Twotter Driver
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Pilots contract threatens Continental-United ventures
A little-known pilot contract provision could scuttle two major international initiatives planned by Continental and United Airlines and their Star Alliance airline partners.
The two U.S. carriers, along with Lufthansa and Air Canada, received antitrust immunity from the U.S. government last year to divvy up revenue and closely coordinate flights across the North Atlantic.
Chicago-based United and Continental are using that partnership as a template for a trans-Pacific venture they are forming with All Nippon Airways to compete with that region's troubled juggernaut, Japan Airlines.
However, Continental's pilots hold an effective veto over the deals as a result of a clause in their contract that bars the Houston-based carrier from entering into a revenue-sharing arrangement with another U.S. carrier.
Deep in contract talks with Continental management, the pilots union is refusing to budge on the "scope" language in their collective bargaining agreement.
The stalemate is holding up the full launch of the Atlantic joint venture and would be a barrier to the Pacific deal, sources said. The Atlantic partnership must be fully operating by December under the terms of the antitrust immunity granted by the U.S. Department of Transportation last summer.
"There are a number of open items related to governance and commercial issues that we are working through on the joint venture, including discussions concerning our pilots' scope clause," said Continental spokeswoman Julie King. "The companies and the DOT recognized that there were a lot of issues to be resolved in setting up a joint venture, and that's why the DOT order gives 18 months for the joint venture to be implemented."
The pilots are aware of the clout that they hold as potential deal-breakers and the importance of the international forays to Continental's management. The nation's fourth-largest carrier defected last year to Star from the SkyTeam alliance and formed a close relationship with United that many analysts think is a precursor to an eventual merger.
"I think they're counting on us," Capt. Jay Pierce, head of the Continental pilots union, told the Tribune. "History would probably tell you that's not a bad gamble for them to take. I will say this: We are well aware of the leverage this gives us."
Continental and its pilots have been in contract talks since July 2007 and, after reaching agreement on nine sections, are starting to tackle "hard economic issues" like pay, Pierce said. Scope issues touch all of the hot buttons: pay, management's rights and job security, he noted.
Since Continental is known for healthy employee relations in an industry rife with acrimony, industry observers predict the carrier will find a middle ground with pilots.
"It needs to get worked out," said aviation consultant Robert Mann. "Like it or not, this is where the industry is going."
Many U.S. pilots find the prospect of large-scale partnerships deeply threatening. They worry that carriers are seeking to outsource the long-range flying jobs that are among the most prestigious and highest paying.
American Airlines' pilots oppose its proposed trans-Atlantic alliance with Oneworld partners British Airways and Iberia. While United and Continental pilots didn't try to block Star's Atlantic venture, they want assurances that pilot jobs won't be a casualty of "metal-neutrality," the practice of giving all participating carriers a cut of revenue on a flight regardless of who flies it.
"We do not want a shell operation," said Capt. Wendy Morse, who heads United's pilots union. "We want metal in the market, United pilots being productive in terms of flying their own airplanes and route structure."
That concept is less threatening to Delta Air Line's pilots, who already participate in a metal-neutral venture in the Atlantic and last fall endorsed their management's bid to form a partnership with JAL that would likely have a similar structure. But the pilots have safeguards against flying cuts. Delta, for example, is required to maintain a minimum number of landing slots at Tokyo's Narita Airport for its own aircraft, according to a Nov. 30 union communique.
Proponents of the new ventures argue that they will create jobs and travel growth as passengers in Tokyo or Brussels find it easier to get to destinations like Costa Rica.
"Joint ventures and alliances make us a stronger airline and partner, and create and protect jobs," said United spokeswoman Jean Medina. She estimated that United's alliance with Lufthansa and other partnerships have created or protected 3,000 jobs that would have otherwise vanished.
But this decade's alliances may prove far different than those forged during the past two decades, when global aviation boomed, warned aviation consultant Hubert Horan, a former airline executive who helped form the original Northwest-KLM alliance in 1992.
"These are taking place in markets that are shrinking, not growing," he said. "There's no discussion of how that pain will be shared."
A little-known pilot contract provision could scuttle two major international initiatives planned by Continental and United Airlines and their Star Alliance airline partners.
The two U.S. carriers, along with Lufthansa and Air Canada, received antitrust immunity from the U.S. government last year to divvy up revenue and closely coordinate flights across the North Atlantic.
Chicago-based United and Continental are using that partnership as a template for a trans-Pacific venture they are forming with All Nippon Airways to compete with that region's troubled juggernaut, Japan Airlines.
However, Continental's pilots hold an effective veto over the deals as a result of a clause in their contract that bars the Houston-based carrier from entering into a revenue-sharing arrangement with another U.S. carrier.
Deep in contract talks with Continental management, the pilots union is refusing to budge on the "scope" language in their collective bargaining agreement.
The stalemate is holding up the full launch of the Atlantic joint venture and would be a barrier to the Pacific deal, sources said. The Atlantic partnership must be fully operating by December under the terms of the antitrust immunity granted by the U.S. Department of Transportation last summer.
"There are a number of open items related to governance and commercial issues that we are working through on the joint venture, including discussions concerning our pilots' scope clause," said Continental spokeswoman Julie King. "The companies and the DOT recognized that there were a lot of issues to be resolved in setting up a joint venture, and that's why the DOT order gives 18 months for the joint venture to be implemented."
The pilots are aware of the clout that they hold as potential deal-breakers and the importance of the international forays to Continental's management. The nation's fourth-largest carrier defected last year to Star from the SkyTeam alliance and formed a close relationship with United that many analysts think is a precursor to an eventual merger.
"I think they're counting on us," Capt. Jay Pierce, head of the Continental pilots union, told the Tribune. "History would probably tell you that's not a bad gamble for them to take. I will say this: We are well aware of the leverage this gives us."
Continental and its pilots have been in contract talks since July 2007 and, after reaching agreement on nine sections, are starting to tackle "hard economic issues" like pay, Pierce said. Scope issues touch all of the hot buttons: pay, management's rights and job security, he noted.
Since Continental is known for healthy employee relations in an industry rife with acrimony, industry observers predict the carrier will find a middle ground with pilots.
"It needs to get worked out," said aviation consultant Robert Mann. "Like it or not, this is where the industry is going."
Many U.S. pilots find the prospect of large-scale partnerships deeply threatening. They worry that carriers are seeking to outsource the long-range flying jobs that are among the most prestigious and highest paying.
American Airlines' pilots oppose its proposed trans-Atlantic alliance with Oneworld partners British Airways and Iberia. While United and Continental pilots didn't try to block Star's Atlantic venture, they want assurances that pilot jobs won't be a casualty of "metal-neutrality," the practice of giving all participating carriers a cut of revenue on a flight regardless of who flies it.
"We do not want a shell operation," said Capt. Wendy Morse, who heads United's pilots union. "We want metal in the market, United pilots being productive in terms of flying their own airplanes and route structure."
That concept is less threatening to Delta Air Line's pilots, who already participate in a metal-neutral venture in the Atlantic and last fall endorsed their management's bid to form a partnership with JAL that would likely have a similar structure. But the pilots have safeguards against flying cuts. Delta, for example, is required to maintain a minimum number of landing slots at Tokyo's Narita Airport for its own aircraft, according to a Nov. 30 union communique.
Proponents of the new ventures argue that they will create jobs and travel growth as passengers in Tokyo or Brussels find it easier to get to destinations like Costa Rica.
"Joint ventures and alliances make us a stronger airline and partner, and create and protect jobs," said United spokeswoman Jean Medina. She estimated that United's alliance with Lufthansa and other partnerships have created or protected 3,000 jobs that would have otherwise vanished.
But this decade's alliances may prove far different than those forged during the past two decades, when global aviation boomed, warned aviation consultant Hubert Horan, a former airline executive who helped form the original Northwest-KLM alliance in 1992.
"These are taking place in markets that are shrinking, not growing," he said. "There's no discussion of how that pain will be shared."