Continental Has Deadline for Pilot Contract
By Ted Reed 02/18/10 - 06:00 AM EST
Stock quotes in this article: CAL , UAUA , DAL , LCC , AMR
HOUSTON (TheStreet) -- Continental (CAL Quote) is negotiating a new pilot contract against a deadline, because regulators have given it until mid-January 2011 to implement a trans-Atlantic joint venture with three partners.
The carrier cannot implement the joint venture, or accompanying trans-Atlantic antitrust immunity, without the consent of its pilots, who are in contract talks. The existing pilot contract's scope clause says Continental cannot enter into a revenue-sharing agreement with a domestic carrier without its pilots' consent. In the joint venture, United(UAUA Quote) would be a Continental partner.
"There's a window of opportunity for Continental this year, and the pilot group controls that window right now," said Jay Pierce, chairman of the Continental chapter of the Air Line Pilots Association, in an interview. "It's a tremendous opportunity for everyone to benefit. They will get the scope relief they need and we will get out from under this concessionary contract that we have lived under since 2005."
A template for Continental and its pilots may have been established at Delta(DAL Quote), where pilots agreed to a merger with Northwest and received raises and improved working conditions as a result. "Delta recognized that it was worth investing a little money in the pilot group to get the pilot group's support," Pierce said. "If a corporation has confidence in a business plan, they should be willing to invest a little money in making it happen."
The Continental pilots contract became amendable Dec. 31, 2008. Pilots are asking for a package of wage increases, enhanced retirement benefits and work-rule changes. "It's a $500 million annual increase, which we recognize is an opening position," Pierce said. "We're waiting for a counter."
Continental spokeswoman Julie King said the U.S. Transportation had a reason for allocating 18 months for implementation when it approved the joint venture on July 10. "There are a number of open items related to governance and commercial issues that we are working through on the joint venture, including discussions concerning our pilot's scope clause," she said.
Among the network carriers, two models exist for pilot relations. Pilots at Continental and Delta have generally enjoyed positive relationships with the carriers. Pierce said he is an admirer of Lee Moak, chairman of the Delta ALPA chapter; the two talk frequently. "We both recognize that our airlines need to be profitable," he said.
By contrast, United(UAUA Quote) and American(U Quote) have historically had difficult relationships with pilots, who have tended to oppose whatever moves the airlines seek to make. That situation may be changing, however. Wendy Morse, recently elected to be chairman of the United ALPA chapter, is more moderate than her predecessor, and pilot union elections are scheduled at American.
At US Airways(symbol Quote), pilots have been fighting among themselves since a controversial seniority ruling followed a 2005 merger with America West. Last month, the National Mediation Board assigned a mediator to long-stalled contract talks. Some union leaders say that could help the two pilot groups bridge the gap that separates them and develop a cohesive approach towards the airline. Many pilots now appear to oppose the concessionary approach that enabled the airline to survive two bankruptcies.
In general, Continental pilots face the same overriding issue as other pilot groups. During the industry crisis that followed a steep slowdown in travel exacerbated by the Sept. 11 terrorist attacks, the airline industry downsized and moved to reduce costs.
Four network carriers stripped down labor contracts during bankruptcies, while Continental and American avoided bankruptcy but negotiated concessions with their unions. Now, as the industry's health has seemingly improved, pilots are seeking to be compensated for their sacrifices. In April 2005, Continental pilots made concessions valued at about $213 million.
"The pilot group is very upset with that contract," Pierce said. "We are either going to repair it or go down the path of labor unrest, (National Mediation Board) interaction and messages to the public that the wonderful world of Continental labor is not so wonderful anymore."
Among the issues are low salaries for starting pilots. A first officer on a Boeing 757 can be paid as little as $29,000 a year, with no health insurance for his first six months. (A 12-year 757 captain makes $166,000.) Another point of contention, which flared up during recent East Coast snowstorms, is that pilots who missed trips due to bad weather did not receive any compensation, a result of losing pay protection provisions in 2005.
The current contract talks represent a challenge for Jeff Smisek, who replaced Larry Kellner as CEO on Jan. 1. "Mr. Smisek has not reached out to labor yet, not to anywhere near the level Mr. Kellner did," Pierce said. "It has not been the same relationship. A new contract will be an indicator of how he perceives labor."
-- Written by Ted Reed in Charlotte, N.C.
