heavy weather at american

Business Week
Heavy Weather at American
Jan.27 1997
pg 32

"Heavy Weather at American"
There is a big shake up at American Airlines. The pilots want more money but
management has already spent it. Another strike you say. Yip, looks like it. The chief
executive of American Airlines was stunned when on January 8, by an overwhelming
vote, pilots rejected a tentative contract. Pilots then got a message from the company
president saying "For the first time in many years, we fear for the future of our company."
The reason that this strike could spell disaster for one of the leading airlines in the
world is the rather large order of new aircraft American ordered from Boeing. American
says that having to pay higher pilot salaries and buy new aircraft makes it an uneconomical
investment, in other words they can not do both and still stay in business. A strike could
even threaten a purposed alliance with British Airways. American in not alone though.
With industry profits on the constant rise, employees of other airlines are pushing for
higher pay also, but undeniably American is in the worst position right now.
It looks to me like the pilots were not very happy with the decision to purchase
new aircraft from Boeing back in November when it was first voted on. It seems as
though instead of purchasing new aircraft the pilots wanted a pay increase. What the
pilots want is a pay increase of 11% over the next four years. What the have been offered
is a 5% increase. The argument that the pilots have put forward is the fact that their offer
does not even keep up with inflation. It looks as though a strike would be very unlikely
because of the amount of money involved, somewhere around fifty million a day would be
lost by American. That big of a loss could be very detrimental to any company.
What can management do with a dilemma like this? It seem that they departed
without knowing where they were going to land. They should have made sure there
would not have been an uprising in any part of the company before the took measures as
drastic as ordering six-billion dollars in new aircraft. It looks to me like there needs to be
better communication between all facets of management in this company.
The only way out of this mess that I can see is to reduce the order from Boeing so
that they can afford to give the pilots there precious pay increases. This could cause more
problems depending on how lenient the contract between Boeing and American is. I'm
pretty sure that Boeing would like to make some money out of the deal too. So, I'm
betting that if American wanted to make a smaller order it would probably suit both
companies better in the long run.
From the employees point of view, it would look like American is kind of a greedy
bunch. The pay raise that was offered does not even keep up with current inflation rates,
yet they can justify spending six-billion on new equipment, when the truly do not need to
replace it that quickly. A small scale replacement of equipment would probably make
everyone much happier.
It could get pretty messy in the end even if the strike ended. If Boeing wants to be
greedy about the whole thing, there could be lawsuits involving breech of contract and all
sorts of ugliness. I'm just glad that I'm not in charge of cleaning up this mess.