Continental, United Pilots Seek To End Outsourcing To Regional Airlines
August 27 2010 - 9:24AM
Dow Jones News
HOUSTON (Dow Jones)-Pilots at Continental Airlines Inc. (CAL)
and UAL Corp.'s (UAUA) United Airlines want to end outsourcing of
flying to regional partners following their planned merger, a move
likely to shake up the industry's already turbulent labor
relations.
The companies' pilots aim to finalize a new joint contract by
the end of the year, and this week proposed bringing all flying
in-house over a period of years following a merger that would
create the world's largest airline by revenue.
U.S. network airlines have outsourced large parts of their
domestic networks to an array of regional airlines over the past 20
years in a bid to cut costs, though the amount is capped by "scope"
clauses in their pilots' collective bargaining agreements.
Jay Pierce, head of Continental's pilots' union, expects the
proposal to receive a cool reception from management, but said
mainline company pilots can fly regional jets just as cheaply
following years of contract concessions.
"We put it on the table [on Wednesday]," said Pierce in an
interview at the union's Houston office. "It's a proposition we
believe will not be readily acceptable [to management]."
Continental Airlines has one of the industry's most restrictive
scope clauses. Only mainline pilots can fly jets with more than 50
seats, and the airline contracts ExpressJet Holdings Inc. (XJT) to
fly more than 200 smaller Embraer aircraft on its behalf.
United has more flexible work practices that enable it to fly
more than 150 70-seat regional jets. Rising fuel costs have made
50-seat jets less economic, while the emergence of new aircraft in
the 70 to 130-seat range have made airlines look to loosen the
restrictions of existing scope clauses.
The proposal from the Continental and United pilots includes an
initial cap on outsourcing, then a move away from the practice over
what Pierce described as "multiple years".
Continental declined comment.
Management throughout the industry has become stuck in a mindset
where they feel they have to subcontract more flying, said
Pierce.
U.S. network airlines have already carved out almost all of
their regional flying units. AMR Corp. (AMR) is working on plans
that could lead to a sale or spin-off of its American Eagle
business, and Delta Air Lines Inc. (DAL) recently sold two of its
three remaining regional operations.
Pierce said he is confident a new pilots' deal can be hammered
out with Continental and United by year-end, in line with the
airlines' merger schedule, though a decision will be taken Oct. 12
whether enough progress has been made to continue the current fast
pace of negotiations.
The airlines and the pilots have learned lessons from previous
mergers, especially the combination of America West to form an
enlarged US Airways Group Inc. (LCC), where labor issues remain
unresolved after five years. Pilots at Delta and Northwest Airlines
forged a joint deal before the two carriers merged in 2008.
"Being third is good," said Pierce. He said one of the thorniest
issues - merging the airlines' pilot seniority lists - won't be
tackled until a new contract is agreed.
Other areas include furloughs. United has more than 1,400 pilots
on furlough while Continental has 147, all of whom Pierce expects
to be called back by year-end. The transition deal calls for
furloughed United pilots to be called back to whichever airline
requires them before any fresh hiring.
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