Another airline may put up its tray tables

Flight attendants at American, who initially rejected the package of wage and benefits cuts last week, reversed themselves, believing it was the best way to save the airline. Then, word spread of management's failure to disclose the executive bonus and pension packages. American's CEO Don Carty publicly apologized to enraged workers. The bonuses were revoked, but not the pension plan - a trust fund that would be protected even in bankruptcy.

Now, unions of flight attendants, baggage handlers, and ground personnel will vote on the concessions again. The pilots' union is withholding certification of its vote.

"Carty's apology does not change the fact that by withholding from [the unions] information about these bonuses and pension trust, it committed a material breach of its obligation to disclose all relevant information," says John Ward, APFA president. "Because of this material breach, we still intend to commence with a re-balloting."

As a result, American's already precarious position has become even more tenuous. "Labor and management have tied themselves in a big knot," says Dale Oderman, a professor of aviation management at Purdue University in West Lafayette, Ind. "With the unfortunate situation of being on the bankruptcy fence, the slight push either side will send them one way or another."

Professor Oderman and other experts contend that it was appropriate for management to try to retain top executives through bonuses. But, they say, it was a "terrible tactical error" not to reveal that information during negotiations with labor leaders - primarily because that failure violated basic trust, and put the union heads in the position of telling their rank and file that they had all of the relevant information when, in fact, they didn't.

"If you withhold information, lie, or convolute the truth, invariably they're going to find out," says Paul Dorf, managing director at Compensation Resources Inc., a management company in Upper Saddle River, N.J. "And when they do, it's invariably worse than if you'd been honest in the first place."

For its management bungle, American could pay a steep price: bankruptcy. Mr. Carty could also lose his job. But Oderman and others contend that labor will pay dearly, too. Employees will have to make big concessions, no matter the outcome of a new vote. Those concessions will come by choice - or the decree of a bankruptcy panel.

But even with these historic cuts in labor costs, many experts believe the country's major network carriers are not out of the woods, yet. Wednesday, American posted a $1.04 billion quarterly loss, which Carty admitted was "dreadful." That caps a record $3.5 billion loss in 2002.

"If all they're going to do is cut wages and lay some people off, that's not going to do it," says Professor Bernstein. "There needs to be a more major change in the way they operate for the industry to turn around."

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