American Air Attendants Seek
to Topple Two-Tier Pay

Carrier Is Resolute in Dispute, Saying
It Must Control Costs to Survive

American Air Attendants Seek to Topple Two-Tier Pay
Carrier Is Resolute in Dispute, Saying It Must Control Costs to Survive
By Marj Charlier And Francis C. Brown III
Staff Reporters of The Wall Street Journal
March 25, 1987

DALLAS — American Airlines' parent, AMR Corp., is the most profitable airline company in the country, pulling in about 40% of the industry's operating earnings last year.

Nevertheless, American says it can't survive in the current cutthroat climate unless it can keep costs down. And the company vows it will "do what we have to do" to achieve that goal in its current labor dispute with its flight attendants.

The attendants union counters that beginning employees can't live on American's base wage of $972 a month, an amount that qualifies some for food stamps. About 1,600 of the 10,000 members of the independent union are paid at the base rate, or less than $12,000 a year, even though AMR is a "wealthy, healthy corporation," says Patt Gibbs, president of the Association of Professional Flight Attendants.

Negotiations on a new three-year contract, which became renewable in December, have stuck on the issue of pay for new attendants. But the outcome of the talks, which began in August, also tests American's resolve to hang on to its two-tier wage system, which set the pay of its most junior attendants 37% below that of employees hired before 1983. American pioneered the two-tier scale, and about two-thirds of U.S. airlines have followed suit. If American backs off, others may, as well.

The company demonstrated its resolve last Sunday, when it fired 17 flight attendants who were distributing union leaflets at the Dallas-Fort Worth Airport. The union says the .firings were a company attempt to intimidate attendants who were planning to distribute pamphlets at other airports later this week. The brochures were "disparaging and harmful to the company," and their distribution violated company regulations, an American spokesman says. "We felt we had the right to dismiss them." In federal court in Fort Worth yesterday, the union filed a request for a temporary restraining order on the firings.

Test of Corporate Campaign

The American dispute, meanwhile, also is a test of the union's strategy, the corporate campaign, and of the architect of that tool, Ray Rogers, whom the attendants have hired as a consultant. Corporate campaigns essentially seek to pull into the labor fray companies that do business with the target concern. After a couple of major successes using this strategy, it was viewed as an alternative to largely unsuccessful strikes in the 1980s, but victories with it have been scarce lately. A successful corporate campaign at a union as big as Ms. Gibbs's would be a shot in the arm for labor.

Most airline industry and labor analysts say the American flight attendants have a tough battle ahead. The attendants are easily replaced; indeed, American receives 18 applications for each job opening. And they don't have the support of the carrier's pilots, who recently settled with the company. "Flight attendants have a rough time when they're by themselves," one labor consultant says.

But the stakes for American are high. Two-tier wage systems have started to crumble in negotiations with pilots — including those at American. And while two-tier scales have held so far in flight attendant contracts, the loss of this cost-saving device could deal a significant blow to older, established airlines like American. Non-union upstarts and airlines that have gone through bankruptcy-law proceedings — most notably, Houston-based Texas Air Corp.'s Continental Airlines unit — have lower pay scales and are waging continuing fare wars.

If American loses its two-tier scale, it may simply not be able to compete," says Lee Howard, executive vice president of Airline Economics Inc., a Washington, D.C.-based airline consultant.

In its latest contract proposal, American says it offered to modify its two-tier scale so that flight attendants hired since 1983 would jump to the higher pay scale after 10 years. The union, which wants the scales to merge during the first year, says that under American's proposal, the scales really wouldn't merge until the 15th year.

Ms. Gibbs says the company is "using mirrors" to make the scales look like a 10-year meld. She says a disparity would remain in benefits between the two scales.

American also says it offered lower-scale attendants immediate increases in hourly pay ranging from 8.5% to 12%, depending on length of service, and total increases of 31.6% to 37.2% during the three-year contract period. Senior flight attendants with less than 12 years' experience would get increases totaling between 3.9% and 11.7% for the life of the contract; those with more than 12 years at American wouldn't receive any raises.

But proposed work-rule changes also would allow American to staff some flights with fewer attendants and to tie pay more closely to actual flying time, reducing minimum guarantees in some instances.

System Is Cutting Labor Costs

In 1986, American's B-scale flight attendants were paid an average of $14,728 a year, and the A-scale employees $33,530, according to estimates by Sanford C. Bernstein & Co, But as the two-tier system ages, lower-scale employees are increasing as a percentage of the work force, decreasing labor costs.

The two-tier system is "the most humanistic approach," Robert L. Crandall, AMR's chairman and president, said in a recent speech, because "it doesn't require the imposition of massive wage and benefit reductions for thousands of long-term employees." Still, Mr. Crandall said, he sympathizes with those at the low end of the wage scale, "As a businessman and a citizen," he said, "I don't feel any special pride in having gotten our beginning wages for reservations agents and ticket agents down to $5.77 an hour — on which I doubt many young people can support a family or even maintain a reasonable single life-style."

On that point, he and Ms. Gibbs, the feisty articulate president of the attendants union, agree. She says the two-tier scales are an indication that "the two-class system is coming back in America." But she cites statistics on the company's earnings and what she calls the "rosy" outlook for the airline industry, and says American can afford to increase the lowest wages. The company says most starting attendants earn more than the base wage through overtime and night-pay differentials. .

The union decided not to strike the company, a move most labor and industry consultants say is wise. But the union's choice of the corporate campaign and of Mr. Rogers as consultant has raised eyebrows.

Soon after Mr. Rogers's role for the flight attendants was disclosed, American sued the union in federal court in Fort Worth, Texas. In the pending suit, the company alleged that the union, by using a corporate campaign, isn't bargaining in good faith. .

The attendants' corporate campaign will work best if the union broadens the issue beyond wages, says Prof. Daniel J.B. Mitchell, director of the Institute for Industrial Relation at the University of California at Los Angeles. "It has to be more than 'the union wants more and the company wants less,' " he says. A union must give "a reason why the public should feel some special sympathy for the union's particular plight.

That approach has been used successfully recently in other industries. For example, in a corporate campaign aimed at winning a labor agreement for construction of a Toyota Motor Corp. plant in Kentucky, the unions exposed environmental problems and the cost of the state incentive programs says Susan Kellock of Kamber Group, a Washington, D.C.- based labor consultant. "The union members realized they had to expand their definition of who they were," she says. "Their concern isn't just wages and benefits."

The American flight attendants union has picked a few issues beyond wages. It. says it will focus on smoking on jetliners, an issue that isn't specific to American and on a 1983 price-fixing case the Justice Department brought against Mr. Crandall and American, a case that the public has long forgotten and that the company settled without admitting guilt. Ms. Gibbs also says the union will flag safety and maintenance violations, for which American paid a $1.5 million fine last September. But nearly all airlines paid similar fines recently as the result of a wide sweep of federal investigations following a rash of airline disasters.

In addition, many American attendants are buying a share of stock in AMR or in Dallas-based RepublicBank Corp. — whose chairman is an AMR director — allowing them to attend the companies' meetings and voice union opinions. Ms. Gibbs also plans to write letters and send flyers to workers at companies that have AMR holdings, including Equitable Life Assurance Society of the U.S. and New York Life Insurance Co. The attendants will urge these workers to talk to their employers about pressuring American to meet the union's demands. The union also intends to urge members of unions nationwide to drop insurance policies issued by the two companies.

Vulnerability Questioned

But Mr. Mitchell of UCLA questions whether a large corporation is vulnerable to such pressures. "There's a broad capital market, and a company can get loans from many other sources," he says. "It's easy for the company to reshuffle" who holds bonds or gives loans.

Equitable's Alliance Capital Management Corp. is AMR's biggest stockholder, with about 12% of the common shares outstanding. James Reilly, vice president of Alliance, says the American flight attendants union's efforts won't have any effect on his company's relationship with AMR,"I have to come down on the side of management" at American, he says. "They should stay tough.

And George Trapp, a vice president at New York Life, which holds $73.4 million in equipment trusts on American's planes, says the insurer so far hasn't felt any pressure from the American union. ''I'm not sure we would have a lot of leverage, at any rate, to influence the company," he says.

In fact, the union's most powerful bargaining chips are old fashioned work actions that have nothing to do with the corporate campaign. The airline industry, perhaps more than any other, is a service business, and unhappy attendants can make travelers unhappy. Poor service by low-paid Continental Airlines flight attendants, for example, prompted a slew of consumer complaints in recent months. American is taking the threat seriously: In its pending lawsuit against the union, American also asked for an injunction against such tactics as sabotaging food on flights.

'Drive Up the Economic Costs'

Ms. Gibbs says the American union's current job actions also have included a tactic that can dent the airline's budget. "We can give a whole can of Coke instead of a glass and drive up the economic costs to the company," she says.

The union also can cause trouble with American's plan to start flights to Tokyo in May. Under the attendants' contract, work-period limits mean they can't staff the 13-hour trips to Tokyo. And if the airline doesn't inaugurate the flights as scheduled, it can lose its federal approval for the route. American, though, says it can staff the flights with supervisors.

If Ms. Gibbs and her union succeed in toppling the two-tier pay scale, this could cause turbulence beyond American. She hopes to help other airlines' flight attendants, which don't have an umbrella union such as the one representing pilots. "There's a good possibility that flight attendants will form an alliance," she says. "There's more discussion about that going on."