Compensation and Working Conditions Winter 1999 21

Pilots' Sickout

MICHAEL H. CIMINI

Profile of the American

Airlines’ Pilot Sickout

Last February, pilots at American Airlines conducted a

10-day sickout that centered on when American Airlines

would integrate the operations of Reno Air, a regional

low-fare carrier it purchased in December 1998 to shore

up its West Coast presence. After 8 months of negotiations the carrier officially integrated Reno Air operations.

Michael H. Cimini is an economist in the

Division of Compensation Data Analysis

and Planning, Bureau of Labor Statistics.

Telephone: (202) 691-6275

E-mail: Cimini_M@bls.gov

Last February, American Airlines and the Allied Pilots Association (APA) were involved

in a labor dispute that spawned a 10-

day sickout and led to the cancellation

of some 6,600 flights that cost the carrier an estimated $200 million.1 The

dispute revolved around when American would integrate 300 Reno Air pilots into its pay and seniority ranks,

following the merger of the two carriers. Worried that American Airlines

would transfer its routes to Reno’s

lower-paid pilots, the Allied Pilots

proposed that the integration be retroactive to December 23, 1998, when

American took control of Reno Air.

American Airlines told the union that

it intended to operate Reno Air separately for a transition period—12 to

18 months—to give it time to retrain

Reno Air’s pilots, refurbish its aircraft, and consolidate airport facilities.

After 9 months of fruitless negotiations, American Airlines officially integrated Reno Air’s operation on August 31, 1999, effectively ending

another chapter in the parties’ bargaining history.

Background

At the time of the dispute over the integration of Reno Air, there was already discord between American Airlines and the Allied Pilots because of

problems that had been brewing for

several years. In the mid-1980s,

American Airlines unilaterally imposed a two-tiered wage system on pilots. In addition, following the integration of AirCal in 1987, some

AirCal pilots stayed for several years

at lower wage rates than their counterparts at American Airlines.2 In the

early 1990s, the carrier closed hubs in

San Jose and Raleigh-Durham, and

pulled out of West Coast service. As a

result, American Airlines made joint

marketing agreements with low-cost

carriers, such as Reno Air, that gave

them access to American’s gates.

American pilots saw this as an attempt

to subcontract their jobs. During this

time, American furloughed 610 pilots,

some for as long as 3 years.3

At the same time, Reno Air enjoyed

a close business relationship with

American Airlines, which even allowed Reno Air’s passengers to earn
22 Compensation and Working Conditions Winter 1999

American frequent-flier miles. As the

furlough list grew, so did the Allied

Pilots’ resentment over the close relationship between the two carriers, especially since Reno Air had taken over

former American Airlines’ routes.4

Coupled with years of mistrust, this

resentment surfaced in 1997, when the

pilots struck America Airlines briefly

before being sent back to work under

an executive order. The subsequent

1997-2001 contract agreement further

angered many pilots, who were already

frustrated by the president’s decision

to end the 1997 strike.5

Parties to the dispute

American Airlines. American Airlines, a unit of ARM Corp., is the

Nation’s second largest airline, with

scheduled service to 161 cities, mostly

throughout North America, the Caribbean, Latin America, Europe, and

the Pacific. Coupled with its regional

affiliate, American Eagle, the carrier

serves 233 cities, with a workforce of

109,000 and a fleet of 892 aircraft.

American Airlines carries some

225,000 passengers each day, and has

2,200 daily departures. Its major hubs

are located at Dallas-Fort Worth, Chicago, Miami, New York, and San

Juan.6

Allied Pilots Association. The APA

is an independent union representing

American Airlines’ 9,500 pilots, who

fly as captains and first and second

officers. The union was founded in

1963, and was recognized for collective bargaining purposes by American

Airlines in July of that year. The APA

is headquartered in Fort Worth, Texas.

Reno Air. Reno Air, a scheduled, lowfare airline, began operations in July

1992. The carrier employed 2,100

people and had a fleet of 25 aircraft.

It operated 182 daily flights to 13 cities from three major hubs—Reno-Lake

Tahoe, San Jose, and Las Vegas. The

carrier, which had little overlap in

routes flown by American Airlines,

maintained a marketing agreement

with American from 1993 until 1998.

Issues in dispute

The 1999 dispute revolved around the

Allied Pilots’ contention that American Airlines was violating their 1997-

2001 collective bargaining agreement’s scope clause by continuing to

operate Reno Air as a separate air carrier, even though it had purchased a

majority of Reno Air’s stock and had

placed four of its senior-level officers

on Reno Air’s board of directors. The

APA feared that American Airlines

would operate Reno Air as a separate

carrier. This would allow American

to expand its Reno Air operations;

thus, work would be lost to the Reno

Air pilots who would not be covered

under the terms of the American-APA

collective bargaining agreement.

The union cited its scope clause as

governing the dispute: “All flying performed by or on behalf of the company

or an Affiliate shall be performed by

pilots on the American Airlines Pilots

Seniority List in accordance with the

terms and conditions of the Agreement.” According to the union, the

scope clause meant that the flying performed by the Reno Air pilots for

American Airlines since December 23,

1998, should have been assigned to

American Airline pilots, and that all

pilots’ work was to be performed according to the American Airline–APA

contract. The union said that it notified the carrier in October of 1998 that

it needed to obtain an exemption (a

“bridge agreement”) to temporarily

operate Reno Air.7

The APA wanted to protect its

members’ job security and pay. Reno

Air pilots were paid half of the

$140,000 average salary earned by

their American Airlines counterparts.

The union feared that American would

use these lower paid pilots in place of

their higher-paid members. The APA

insisted that all American pilots, including the former Reno Air pilots,

should receive the pay rates set under

the Allied Pilots’ contract. The union

had vigorously opposed two-tiered

wage systems in the past, and cited its

current agreement—negotiated after

the 1997 strike—that had contract language calling for the elimination of

different wage scales for the same work.

The merger would bring sizable

wage increases for the Reno pilots and

new advancement opportunities for

American Airlines’ first officers. The

APA proposed that American Airlines

pay all pilots as if their promotions

were retroactive to December 23,

1998. However, the company was only

willing to phase in the wage boost over

a 12- to 18-month integration period.

The union also requested that the carrier compensate the pilots furloughed

in the early 1990s, whom the union

alleged were laid off because of

American’s decision to pull out of various West Coast markets and to subsidize Reno Air through market arrangements and other support.

Throughout this dispute, APA insisted

that these pilots’ interests be addressed

in the negotiations.

American rejected these two proposals, saying that it would cost an

additional $40-$50 million and wipe

out significant benefits brought about

by the merger.8 The carrier claimed

that its integration proposal was more

generous than those in past airline

mergers. It noted that it had made it

clear to the union that it would not

operate Reno Air as a separate carrier,

and that it would pay Reno Air pilots

American Airline pilots’ wages as

soon as the integration was complete.

In addition, American Airlines said it

offered to significantly boost Reno Air

pilots’ wages during the integration

period.

Also at issue was the integration of

the seniority list, which directly or indirectly affects many aspects of the

pilots’ pay and working conditions.

The APA wanted the Reno pilots to be

placed at the bottom of the seniority

list, instead of placing them according to their years of service. This

would protect the American pilots, but

put the Reno pilots, who were not covered under the APA collective bargaining agreement, at a considerable disadvantage.

Negotiations and court

proceedings

American Airlines’ and the APA ne-
 Compensation and Working Conditions Winter 1999 23

Pilots' Sickout

gotiators opened contract talks in

January 1999. After negotiators

reached an impasse in early February

1999, the APA urged its members to

consider whether the emotional or

physical stress from the dispute would

affect their ability to fly safely. The

union’s president, Richard LaVoy, told

his members shortly after the sickout

began, “We simply cannot allow anyone to pressure us into flying when we

are not medically fit because it would

be a serious violation of medical regulations.”9

On February 5, American Airlines

presented what it called a comprehensive proposal to the union, after which

contract talks recessed. On the next

day, some pilots started calling in sick,

while others refused to fly overtime,

causing the carrier to cancel flights.

American Airlines canceled 90 flights

on February 6, another 240 on February 7, and 500 flights on February 8.

Because February is usually a light

travel month, American’s domestic

flights were not booked up, so domestic passengers were more easily accommodated; but many of its international

passengers had to be booked on other

carriers. American Airlines, however,

threatened to sue the union if it didn’t

terminate the sickout by the President’s

Day holiday weekend, when it and

other carriers would be heavily

booked.

At the company’s behest, the parties resumed negotiations on February

9, at which time 827 flights were canceled affecting some 73,000 passengers.10 Frustrated by the continued

sickout, which had forced the cancellation of some 2,400 flights since February 5, American requested a temporary restraining order on February 10

to end the job action. In its court filing, the carrier said that sick calls increased from 470 on February 5 to

1,200 by February 9.11 In addition,

American cited several instances

where union officials encouraged their

members not to report to work if they

felt “stressed” because of the pace of

the negotiations, or otherwise felt sick.

The carrier insisted that, given its willingness to address the union’s fundamental concerns, there was no reason

for the job action to continue. With

that, the union canceled the negotiation sessions that were to be held that

day.

On February 10, U.S. District Judge

Joseph Kendall found that the underlying labor dispute was a so-called

“minor dispute” and, thus, the job action was “inappropriate and has to

stop.” (Case No. 7:99-CV-025-X.)12

The judge ordered the pilots to end the

sickout and to resume negotiations.13

The judge issued a temporary restraining order (TRO) that barred the

union and its officers from “calling,

permitting, instigating, authorizing,

encouraging, participating in, approving or continuing any form of interference with American Airline’s operations, including but not limited to

any concerted strike, work stoppage,

sick-out, slowdown, or other concerted

refusal to fly in violation of the Railway Labor Act.”14 The judge further

ordered that the union leadership:

• Take all “reasonable steps within

their power” to prevent any type

of aforementioned job action.

• Instruct their members to “resume their normal working schedule.”

• Notify their members “by the

most expeditious means possible”

of the contents of the TRO.

• Direct their members who were

engaged in the sickout “to cease

and desist all such activities and

desist all exhortations or communications encouraging same.”

• Post the notice about the TRO

on their web site and the contents of this order on “all recorded telephone hotlines under

control” of the union leadership.

During these hearings, the Allied

Pilots adopted the legal position that

American Airlines’ action in ignoring

the language of the scope clause created a “major dispute”15 under the

Railway Labor Act, which would allow the union to use self-help, up to

and including a strike. The union cited

a 1969 U.S. Supreme Court ruling that

it claimed applied to the Reno Air dispute:

...it could hardly be expected

that a union would sit idly by as

the...(carrier) rushed to accomplish

the very result the union was seeking to prohibit by agreement. The

union undoubtedly felt it could resort to self-help if the...(carrier)

could, and, not unreasonably, it

threatened to strike. 16

Notwithstanding its position, the

union said that it would fully comply

with the order, but warned, “The company is still in violation of our

contract...and the (judge’s order) is

not going to solve that.”17

The parties resumed negotiation on

February 11. About 2,400 pilots reported in sick on that day—compared

to 2,077 the day before—and some

1,100 flights were canceled.18 On the

same day, American Airlines went

back to court and asked the judge to

issue a contempt order in which the

carrier would receive substantial monetary damages from the union.19

On February 13, Judge Kendall issued a contempt of court citation

against the union and two of its leaders. The judge assessed temporary

fines—$10 million against the union;

$10,000 against Richard LaVoy, the

union’s president; and $5,000 against

Brian Mayhew, the union’s vice-president—for violating the TRO issued 3

days earlier. The judge specifically

cited a February 10 communication

from the union leadership to its members, which, the judge said, “...intentionally gave the impression and further conveyed to the union

membership that individual Union

members did not have to comply with

the TRO.”

The APA claimed it went to great

lengths to comply with the judge’s order. The union said, “A job action

involving so many widely scattered

pilots making independent decisions

about when they should clear the sick

list, and involving so many mis-
24 Compensation and Working Conditions Winter 1999

matches between aircraft and crews,

proved to be a very difficult thing to

‘turn off’...in reality, the pilots’ compliance with the TRO was outstanding. Many cancellations subsequent

to the TRO were due not to a lack of

crews, but were actually related to

management decisions to cancel specific flights regardless of whether there

was a crew available to fly them or

not.” In addition, the union contended

that the sickout was a “grass-roots protest” that it could not control.20

On February 15, American flew 90

percent of its normally scheduled

flights as the pilots returned to work

under the threat of the $10 million

fine. On the same day, American Airlines presented the union with a new,

comprehensive offer to end the dispute.

That proposal called for an immediate pay boost of up to 54 percent for

Reno Air pilots, plus a cut in the

amount of time to train pilots and integrate the operations of the two carriers. Further negotiations were held

on February 16, but little or no

progress was reported. American Airlines then issued a press release regarding the status of negotiations with

the APA:

The airline is enormously disappointed that no progress is being

made in our negotiations with the

Allied Pilots Association, despite

the fact that we have put forth another enhanced proposal addressing

areas the APA has told us are important. During this entire negotiations, the union has shown a complete unwillingness to move off its

original position. The proposal we

have put forth is unprecedented in

the history of airline mergers with

regard to compensation and speed

of integration.21

On February 17, Judge Kendall

held hearings to allow the parties to

present evidence concerning the

amount of damages American Airlines

suffered during the sickout. American presented evidence at the hearing,

but APA did not. Instead, the union

asked for a continuance so it could

prepare evidentiary materials.

On February 18, American renewed

its offer to use an independent mediator or arbitrator to assist the parties in

reaching a settlement. That same day,

contract talks were recessed. In a prepared statement released on February

21, the carrier said:

We have made two generous and

comprehensive offers to the union’s

negotiating committee within the

last ten days. But thus far, APA has

failed to present us with a comprehensive counteroffer to our proposals, except to say that it will settle

for nothing less than its original key

demands, including retroactive promotion pay for American Airline pilots, dating back to December 23,

1998. APA’s key demands, which

are simply out of step with regards

to an airline merger, are presenting

a huge obstacle to concluding this

deal. Without these demands, we

are confident that we could conclude an agreement in a matter of

hours.

American Airlines’ management

was surprised by the reaction of the

pilots’ leadership to its implementation plans and by the intensity of their

protest.22 The union saw the dispute

as a line drawn in the sand, “...the

stakes are enormous. AMR’s plan for

outsourcing our flying to its ‘boutique’

of airlines requires breaking the back

of APA’s contract, specifically the career protection provided by our Scope

Clause.”23 The union contended that

the carrier had to “successfully establish its precedent of violating the scope

clause” so it could outsource more

domestic and international flights to

its code-sharing partners, such as

Alaska Airlines and U.S. Airways, and

its Oneworld Alliance partners.24 The

union claimed that it wanted the Reno

Air dispute settled quickly in case

American acquired an even larger airline in the future, in which case labor

issues would take on even greater importance.

By agreement of the parties, Judge

Kendall on February 23 extended the

TRO until May 10. The judge also

postponed hearings on the amount of

compensation the union must pay

American Airlines until April 12.

On February 24, American and the

APA agreed to conduct two additional

bargaining sessions, and if the sessions

proved unsuccessful, to use an independent mediator to assist them in resolving their dispute. The parties subsequently canceled the 2-day

negotiation sessions because they felt

they were entrenched in their positions. American Airlines and the APA

then began non-binding mediated negotiations with the help of an outside

mediator. They held contract talks on

March 21-22 and April 5-6.

On April 12, Judge Kendall reconvened the hearings on damages. Three

days later, he levied a $45.5 million

fine against the APA to compensate

American Airlines for its losses during the sickout, and ordered the union

to deposit $10 million in the court registry. The judge also requested briefs

from the parties on the issue of whether

Messieurs LaVoy and Mayhew should

be held jointly and severally liable for

the damages awarded. On April 19,

Judge Kendall gave the APA until

April 28 to make an additional $10

million deposit.

On or around April 29, American

Airlines and the APA reached a negotiated compromise in which American

Airlines agreed not to collect on its

money judgment against the union and

to allow the union to keep the $20

million in an escrow account while appealing the $45.5 million fine. As part

of the compromise, American Airlines

and APA also agreed that each party

would maintain their position regarding the union’s scope clause, that APA

would not appeal the court’s judgment

that the dispute was a minor dispute

under the Railway Labor Act, and that

both parties would agree to a permanent injunction against further walkouts.25

On or around June 21, APA petitioned the National Mediation Board,

the Federal agency that administers the

Railway Labor Act, to investigate

whether American and Reno operated

as a single transportation system for

purposes of the Railway Labor Act.

This would be the preliminary step in

APA being certified as the collective
 Compensation and Working Conditions Winter 1999 25

Pilots' Sickout

bargaining agent for both the American and Reno Air pilots.26

Two days later, Judge Kendall

ruled that the APA and its top leadership must pay American Airlines

$45.5 million in compensatory damages. One day later, he issued a permanent injunction prohibiting the

union from conducting a job action

until its current collective bargaining

agreement expires and the mandatory

procedures of the RLA have been exhausted.27

American and the APA participated in mediated negotiations from

June 28 through July 1, with the help

of the Federal mediator who had been

assisting the parties since March. Negotiators met again during the week

of July 6. On July 14, the Federal mediator offered a proposal to end the

dispute; the proposal included comprehensive terms for the settlement of

the Reno Air integration and a protocol for future mergers and acquisitions. According to press reports, the

proposed settlement called for a series of pay raises for Reno Air pilots

and ensured that American Airlines

pilots who were furloughed in the

early 1990s would not be far behind

Reno Air pilots in seniority in areas

such as vacation pay or pension benefits. However, it apparently didn’t

provide retroactive raises to American pilots who had taken training.28

American Airlines quickly accepted

the offer.

The union’s board of directors approved an amended version of the proposal on August 5. According to the

union, there were three types of

amendments added to the mediator’s

proposal: (1) Those that would have

restored full seniority credit to pilots

furloughed in the early 1990s for purposes of calculating pay, pensions, and

vacations; (2) those clarifying that

American Airline routes could not be

transferred to an acquired carrier before the two airlines are fully integrated; and (3) those clarifying the

meaning of certain provisions to

eliminate potential misunderstandings.

Three days later, American Airlines

responded by saying that the union

“made such substantial changes to it

(the proposal) that it amounts to the

APA rejecting it.” 29 Alleging that the

amendments would cost an additional

$50 million, the carrier vowed to complete the Reno Air integration by August 31, with or without an agreement

with the union.30

American Airlines and the APA

resumed mediated negotiations on

August 16-17 and August 29-31. With

no agreement in hand, American Airlines officially integrated Reno Air’s

operations on August 31.

At its fall meeting, the Allied Pilots Board of Directors agreed to terms

resolving most of the outstanding issues related to the Reno Air merger.

The agreement credits American pilots furloughed in 1993 and 1994 with

one-half of their elapsed furlough time

for purposes of pension and vacation

benefits. It also established all of the

terms of the merger except the "control date" of Reno Air by American.

That issue will be submitted to an outside arbitrator for resolution.
26 Compensation and Working Conditions Winter 1999

Dispute.” (Wall Street Journal, February 11,

1999, p A1.) 23 APA, “Special Report,” March 15, 1999.

24 The code sharing and alliances are cooperative service relationships where selected carriers

serve many cities worldwide that American does

not serve. American shares the partners’ flights

by placing their “AA” designator code and flight

numbers on theirs. By marketing these flights as

its own, American expands the number of destinations it serves. The union adamantly opposes

these alliances, calling them nothing more than

outsourcing (subcontracting) that results in fewer

APA jobs. 25 According to a union press release, the injunction would expire when American and the

APA signed a new contract or when either party

engaged in self-help at the end of the next round

of contract negotiations. (“Allied Pilots Association Issues Statement Regarding Negotiated Compromise With American Airlines,” Allied Pilots

Association, April 29, 1999, accessed September

14, 1999.) 26 On August 31, the National Mediation

Board ruled that that American Airlines and Reno

Air were a single carrier for purposes of the Railway Labor Act. 27 Judge Kendall was referring to Sections 5,

6, and 10 of the act, which require that step-bystep procedures be exhausted before a union can

strike or a carrier can lockout the union or change

the terms and conditions of employment. See “Profile of an Emergency Dispute,” pp. 37-39. 28 Wall Street Journal, July 19, 1999. 29 New York Times, August 9, 1999, p. C2. 30 “American Confirms Reno Integration Talks

Next Week,” ARM Corporate Information, Corporate and Subsidiary News Releases, August 11,

1999, accessed September 11, 1999.

union’s lawyer alleged that the sickout was not

union organized and even more incredulous when

the lawyer said all the pilots on the sick list were

really sick. The judge said, “Please don’t insult

my intelligence. Are you actually telling me all

these pilots are really sick? Have you notified the

Center for Disease Control in Atlanta?” (County

Star, February 11, 1999, p. E1.)

15 A major dispute is one over the intended

change in the terms and conditions of a collective

bargaining agreement. Job actions over major

disputes are permissible if the prerequisite steps

of the Railway Labor Act have been taken. 16 Detroit and Toledo Shoreline R.R. Co. v.

UTU, 396, U.S. 142, 154 (1969). 17 USA Today, February 11, 1999, p. 1B. 18 Wall Street Journal, February 12, 1999,

p. A3. 19 On February 12, 1,046 flights were canceled

and more than 2,400 pilots were on the sick list.

One day later, 845 flights were canceled and about

2,100 pilots were on the sick list. 20 Allied Pilots Association, Special Report,

March 15, 1999, p. 15. 21 “American Disappointed With Progress of

Negotiations With APA,” ARM Corporate Information, Corporate and Subsidiary News Release,

February 16, 1999, accessed September 13, 1999. 22 Don Carty, American Airlines CEO, said,

“It’s hard for me to believe that this is really about

the Reno acquisition. I think it’s clearly more than

that.” (Wall Street Journal, February 11, 1999,

p. A1.) Some industry insiders saw the dispute as

a political problem within the union: “Insiders say

the American standoff was orchestrated largely by

dissident pilots based in Miami and New York who

successfully undercut a contract agreement two

years ago, and by Mr. Mayhew, ... who endured

some of the hardships now at the center of the Reno

1

 Wall Street Journal, April 10, 1999, p. A2. 2

 County Star, February 11, 1999, p. E1. 3

 Wall Street Journal, February 11, 1999, p.

A10.4

 The pilots blamed the American Airlines—

Reno Air connection for the 610 laid off American

pilots. (County Star, February 11, 1999, p. E1.) 5

 Santa Barbara News-Press, February 10,

1999, p. A10. Also see Michael H. Cimini “Profile of an Airline Emergency Dispute,” Compensation and Working Conditions, Fall 1997, pp.

32-39. 6

 ARM Corp., “ARM Corporate Information,” accessed September 15, 1999. 7

 APA Information Hotline, “Special Report

to the Membership,” March 15, 1999, accessed

September 12, 1999. 8

 The union claimed the figure was $20 million. (“APA Information Hotline,” August 18,

1999, accessed September 13, 1999.) 9

 USA Today, February 9, 1999, p. A3. 10 Moorpark Star, February 10, 1999, p. E1. 11 “American Airlines Disappointed, Union

Calls Off Talks,” ARM Corporate Information,

Corporation and Subsidiary News Release, February 10, 1999, accessed September 10, 1999. 12 Daily Review, February 11, 1999, p.

NEWS-1.

A minor dispute is one over the interpretation of the terms of an existing collective bargaining agreement. The Railway Labor Act, the

law that governs collective bargaining in the airline industry, bars job actions over minor disputes. 13 Admonishing both parties, the judge said,

“It’s silly for us to even be here. It’s like killing a

gnat with a sledgehammer.” (Kansas City Star,

February 11, 1999, p. C1.) 14 Judge Kendall was incredulous when the