American eagle divesture

[Eliezer Resto]

July 20, 2011

Fellow American Eagle Pilots:

This morning, AMR announced that it is divesting American Eagle.  The next step in this process is for AMR to file a Form 10 with the Securities and Exchange Commission that details the business plan and air services agreement for an independent American Eagle.  We expect this filing to occur by mid-August.  Following the filing of a Form 10, there will be a few month period during which regulatory agencies will explore the proposed divestiture.  It is our understanding that AMR hopes to effect the divestiture prior to the end of this calendar year.

Since first learning of AMR’s intent to divest Eagle a number of months ago, your MEC has been actively engaged with management on several fronts.  First, we wanted to ensure that management’s analysis of Eagle’s current costs was accurate.  After months of review, analysis, and alterations, we believe that management’s analysis is now within reason.  Second, we were intent on codifying agreements and practices that were not reflected in our collective bargaining agreement.  By now you have seen that the MEC ratified a number of Letters of Agreement over the past few months, accomplishing just that.  A very important draft LOA on hotel sourcing remains open, but overall we are satisfied that we have made substantial gains on this front.  Third, we have worked diligently to secure job protection for Eagle pilots regardless of the outcome of Eagle’s proposed divestiture.

The MEC clearly understood that AMR had committed itself to diversifying its feed among numerous competitor airlines.  Some pilots have operated under the mistaken impression that this is only possible if Eagle is divested.  That is not true.   American Eagle’s jet fleet begins being paid off over the next couple of years, which would allow American Airlines to park those aircraft and begin contracting with other feed operators to do this flying.  This option exists whether American Eagle was owned by AMR or not and this option exists even if we had won the grievance.  In addition, the scope language in our current collective bargaining agreement does not absolutely prohibit the transfer of aircraft or operations.  Rather, our scope language permits transfers with a caveat; if such transfer were to occur, American Eagle’s pilots and pilot contract would have to transfer with the aircraft to the “transferee” carrier that successfully bid on the flying.  Although this provision could certainly make the outsourcing of American’s feed operation more difficult, it is nonetheless achievable given American’s commitment to doing so.

Therefore, the MEC had significant debate over whether to file a scope grievance, given the fact that this type of grievance is notoriously difficult for labor to win.  Ultimately, a decision was made to do so.  We retained the nation’s best union legal firm for scope of work disputes, Cohen, Weiss, and Simon, LLP, and allocated significant resources to this case, which was heard on April 6th and 7th.  In retrospect, this arbitration accomplished exactly what was intended.  A few weeks ago, the company solicited a settlement.  After intensive discussions, the MEC authorized the grievance committee to settle the dispute.  As a result, rather than Eagle pilots potentially being transferred with aircraft to other regional carriers who successfully bid on our flying, Eagle pilots will transfer to American Airlines by occupying a minimum of 35% of every American Airlines’ new hire class.

This settlement is significant to every Eagle pilot.  To those Eagle pilots who did not previously have any rights to pilot jobs at American Airlines, they now do.  To those pilots who already have rights to pilot jobs at American Airlines, this settlement does more to solve American Eagle’s cost disparity than any other option, thus ensuring American Eagle’s survival, on which their transfer is contingent.  To those pilots who intend to retire from American Eagle, this settlement creates a more competitive American Eagle with continued movement from the top of its seniority list, thus providing for enhanced seniority and a corporate balance sheet that will sustain continued contractual improvements over the long-haul.  Additionally, the current draft LOA will provides enhancements to our scope language, thus protecting their jobs going forward at an independent Eagle.  In light of today’s announced 460 aircraft order by AA, the new flight-time and duty time final rule, due to be published on August 1st, and American Airlines’ massive impending pilot retirement, this settlement could not be more timely.

Most importantly, the settlement is not contingent on Eagle’s divestiture.  In other words, the settlement is now part of our contract whether or not AMR completes the divestiture of American Eagle, with the exception of the draft LOA on Scope which is contingent on pilot ratification and the divestiture of Eagle.

So let’s turn our attention to the divestiture of American Eagle.  As you are likely aware, American Eagle is unable to grow as a wholly-owned carrier.  It has maxed out its fleet under the AA-APA scope clause in block hours, non-hub flying, and fleet size in its over-50 seat aircraft.  On this front, the grievance settlement described earlier is enormously important as the movement of pilots from the top of Eagle’s seniority list mimics the effect of growth when it comes to the pilot cost equation.  Once divested, Eagle’s ability to successfully bid on other mainline feed will be largely dependent on management’s ability to run a safe and reliable company; something that Eagle pilots already do on a daily basis.

For a number of months, the MEC has been engaged with American Eagle and American Airlines’ management on a long-term Air Services Agreement for an independent company.  Although we have yet to reach agreement, much progress has been made.  Without agreement, AA will simply impose an ASA on the new American Eagle.  We expect to see a preview of that ASA when AMR files its Form 10 in mid-August.  If the MEC is able to reach an agreement with Eagle and AA on a long-term, sustainable ASA, any such agreement will be subjected to ratification by the Eagle pilots, similar to the ratification vote that will soon be taken on new Scope language.

Let me close by reiterating a few important points.  With the exception of the draft LOA on Scope, the settlement agreement reached yesterday is not contingent on the divestiture of American Eagle.  The MEC is engaged with management in discussions over a long-term, sustainable Air Services Agreement, and in fact, will convene in Dallas next week to continue providing direction.  If a deal can be reached, Eagle pilots will determine whether or not it is ratified.  Yesterday’s settlement is a huge step forward in creating a sustainable and competitive American Eagle regardless of ownership.

[Michael Blakely]

wow... so... the obvious question here is related to our VA... will we still hold EGF under our wing?

I don't expect any changes at AAVirtual anytime soon. We seem to lag the real world by months or even years.