American to strip AA* code from STL feeders

 - May 15, 2008, 8:49 AM

American Airlines has responded to a contractual limit on ASM growth at its regional affiliates with a plan to strip the AA* code from certain St. Louis-based flights operated by American Connection partners Chautauqua, Trans States and Corporate Airlines. American claims the move will give it another six to nine months to decide the fate of its San Juan, Puerto Rico-based Executive Airlines subsidiary. American had entered talks to sell the unit to create room within its ASM limitations for the delivery of more regional jets from Bombardier and Embraer (AIN, March 2002, page 3). According to an American Airlines spokesman, the airline suspended that plan after it found this temporary solution.

American has already cut capacity among its Saab 340 and ATR turboprop fleets to comply with a clause in its pilot contract that requires the company to freeze its regional subsidiaries’ ASMs in the event of a pilot furlough at the mainline. American began considering that measure and the subsequent plan to remove its code from American Connection flights after it failed to secure relief from the clause, triggered on October 1, when American began furloughing pilots as a result of post-September 11 traffic declines.

Leaked from an internal document sent to American employees, news of its plans for St. Louis remained sketchy last month, as the airline declined to release details regarding any possible changes to the code-share agreements it maintains with its three American Connection partners. According to the spokesman, the airlines will continue to fly their airplanes in American Connection livery, and all frequent-flier benefits and related programs will continue intact.

The American spokesman said the airlines involved have not yet decided which codes they will use as a replacement for the AA* designation, however. “We’re still in the process of working out all those details, so we’re looking at a lot of different options,” he said. As of last month, Chautauqua flew eight Embraer ERJ-140s in American Connection livery, while Trans States flew a mix of 26 Jetstream 41s and ATR 42s and 72s, and Nashville-based Corporate Airlines flew nine Jetstream 32s out of the former TWA hub.

According to Trans States marketing v-p Bill Mishk, the St. Louis-based airline does not expect to reduce schedules as a result of the code changes. He declined to comment on concessions Trans States may seek, adding only that “the AA code carries significant benefits worldwide versus TW.” He also noted that the airline is not actively seeking new code-share partners as a result of the changes. “The intent is to fly the existing flight schedule, so no cuts will occur per se. We think this process helps get us there.”

Chautauqua Protected

In the process of issuing an $85 million public stock offering, Indianapolis-based Chautauqua did not reply to AIN’s request for an interview. According to its SEC registration statement, the airline’s fixed-fee code-share agreement uses a formula based on the number of scheduled block hours flown. However, it guarantees Chautauqua payment for a minimum number of block hours regardless of the number of hours flown under the AA* code. It also gives American the right to buy up to 5 percent of the common stock offered for sale in connection with the IPO. Chautauqua’s parent company, Republic Airlines, paid American a contract rights fee in the form of a warrant to buy shares of its common stock.

The decision to strip the AA* code from “selected” markets in St. Louis has, of course, caught the attention of the Allied Pilots Association (the union that represents American’s mainline pilots) and the Air Line Pilots Association–the collective-bargaining representative for American Eagle’s pilots. At press time, the APA’s scope committee had not formulated a position on the plan’s contractual compliance or lack thereof, but an APA spokesman said he suspects that the plan to leave the American Connection livery on the St. Louis-based regional airplanes will draw the most scrutiny. “We have a scope committee that will examine it and make sure it’s in compliance with our contract,” he said. “But whether or not it’s technically in violation, we feel that all this smoke-and-mirrors stuff violates the spirit of our agreement.

“There’s an easy way of disposing of these concerns about ASM limits, and that is to bring back the furloughed pilots,” added the APA spokesman. After recalling 208 furloughed pilots under the terms of its recently completed seniority integration with TWA, American will still have 386 APA-represented pilots on furlough, as well as another 229 former TWA pilots. “We also proposed a phased-in approach to make it one airline again, and American wasn’t interested,” said the APA spokesman. Issued in January, the proposal to which he referred called for American to gradually absorb all of its regional subsidiaries’ flying, effectively resulting in the end of American Eagle.

Meanwhile, the Air Line Pilots Association remains embroiled in arbitration over alleged violations of American Eagle’s scope clause. ALPA contends that by awarding Chautauqua, Trans States and Corporate Airlines flying opportunities in St. Louis without first offering them to American Eagle pilots, American violated contractual clauses that require Eagle to “aggressively pursue flying opportunities.”

The APA believes the decision to change the American Connection codes not only underscores an attempt to artificially comply with the ASM cap, but also betrays an effort to circumvent the Eagle scope clause. Still, the rights to identifier codes represent just one aspect of the marketing agreement between American and its Connection partners. ALPA wants to void the contracts in their entirety, requiring Chautauqua, Trans States and Corporate Airlines to fully sever their relationships with American.

“The thing that’s particularly disturbing is the fact that the only distinguishable difference between [Chautauqua’s ERJ-140s] and our aircraft is where you see American Eagle on ours, theirs say Connection,” noted Eagle MEC representative Jim Higgins. “Everything else is painted the same, the passengers will perceive them as the same, and that’s just not what our contract envisioned. Once we allow other carriers to do flying that we believe belongs to us, what’s to keep them from showing up at one of our other hubs?” James Magee, chairman of the Eagle MEC’s strategic planning committee, said he does not expect a resolution to the Eagle dispute until at least late summer.

Executive Sale Up in the Air

Meanwhile, speculation over the sale of Executive Airlines continues to breed consternation among Eagle pilots in San Juan and Miami. Although American claims its talks with would-be Executive owner Caribbean Star have broken down, it continues “to evaluate its options” related to its Caribbean division, and has not dismissed the possibility of an eventual sale of the unit. In fact, if American succeeds in its plan to escape its ASM cap by removing the AA* code from St. Louis regional flights, a similar strategy employed with an independent San Juan operation could prove equally attractive.

St. John’s, Antigua-based Carib- bean Star has applied to the FAA for U.S. certification in preparation for a new division it wants to establish in San Juan on July 1. The company has opened an office in Fort Lauderdale, Fla., ostensibly to support a foray into the U.S., although employees there refused to speak with AIN about its plans. Perhaps not coincidentally, the airline’s preliminary route structure out of San Juan included many of Executive Airlines’ existing cities. “Obviously, ALPA is going to oppose any sale of Executive,” said Magee. “I don’t know what remedies are available, but I do know our legal department is working on the matter.”