Pilots yield on scope, as airlines struggle

 - April 25, 2008, 7:58 AM

The decision by US Airways and United Airlines to test the scope-clause language in their pilot contracts after September 11 appeared fully vindicated last month, as both airlines’ Air Line Pilots Association chapters agreed to withdraw their force majeure grievances during negotiations aimed at resuscitating the ailing major carriers.

Perhaps more significantly, the tentative US Airways contract would grant authority for 465 regional jets throughout its US Airways Express regional network. Meanwhile, the United tentative agreement lowered the floor on the minimum number of narrowbody mainline jets from 451 to 388 until 2005, allowing United Express carriers to continue their current level of RJ flying and opening room for further growth through turboprop replacement and pro-rata increases based on total mainline fleet growth.

Regional jet manufacturers hope the agreements, at press time still subject to member ratification, open the proverbial flood gates to more liberal scope restrictions throughout the industry. If for no one else, the contracts certainly bode well for the regional affiliates of the airlines involved, as they help lead an industry trend toward replacing mainline airplanes with regional jets on marginally profitable routes. For Brazil’s Embraer, the US Airways agreement could result in the first solid opportunity to introduce its next generation of regional jets to the U.S. market, as the Arlington, Va.-based airline considers the Embraer 170 and 175 for its new MidAtlantic Airways subsidiary based in Pittsburgh.

According to ALPA representatives, both airlines had already violated their scope clauses following September 11, when U.S. major airlines cut capacity en masse by some 20 percent, while allowing their regional affiliates to continue boosting ASM rates. Although technically in violation of their contracts, the airlines asserted force majeure conditions, in essence inviting union leaders to challenge their actions. But in a business where limited labor resources and a strong union influence for years set management on the defensive, the shift in market dynamics since September 11 has tipped the balance of power, giving airlines more leverage over their workforces than at any time during the past decade.

Critics argue that the new agreements reward the airlines for what many consider their brazen disregard for earlier contracts. But as the airlines inch ever closer to bankruptcy, the local union councils recognize that scope clause compromises can carry as much value as wage concessions. As part of the government’s airline bailout plan, loan guarantees in part hinge on the applicants’ ability to demonstrate a viable cost-cutting plan, most effectively achieved through concessions with labor. The tentative United pilot contract calls for 10-percent pay cuts, effective upon approval of loan guarantees from the Airline Transportation Stabilization Board. The US Airways deal calls for much deeper cuts totaling $465 million a year over the six-and-a-half-year duration of the contract.

Seemingly lost in the discussion among securities analysts and industry observers about cost concessions, however, remained the potential value of the scope-clause amendments, particularly to US Airways. Among the most significant aspects of the new scope clause in the US Airways deal, a provision to allow jets carrying as many as 76 seats within the Express system shatters the foundation of the current scope clause, which now limits regional jet capacity to 50 seats.

Under the tentative deal, MidAtlantic Airways–US Airways’ newest wholly owned regional subsidiary–may fly regional jets certified to hold as many as 70 seats and with a mtow of 75,000 lb. The deal includes an exception for the larger and heavier Embraer 170 and 175, provided that those airplanes be configured with a seating capacity of no more than 76 seats.

In anticipation of a large order from US Airways, representatives from both Bombardier and Embraer met with US Airways executives at Washington Dulles International Airport on June 27 to pitch their respective products. Bombardier flew a 50-seat CRJ200 and a 70-seat CRJ700–the first destined for Mesa Air Group’s America West Express operation–while Embraer brought a 50-seat Continental Express ERJ-145 and displayed a mockup of a 70-seat Embraer 170 at an area hotel.

Although the ostensible lack of new airplane availability bred speculation that US Airways would negotiate for used CRJs once flown by Australia’s Kendall Airlines, an eventual requirement for some 400 jets has the airline maneuvering for delivery positions through lease deals with other operators. Meanwhile, in the wake of the post-September 11 sales lull and subsequent production rate cuts, Bombardier and Embraer can conceivably revisit plans to increase production to accommodate US Airways’ needs.

The proposed scope-clause amendment also limits the number of jets certified for 44 seats or fewer to 150, but it does not dictate with which Express carriers–affiliates or wholly owned–they may fly. The balance of the airplanes, consisting of medium-size (45 to 50 seats) and large (51 to 76 seats) regional jets, cannot exceed 315 units until the mainline fleet grows beyond a predetermined size depending on seat-capacity category. Although the existing authority for any US Airways Express affiliate to operate 70 medium-size RJs stays intact, the next 70 must go to a wholly owned carrier or an affiliate airline participating in what ALPA calls its “jets for jobs” program.

Under the program, most aspects of which appear in a scope-clause amendment that raised the airline’s RJ limit from 70 to 140 in April, furloughed US Airways pilots reserve the right to fly all regional jets placed with MidAtlantic Airways. Established under the operating certificate of defunct US Airways subsidiary Potomac Air, MidAtlantic began recruiting staff after the opening of its offices within US Airways’ existing facilities at RIDC Park West, near Pittsburgh International Airport, during the first week of June. The company plans to open MidAtlantic this fall.

The “jets for jobs” agreement also grants the 1,070 furloughed US Airways pilots the right to staff half of the flying slots created by new regional jets at “participating” Express affiliates and wholly owned subsidiaries. Under the deal, all US Airways pilots flying for regional partners/subsidiaries must draw RJ captain’s rates of the airline for which they fly, regardless of seat occupied. As expected, that provision has drawn sharp criticism from regional pilots, who argue that the arrangement will result in a two-tier pay system for first officers.

Other aspects of the new tentative US Airways scope clause include a ban on regional airline flying between its Charlotte, Philadelphia and Pittsburgh hubs, or any other airport hosting at least 50 US Airways mainline departures. Of course, all of the language could become moot if the union and management fail to agree on the last two issues on their agenda–job security and financial returns for the pilots. ALPA has asked for equity participation, specifically the ability to exchange old, devalued stock options for new options, as well as a new stock issuance. It also wanted a guarantee that the company would not seek further wage relief from pilots in the event the company files for Chapter 11 bankruptcy. Finally, it continued to seek furlough protection for all pilots hired before Jan. 1, 1998, and a minimum block-hour commitment based on minimum fleet size of 290 aircraft.