Continental Pilots Resist Plan to Outsource After United Merger

September 9, 2010

United Airlines pilots are known for belligerence, but their counterparts at Continental Airlines Inc. are talking tougher as the two carriers combine to form the world’s largest airline.

Continental’s pilots union is dead set against any plans to outsource more flights to regional airlines. They have negotiated the industry’s tightest limits on outsourcing and vow to fight any increase at the merged carrier.

“How much you make per hour doesn’t matter if you don’t have a job,” said Jay Pierce, chairman of the Air Line Pilots Association at Continental, who wants the new airline to bring more flying in house rather than increase outsourcing. United’s pilots union declines to comment.

With antitrust approval of the merger out of the way, hammering out a joint contract with United and Continental pilots is the next critical step in the merger, set to close next month. Talks began August 9 on an accelerated schedule.

The outcome will set the tone for a merger that can’t succeed without cooperation from employees. A smooth integration of workforces made the 2008 merger of Delta Air Lines and Northwest Airlines a winner, while labor unrest hobbled the 2005 combination of US Airways and America West.

It’s the pilots at Houston-based Continental, which prides itself on harmonious labor relations, not their notoriously feisty counterparts in Chicago, who likely present the biggest obstacle. After watching United furlough 1,437 pilots as it shifted more flying to regional carriers over the past three years, they consider them a threat to jobs.

The use of regional carriers, which has been growing for two decades, has exploded in the past two years. In 2008, regional jets accounted for about 12 percent of domestic flight capacity, Denver-based aviation consultant Tom Bacon estimated. By the first quarter of 2010, it was 19 percent.

Because labor can make or break a merger, employees usually pocket substantial pay gains when airlines combine. “Labor costs and integration are the biggest risk factors in the merger, affecting how beneficial it will be,” said Philip Baggaley, a New York-based airline analyst at Standard & Poor’s. With the airlines returning to profitability, “the union’s ask is going to be greater,” he said. “It makes it that much more difficult to negotiate a labor agreement.”

That’s one reason United and Continental expect cost savings to generate just $250 million of the $1.1 billion in projected financial benefits from the merger.

Though they are represented by the same union, Continental pilots make about 10 to 20 percent more on average than United’s. United pilots can expect a raise putting them on par with Continental’s, plus whatever boost comes with a new contract.

As for outsourcing, Continental can’t subcontract flying of jets with more than 50 seats. For United, it’s 70 seats. The difference is crucial to the combined airline because 50-seat planes aren’t as profitable. The merged airline wants to adopt United’s 70-seat standard.

Pilots union chief Pierce wants less outsourcing, not more. “Let’s not assume outsourcing is mandatory,” he said.

“Our preference is to have contracts with our unions in place by the time we reach a single operating certificate,” a UAL Corp. spokeswoman said. She declined to discuss the company’s proposals on outsourcing. A spokesman for Continental declined to comment.

Pierce noted that the costs of fuel and aircraft are higher than labor and that the cost difference between big carriers and regional players is shrinking, though he declined to provide specific data.

Although airlines traditionally pay lower wages to pilots of smaller aircraft, the question is whether current pilots at Continental or United would accept low enough wages to make it viable for the airlines to bring the flying back in house. The lowest-paid pilots at regional carriers make around $20,000 per year and fly about 900 hours annually, compared with starting salaries of about $30,000 a year at mainline carriers such as United and Continental for flying 800 hours a year.

“When the reality hits home, I think [pilots] will end up where they’ve always ended up: taking some additional pay in exchange for scope [allowing more outsourcing],” said Robert Mann, a New York-based aviation consultant.

Pierce demurred: “The idea we’d take gains in other sections of the contract, and therefore we’ll sell scope, that’s not a viable option.”  

Filed by John Pletz of Crain’s Chicago Business, a sister publication of Workforce Management. To comment, e-mail


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