall into place.

  4. Angelo C says:

    And will remain unresolved until Robert Isom abandons his Nortwest (failed) Airlines mindset.
    His greed has no limit.

    • CJ says:

      Northwest busted the AMFA union there. Not sure if that is considered a failure or not but probably not what Isom has in mind

      • A says:

        The NWA union busting is taught in MBA programs across the nation. Opinions on what they did will surely vary but it’s now textbook on union busting.

  5. Angelo C says:

    And will remain unresolved until Robert Isom abandons his Northwest (failed) Airlines mindset.
    His greed has no limit.

  6. Fleet service says:

    Thanks for seeing fleet service as boring and a waste to talk about. Again it’s authors like you who make us feel like we’re useless.

  7. Andrew says:

    In what other industry are you guaranteed a “job for life?” That’s crazy – how is that possible??

    • Tommy says:

      In my opinion, the union could face a multi million damages award, like APA did in 1999 with their illegal job action and sick out in the next week or two. The union had three choices: Access the AA pilots or in this case the mechanics and fleet service workers to pay the damages to AA, which for the pilots was about $4,500 each. File for bankruptcy to avoid paying the damages or the union could settle for a contract concession to settle the damages award.

      If Judge McBryde issues a damages award large enough I believe the TWU-IAM would appeal the decision. If the unions loses the appeal, like APA did, then the unions would likely agree to settle the case and hopefully the company would agree to settle for the airline’s last offer and not something worse.

      • Tim Dunn says:

        Tommy
        given that the 4 labor groups have no respect for the unions representing them, it is doubtful that they would support a contract that includes any punitive charges – even if AA can prove the value of damage to the company they think their employees have done.

        A contract will have to be voted on by the rank and file.

        It is possible that the union could be unseated but that is a messy and lengthy process. And it ultimately won’t change the basic economics which is that Parker lobbied for labor’s support for the merger with US.

        Labor followed Parker and ditched AMR mgmt. and they now have a bloated workforce and warring labor relations.

        It is hard to believe there is any outcome that will leave even one party better off once the dust finally settles. The American-USAirways merger should have never happened and the wheels will continue to fall off over the next few years until there is ultimately some sort of “hard reset” that cuts costs and preserves whatever of American can be salvaged after competitors aggressively prey on AA’s markets and customers.

    • grichard says:

      Maybe I’m wrong, but I didn’t imagine that meant “You can’t be fired.” I assumed that it meant “You’re subject to usual stuff about firing, but we will never require you to move to a different location as a condition of your employment.”

      I dunno, maybe it’s tenure.

  8. Ben says:

    Doug has been bad for AA in many ways beyond this negotiation so if its THE ASSOCIATION that compels Wall St (or whoever else has the power) to force Doug out that’s far from the worst outcome.

  9. Poug Darker says:

    The language in the current TWU contract on scope was born out of bankruptcy court. Which AA demanded to keep the company alive. Now in time of profit AA still demands language to reduce the amount of work done by union represented employees. IAM quickly negotiated a non bankruptcy contract with small gains in efforts to help along the merger process. AAs offer is front loaded only to gain later. The mid contract pay raise is now on a 9 year vs 5 year top out and also gave the ability to cross into each others unions scope. AA is hiring off the street at the lowest step on the payscale in multipule cities to replace retiring employees on the highest paystep. I won’t get into holidays, VC, medical, pensions, sicktime, retire benefits, all sacrificed in bankruptcy when AA needed it.

  10. 700UW says:

    Isom was at NW when they broke AMFA.

  11. Christian says:

    If the union won’t be allowed to strike, aren’t they just massively hosed by the company?

    • CF says:

      Christian – There are other things they can do to try to impact the company, as we’ve seen with the alleged slowdown. But ultimately not being able to strike takes away a huge piece of leverage. The Railway Labor Act which governs airline labor contracts is just a really bad way to handle labor relations. It needs to change, but until it does, this problem goes on.

  12. As a member of the flying public, I too am concerned about the outsourcing of maintenance. Just where does it take place outside the US? Who besides the airline certifies and oversees these facilities?

  13. Patrick says:

    This kind of reminds me of the fight over pay rates vs. profit-sharing… I get that the 65% and 85% of dollars spent is a poor metric, but is it really worth all the angst? Only if AA really does envision future workforce reductions along the lines of what TWU’s forecasting. If AA plans to be at or near 65% and 85% in the future anyway, then it’s past time to just propose putting something like that into a new contract.

    • CF says:

      Patrick – Well, either way they have to change the way they calculate outsourcing for one group or another. Makes sense to stick with the IAM structure since that’s a better way to do it. The problem is that it leaves it open for interpretation on how many job losses that could result in on the other side. My guess is that the TWU math is different than the company math (though the company did not respond when I asked about that).

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