AMR Corp.'s Pilots: Getting the Short End of the Stick

A comment in AMR’s recent SEC 10-K filing caught my attention:

“Early pilot retirements resulted in $917 million in total lump sum payments to 517 pilot retirees (approximately $1.8 million per retiree consisting of payments from Company-funded defined benefit and defined contribution plan trusts) for which the Company incurred a $103 million settlement charge.”

Since I don’t recall seeing anything previously written when annual wage/salary expenses for AMR’s “General Management” increased from what was historically well under $50 million to an average of $165 million from 2005-2007; it would appear this SEC comment pointing out the 'average' pension payment to these pilots goes beyond just reporting financial numbers.

So I’m not accused of taking sides here, when it comes to the spreadsheet side of the business, AMR management has been outperforming most of the industry. The operational side of the business is a different story.

[Note: Under the direction of the National Mediation Board, all of the major unions for AMR are currently negotiating new contracts that were amendable nearly a year ago.]

For some clarification: The AA pilot’s pension plan consists of a “Defined Benefit Plan” [DBP] and a “Defined Contribution Plan” [DCP]. These pension plans have been in existence for over 50 years. In 2003 the AA pilots took major concessions, in part, to avoid bankruptcy and preserve the fundamentals of their pension plans.

The relatively large pension payouts noted in the SEC comments were effectively caused by the run up in the stock market and is the reason why over 400 pilots, most with decades of experience, chose to retire early thereby preserving the market gains and increased value of their DCP.

Contrary to AMR’s wish that all pilots retire as multi-millionaires, the current value of the DCP funds for the remaining pilots is currently down by over 40% from a year ago. Due to years of no hiring stagnation combined with significant pay concessions, most of the remaining AA pilots will retire with considerably less than the pilots who choose to take their money and leave last year.

Below is a chart showing the percentages of pilot wage/salary expenses for 2007 vs. 2003. The total wage/salary for all employees is also provided for the same time period.

Five years ago the AA pilots were getting close to the industry's average percentage of the wage/salary dollars. AA pilots are now near the bottom of the industry. This wage amount is effectively compounded lower when considering the AA pilots have one of the most (stagnated) senior group of pilots on the planet.

Disclosure: at the time of this writing, the author and members of his family held shares in AMR.

Comments

[777Captain:]

From an APA member's perspective, it seems like my dear union has already decided the endgame: "self help" (a strike, for those of you not up on industry terminology.) We worked so hard in 2003 to avoid going down the bankruptcy road and losing these retirement benefits, it would be a huge mistake now to force the company's hand on that issue.

When demand recovers and profits return, we should get our fair share. But blindly pushing the company into insolvency is bad strategy. We have a lot to lose.

Feb 23 06:04 PM

[roscoe767:]

Let me get this straight.Herbst wants me to feel sorry for he and his fellow pilots in this economy? He works 16 days a month for$179/hr.times say an average month of 75 hours plus 12.25% more into a tax free retirement fund for a total of about $15000 a month.This does not inlude the company paid health care plan and about $2.00/hr. expenses while he is away on trips.I know a whole lot of unemployed people that would change places with him and not complain ever again.

Feb 23 10:19 PM

[thaydenw:]

I'm pretty sure percentages don't pay bills, so don't know what we're expected to take away from the chart that was presented. The more obvious metric we should be evaluating is average pay per pilot.

AA pilot's are paid very near the top of the industry payscale, second only to Southwest. And it should be noted that Soutwest's pilot productivity ranks considerably higher than AA's due in large part to differences in work rule restrictions.

So let's sum it up. AA pilots get paid as well or better than any other pilot group in the industry, they don't have to work as hard, and they're demanding a 50% increase in pay. Nice.

Feb 24 10:35 AM

[skwestorange:]

It is tragic that airline pilots who are some of the best paid for the least number of hours worked per month feel they are underpaid. It is this greed that must be stopped or else we risk driving yet another industry in deep trouble into the ground

Feb 24 02:09 PM

[stunned in TX:]

I've read from multiple (and credible) sources that AA pilots are have the highest overall compensation in the industry. And apparently they want a 50% above that level. It's outrageous. Do they not see that their airline is shrinking from lack of demand? They are lucky to have their jobs right now while people get laid off by the thousands from every industry.

Feb 24 08:21 PM

[User 230658:]

A whole lot of people cannot do this job.



On Feb 23 10:19 PM roscoe767 wrote:

> Let me get this straight.Herbst wants me to feel sorry for he and
> his fellow pilots in this economy? He works 16 days a month for$179/hr.times
> say an average month of 75 hours plus 12.25% more into a tax free
> retirement fund for a total of about $15000 a month.This does not
> inlude the company paid health care plan and about $2.00/hr. expenses
> while he is away on trips.I know a whole lot of unemployed people
> that would change places with him and not complain ever again.

Feb 26 09:29 AM

[mwfall:]

sounds like you need to be taken out to the wood shed and given the full stick.

Mar 04 06:48 PM

[baronflier:]

Being away from your family for long periods of time is worth something. Paying your pilots a wage that makes the job competitive, with the average education normally being at least a Masters degree is worth something. What these things are worth depends on if you are on an airplane, or sitting at your computer mindlessly bashing a profession where just about everyone in it could do another job and make more money.

Jul 05 08:32 PM