American faces pilots' walk-out

American Airlines, which is pushing regulators in the US for approval of its proposed link-up with British Airways for services across the Atlantic, is threatened by the worst crisis in its history, say company officials, following a breakdown in pay negotiations with its pilots.

American's 9,300 pilots, whose union is the Allied Pilots Association, this week ignored a company-imposed deadline to accept outside arbitration in a wage dispute that has been dragging on for more than two years. The two sides have now entered a government-required, one-month cooling-off period.

The pilots, who are rejecting a four-year, 5 per cent pay rise offer by American, will be free to walk out on 15 February if no deal is reached before then. Such action would undoubtedly ground the airline.

American contends that giving in to union demands for more generous pay increases would put it at a disadvantage against rival carriers such as United Airlines and Delta Airlines, where wages have been scaled down.

"This is as grave a situation as I've seen the company face in my career here," said Gerard Arpey, the airline's chief financial officer. "We are at a loss what to do next; accept a contract that would be at best uncompetitive, or a possible cessation of operations."

The crisis hit the airline just as its parent company, AMR, announced record fourth-quarter earnings. Net income for the company in the fourth quarter of last year reached $284m (pounds 170m) while 1996 came out as its best year on record, with earnings topping $1bn.

A strike and grounding at the airline would cast a pall over the proposed matrimony with British Airways. Last week BA and American entered the final stages of preparation for the pact by submitting formal requests with US regulators for anti-trust exemptions.

The turmoil also threatens to scuttle American's contract with Boeing for the purchase of no less than 103 new jets in an order worth $6.5bn.

With no sign that they are willing to back down, the leaders of the pilots' union seem to have been stiffened by AMR's record profits.

Union spokesman Wally Pitts said: "Our wage requests are reasonable. All we want is a cost-of-living increase.''

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