Heavy Weather At American Airlines

Heavy Weather At American Airlines

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Heavy Weather at American Airlines


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

     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

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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.
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