MICHELE NORRIS, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.
American Airlines is in the middle of difficult contract negotiations with its pilots union. Four years ago, American's unions took large salary cuts to keep the airline from going bankrupt. Their sacrifice was instrumental in turning the nation's largest carrier around. Now, executives are receiving hundreds of millions of dollars in bonuses. And that's infuriated the company's rank-and-file employees.
From Dallas, NPR's Wade Goodwyn reports.
WADE GOODWYN: In order to understand the current contract negotiations between American Airlines and company's pilots, it helps to know a little history. Travel back in time to the year 2003. It's two years after the 9/11 attack. And except for Southwest Airlines, most of the airline industry is in the tank. United and USAir have already gone bankrupt. And it's just a matter of time before Delta and Northwest follow suit. American Airlines, too, is hemorrhaging money.
Captain BILL HAUG (Secretary-Treasurer, Allied Pilots Association): We stepped to the plate and kept this airline out of bankruptcy.
GOODWYN: Captain Bill Haug is an officer with the Allied Pilots Association and a 19-year veteran who flies American's workhorse - the MD-80.
Capt. HAUG: We not only kept the airline out of bankruptcy. We kept the guys who are running the company from losing millions of dollars worth of stock and options that they held at the time. So we bailed out a lot of people financially.
GOODWYN: Nearly 3,000 pilots were laid off immediately. The 10,000 survivors took pay cuts of at least 23 percent. But hundreds of pilots saw their take-home pay reduced even more. That's because the downsizing forced them into smaller jets - the smaller the jet, the less you make. Haug says the pilots felt they had little choice.
Capt. HAUG: We are the ones that have the most to lose long-term because we're tied to this company. The seniority system is such that we can't leave American Airlines and go and be a captain somewhere else or be a first officer somewhere else. We start at the bottom wherever we go.
GOODWYN: The pilots blame the airline's financial predicament on poor management. Beginning in 1998, American executives went on a spending spree. They bought TWA, Reno Air, hundreds of new regional jets, and made more than a billion and a half dollars in terminal improvements. The company's long-term debt exploded. And when the economic downturn came, American was overextended.
A newly minted young CEO named Gerard Arpey had just taken the helm and he turned to his employees for help. Arpey called it pull together, win together. And four years later, American's top executives acknowledged that the nearly $2 billion in annual employee concessions saved the airline.
Mr. JEFF BRUNDAGE (Senior Vice President, American Airlines): Look, it would be foolish to minimize the contributions of or employees in the restructuring. Had we not had the restructuring, we would have been in bankruptcy.
GOODWYN: Jeff Brundage is a senior vice president at American Airlines. Yes, he says, the give back saved the company. But Brundage claims management should get credit too.
Mr. BRUNDAGE: The company is operating today with about $5.4 billion in structural cost throughout of the company, not just the 1.8.
GOODWYN: Once the airline started making money again. American's executives started earning millions of dollars in bonus compensation. That's the way their contracts were set up. That's infuriated American's workers. Some of whom believe it's all been an underhanded exercise to transfer wealth from the rank-and-file into managers' pockets. Brundage says he's sympathetic to their feelings.
Mr. BRUNDAGE: Very empathetic. Recognize this is an issue that is very emotional and not happy about it. But at the same time, we have a responsibility to make sure we try to make the company successful long-term because that's what's going to get people's pensions funded.
GOODWYN: And Brundage says being successful means paying American's executives competitive salaries.
Mr. BRUNDAGE: We compete for talent. We've lost three CFOs since the year 2001. And none of them have gone to other airlines.
GOODWYN: In 2006, American's 900 executives took home nearly $100 million in stock-based compensation. In 2007, the bonuses added up to more than 163 million. Drew Keith advises the pilots union on financial issues.
Mr. DREW KEITH (Director, Industry Analysis, Allied Pilots Association): These people that were told pull together, win together; these people were told shared sacrifice. But when we hit 2006, we found that that was nothing more than rhetoric.
GOODWYN: Keith says management, the bond holders, the creditors, all the other stakeholders have recouped their losses except for one group.
Mr. KEITH: All of those entities but for the employees have recovered. They have recovered handsomely. So how does that leave you feeling?
GOODWYN: It leaves the 12,000 pilots feeling like they want a new contract, say a 45 to 50 percent increase over their current one. But with fuel prices what they are, the company's profit margins are hardly set in stone. In fact, in this most recent quarter, the airline lost money again.
Nevertheless, management has not exactly positioned itself atop the moral high ground as it prepares to lecture its pilots about the necessity of financially responsible compensation packages. But vice president Jeff Brundage says they're going to have to do it anyway.
Mr. BRUNDAGE: The agreement that we end up negotiating is going to have to be a competitive agreement or it does threaten the company long term. I can't speak to the demands. But I can speak to the product that we're going to need to produce with each of the unions. And if we can't create a competitive company with competitive cost structure long term, it threatens the company.
GOODWYN: Come this spring, Americans executives are expected to receive millions of dollars more in 2008 bonus compensation. It's not expected to do much for the atmosphere at the bargaining table.
Wade Goodwyn, NPR News, Dallas.
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