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American Airlines is transforming the way it shares profits with employees

The Fort Worth-based airline’s new proposal to mechanics could match profit sharing at rival Delta.

American Airlines is poised to double the cut of earnings it gives back to employees in profit sharing, trying to match the massive payouts competitor Delta Air Lines awards its workers.

With the proposed contract extended to 30,000 mechanics and maintenance workers on Jan. 30, Fort Worth-based American is offering to more than double its current profit share to 10% on pre-tax earnings up to $2.5 billion and 20% on pre-tax earnings over $2.5 billion. That would dwarf the 5% of pre-tax earnings that American shares with employees now.

Leaders at the unions representing pilots and flight attendants say they expect a similar profit-sharing program from their contracts now under negotiations. And since American started profit-sharing in 2016, the company has extended the same cut to all employees not part of the executive management team, although it’s still to be determined if non-union employees would get the same bump.

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The profit-sharing is just a sliver of the $4.2 billion contract American struck with unions representing maintenance workers. The contract, which is awaiting ratification, also awards 4% to 18% raises, $3,000 to $6,000 signing bonuses and limits on how much work can be given to outside contractors.

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It also gives an important psychological lift to employees who see bigger profit-sharing bonuses at other airlines.

“What’s important is that the economic gains in this contract match or surpass what is happening at other airlines,” said John Samuelson, International President for the Transport Workers Union, which represents legacy American Airlines workers at the company.

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American Airlines employees have had to watch year-after-year while competing carriers gave jaw-dropping profit sharing to employees. This year, Delta gave $1.6 billion back to employees, a bonus equal to about two months of pay. Dallas-based Southwest Airlines announced Thursday that its employees would get a bonus worth about six weeks of pay based on the $667 million accrued last year.

“Delta is the standout in the airline industry in terms of percent of pay from profit sharing and Southwest has been doing it for 40-something years,” said Joseph Blasi, director of Rutgers University’s Institute for the Study of Employee Ownership and Profit Sharing. “That’s left American Airlines at the back.”

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This year, American’s profit-sharing program will give $213 million in bonuses to 130,000 employees at its mainline and regional divisions. That’s worth 1.4% of annual salaries, or about four days of extra pay.

(Kyle Arnold/DMN)

Some of the money American and Southwest contributed to profit-sharing pools for 2019 came from settlements with Boeing over the grounding their 737 Max fleets, which cut into profits at both companies.

Airlines, along with the auto industry, have some of the biggest profit-sharing programs in the private business world, Blasi said. Profit-sharing helps companies boost pay for workers in good times while protecting corporate finances during lean times, he said.

“It helps companies keep employees invested in making a profit,” Blasi said. “When they are getting some of the profits, employees are more motivated to work toward efficiencies and solving customer service problems."

Wall Street investors have been accepting of profit-sharing, too, Blasi said. After all, Wall Street has been pushing CEO pay to better reflect company performance.

“It fits with their notion that if the shareholders do well, then it’s okay for other people to do well,” Blasi said.

While this year the average American Airlines employee will get about $1,600 in profit-sharing bonuses, it’s been tough for the company to brag when its competitors are giving out so much more. Delta will pay out an average of about $20,000 to employees and, at Southwest, it’ll be more than $11,000 on average.

No matter what cut of profits American gives to workers, it will be hard to match Delta and Southwest when profits are so much lower, said Dennis Tajer, a spokesman for the Allied Pilots Association representing 15,000 pilots at American.

Atlanta-based Delta made a pre-tax profit of about $6.2 billion in 2020. It gives 10% of pre-tax earnings back in the form of profit-sharing, and a 20% cut for profits over $2.5 billion, the same as American’s new proposal. Southwest gives about 15% of its annual net profit to its profit-sharing program. Southwest’s net income was $3.2 billion in 2019.

American’s net profit was $1.6 billion for 2019.

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“We have to fix our operations if we ever plan to get more money out of profit sharing,” Tajer said. “No matter how much water is in the pool, our pool is so big that when you put all that money in, it only goes up to your ankles.”