Route transfers to affiliates stoke flames of legal firestorm

 - October 4, 2007, 9:01 AM

The September 11 terrorist attacks on the World Trade Center and Pentagon set the stage for an upheaval in the U.S. airline industry unseen since the dawn of deregulation. But while virtually no one besides the enemies of America welcomed the negative economic effects, some airlines may very well emerge from the crisis in a stronger competitive position.

How, one may ask, could an airline benefit from such a far-reaching atrocity? The answer may lie in a loophole in labor contracts that permits airlines to ignore certain job-protection guarantees in the event of a national emergency known as a force majeure clause. Translated literally into English as “greater force” and defined as an unexpected or uncontrollable event, force majeure in this case presented an ideal opportunity for major airlines to dismantle unprofitable segments of their businesses and place more emphasis on service from their lower cost regional affiliates, suspect elements within the Air Line Pilots Association (ALPA).

ALPA charges that US Airways, for example, improperly invoked its force majeure clause to close MetroJet, discontinue mainline routes and transfer the business to regional affiliates–actions, claim union officials, it might have undertaken long before September 11 if not for contract language that prohibited “job outsourcing.” Almost simultaneously, United Airlines announced it would dissolve its United Shuttle operation on the West Coast and reassign all but three of the 33 routes to regional affiliates and the mainline. Regional airlines have gladly taken the extra business, both from United’s low-cost shuttle operation and from various major airlines, a circumstance that has cushioned the blow of the traffic declines at many regionals following the attacks.

Flightcrew Surplus
Meanwhile, the pilots and flight attendants laid off or furloughed during the month of September comprise a newfound glut of flight-crew talent. Similarly, for the first time in years, the short supply of mechanics appears not so dire. Those factors, coupled with the emergency clauses in labor contracts, have given management more leverage in their relationship with their workforces than anyone could have foreseen two months ago.

Labor fears that the phenomenon could result in an effort to permanently award regional airlines with routes traditionally considered mainline domain. Already by October 7 US Airways transferred mainline jet service at 10 airports in the Southeast and Midwest to US Airways Express regional jets and turboprops. Under the new schedule, US Airways Express carriers replaced mainline service from Charlotte to Columbia, S.C.; Chattanooga, Tenn.; Greenville-Spartanburg, N.C.; Huntsville, Ala.; Roanoke, Va.; and Knoxville, Tenn. From the Pittsburgh hub, US Airways Express carriers replaced mainline jets on routes to Akron, Ohio; Grand Rapids, Mich.; Roanoke, Va.; Charleston, W.Va.; and South Bend, Ind.

ALPA’s US Airways Master Executive Council has filed a pair of grievances against what it calls improperly canceled mainline flight segments and violations of contract provisions regarding furlough protection, minimum block hours and minimum captains. Meanwhile, US Airways chairman Stephen Wolf and president Rakesh Gangwal sent a letter to each MEC member asking them to change their position on the introduction of more regional jets immediately. Although the MEC insists it remains open to negotiation, it claims that management has not addressed the issue in a “meaningful” way with the union. “We feel that management has chosen the path of taking advantage of this crisis,” said MEC representative Roy Freundlich. “ALPA has been ready, willing and able to help them get through the crisis, but we’re not going to stand by and let them harm our pilots by shutting down MetroJet and pulling down all this capacity.”

Freundlich said the force majeure clause in US Airways’ pilot contract applies only to the agreement’s no-furlough and minimum block-hour provisions, and that the airline’s plans to transfer routes to the regional affiliates while reducing mainline capacity by 23 percent clearly violate the contract’s scope clause. As a result of the cutbacks, US Airways plans to furlough 900 first officers by the beginning of March, as well as another 250 for whom it has not identified a date. The airline will retire all its Fokker 100s and replace them with regional airplanes flown by US Airways Express carriers, a move the airline identified as a priority in August, when it presented its plan to overhaul its fleet structure following the failed attempt at a merger with United Airlines.

Although his concern rests with the pilots of US Airways, Freundlich did not limit his charges of bald-faced opportunism to the Arlington, Va.-based carrier. “Think about it…[The airlines] all get together through the Air Transport Association, and decide to cut capacity by 20 percent,” he said. “We’re concerned that they’re in collusion to reduce this capacity and do things through these force majeure clauses that they could never get away with otherwise. They can then control the supply side so that when passenger traffic picks up, they could begin to charge more and improve their yields. In the end, the employees and customers suffer, and the companies end up making a lot of money off this.”

UA Regionals Step Up
Another major carrier whose recent affiliate realignments have raised concerns with ALPA–United Airlines–announced it would award United Express carriers six mainline routes starting October 31. The primary beneficiary–Herndon, Va.-based Atlantic Coast Airlines–began flying its Canadair Regional Jets from Dulles International Airport to former mainline destinations at Allentown, Pa.; Knoxville, Tenn.; Norfolk, Va.; Portland, Maine; and Raleigh-Durham, N.C. ACA also began new service between Dulles and Birmingham, Ala., and from Chicago O’Hare to Oklahoma City.

Yet another United Express affiliate–St. George, Utah-based SkyWest Airlines–assumed responsibility for United’s San Francisco-Santa Barbara route on the same date. United also awarded former Shuttle routes from Los Angeles to Fresno, Oakland, Phoenix, San Jose and Tucson to SkyWest, which moved some of its Canadair Regional Jets from Denver to LAX for the service. In turn, SkyWest moved some Embraer Brasilias to Denver to replace Dornier 328 service to five communities formerly provided by Air Wisconsin, which transferred its 30-seat turboprops from the Mile High City to Chicago.

Although United’s initial deployment of regional airplanes on former mainline routes had not violated its scope clause, local MEC representative Herb Hunter said the airline’s plans to park all its Boeing 727s and 737s would drop the number of mainline jets below the 451-unit threshold required to maintain the current level of RJs at United Express. Furthermore, said Hunter, because United’s pilot contract does not contain a force majeure clause, the airline’s 31-percent cut in capacity in effect violates other sections of the contract. “[United president] Rono [Dutta] said a couple of months ago that if we had tough times we’d park the 727s and 737s and bulk up on the RJs,” recalled Hunter. “Well, our contract does not allow that. We recognize these are tough times, but we need to talk some of these issues over so we can come to a mutually satisfactory solution…We don’t want to be laying off United pilots while the small-jet airlines are hiring people. That’s just not acceptable.”

While announced layoffs across the industry reached some 200,000 last month, wholly owned Delta Connection carriers Comair and Atlantic Southeast Airlines resumed their full schedule of flights by September 17 and 18, respectively. Similarly, Atlantic Coast and SkyWest Airlines, which each fly under multiple code-share agreements with Delta and United, both returned to their full Delta Connection schedules a week after the attacks. Delta, which over the summer agreed to a new scope clause that limits Delta Connection flying to 34 percent of total company ASMs next year, subsequently awarded its regional affiliates 17 new routes formerly served exclusively by the mainline.

Delta MEC representative Karen Miller said that ALPA continues to monitor the transfer of routes “closely.” She stressed, however, that Delta has pledged to honor all scope provisions to the letter, and that as of now Delta Connection flying has not nearly approached the 34-percent limit scheduled to take effect on January 1.

Delta’s “realignment” takes effect on November 1 and includes new regional jet service from Atlanta, Cincinnati, Dallas-Fort Worth and Salt Lake City. The plan also includes some shifting of responsibility for feed among the four primary Delta Connection carriers. Specifically, Atlantic Coast reallocated some of its capacity from the Northeast to Delta’s Cincinnati hub, Comair moved CRJs from Cincinnati to serve two Atlanta-based markets and SkyWest ferried some of its own jets from Salt Lake City to Dallas-Fort Worth. Atlantic Southeast, meanwhile, has shifted some flying within its primary Atlanta hub and added more flights at its secondary base in Dallas.

While Delta sustains its presence in Dallas with increased emphasis on its regional affiliates, DFW’s largest tenant, American Airlines, faces a slightly more complicated circumstance because the so-called flow-through agreement in its pilot contract allows mainline pilots to “bump” regional pilots in the event of a furlough. Continental Airlines faces a similar scenario, and both those airlines expect furloughed mainline pilots to take advantage of the opportunity. How that scenario affects those airlines’ plans for their regional affiliates remains unclear. American has invoked its force majeure rights as they apply to the contractually required 30-day furlough notices and a 90-day waiting period for pilots who conducted overtime flying during the month before the furlough, but has said it will honor all scope provisions in its contract, as have Continental and Northwest Airlines, neither of which at press time had transferred any mainline routes to their regional affiliates.

In a conference call with AIN, Allied Pilots Association (APA) representatives Steve Dominy and Drew Engelke said that while American’s pilot union disputes the airline’s blanket invocation of force majeure, it does not believe the airline has violated the contract’s scope clause. However, the APA has expressed concern about American Eagle’s continued buildup of its Raleigh-Durham base, particularly since September 11. Eagle plans on November 1 to begin service from the former mainline hub to Fort Lauderdale, Fla.; Hartford, Conn.; White Plains, N.Y.; and Columbus,  Ohio, adding 12 ERJ-135 round trips to the 41 regional routes already in service there.

“We had some concerns that the business plan was to de-emphasize the mainline before September 11 and emphasize regional jet growth, and one of the effects of the tragedy is that it has accelerated the downsizing of the mainline,” said Dominy. “Instead what we’ve seen is RJ growth at Raleigh-Durham into markets that used to be served by American.”

One part of the American Airlines scope clause limits RJ flying between hubs. Because Raleigh-Durham has developed into a de-facto hub for American, claims the APA, scope limitations as they relate to hub-to-hub flying may apply there as well. “It’s starting to walk like a duck and quack like a duck,” remarked Engelke. Furthermore, the scope clause requires that American Eagle freeze ASMs in the event of a furlough at American. Whether American’s force majeure protections extend to those points remains a matter of debate, however.

Another subject of debate involves the number of pilot positions furloughed American pilots may have access to at American Eagle. Because the so-called “flow-through” agreement, known as Supplement W in the APA contract, provides for a limited number of “available” positions at American Eagle based on the number of regional pilots who opted for preferential hiring consideration at the major, not all furloughed American pilots will get the chance to move into the captain’s seats of Eagle RJs. The company claims that Eagle has fewer than 90 available positions, while APA argues that it should have access to as many as 150 seats. The sides have entered arbitration over that matter. “The company is disputing the term ‘available,’” said Engelke. “We are holding them to the position that whether they want to make them available or not, they have to pay the eligible [mainline] pilots their salaries. It’s looking like the company’s realizing this is an expensive proposition, and they’re balking.”