The recent frustration expressed by American Airlines shareholders over regional airline pilot pay/concessions to the current executive team and board of directors has brought to the forefront some serious concerns about the ethics behind these corporate strategies. Obviously, just because an airline can do something doesn’t mean they should, but in many cases they have.
A transcript and news article has been attached for further investigation. In summary a shareholder who was assigned to vote for the board of directors had pointed questions about the truth of American Airlines seeking concessions from an employee group who has historically been poorly compensated. He referenced a Judges comment made when the AA pilots were required to go back to work over a decade ago. The comment referred to American’s storied labor history as being one of the worst in the nation.
White Elephant in the Room
The white elephant that shareholders are starting sense is the following. Professional regional airline pilots have historically been compensated poorly compared to other flying professionals and have often qualified for food stamps. To compound the problems the work rules were typically much worse than their major airline counterparts. So why would an airline team ethically seek for concessions from regional airline pilots while there airlines begin to make record profits?
What adds insult to injury in this case is that while the management team and board of directors are asking (or for Eagle/Pinnacles/PSA coercing them into concessions) for concessions from the regional pilots, they complain to law makers that the new rules are too strict and that they are unable to attract new pilots. All of this done while Delta made 2.1 Billion in profit last year, and American made over 480 Million profit in the first quarter of this year alone.
So it appears they don’t really need the cuts, but are making them just because they can do so to increase shareholder value.
Unfortunately, with the way the industry has been built pilots are married to their airlines and are unable to move laterally as easily as other professions can. This fact places airline pilots in a vulnerable position. It forces pilots who are in an abusive relationship with there management team no reasonable clause for divorce or protection. For example, Republic Airways has been in contract negotiations for over 6 years. There is little incentive for the management team to want to agree to a new more expensive contract. What penalty is their for the companies procrastination? A union strike is rarely approved by the government in the US. If an airline can’t get approved for a strike in 6 years of negotiation then what is the likely hood that they will ever be approved?
This also lessens the incentive for airlines to develop an environment conducive to encouraging pilots to stay. Without ethical restraint this is a recipe for labor disaster. I guess it is no wonder that airlines have historically had such poor work environments that customers often complain about the unhappiness of those serving them in the airlines.
Unfortunately, these management teams miss out on a satisfying company culture in the name of expediency or greed. What they don’t realize is that there is a cost to this approach not yet reflected in Quarterly Statements. In the end they may find they won’t have the moral capital they need with each pilot when it matters most. So just because something is not reflected in an SEC approved filing doesn’t mean it is not important.