The American way

Working together in a landmark program, American Airlines management and union are creating a new model for the aviation industry – and for union shops everywhere.

by Tom Hammel

A brief history of flight:
1903: Wright Brothers fly at Kitty Hawk, NC
1930: Frank Whittle, a British pilot, designs the first turbo jet engine
1939: Hans Von Ohain refines Whittle’s engine to build the Heinkel He 178
1949: BOAC introduces the first commercial jet airliner into service
1958: Pan American inaugurates its New York to London route
1959: American Airlines offers the first domestic jet service from New York to Los Angeles
2003: American Airlines launches a joint program with its union that transforms the industry

One day, the timeline of flight may well read like this. As the first such effort in the teetering airline industry, American Airlines’ pioneer Working Together program with its union is transforming American and offering hope — and a road map — for union shop manufacturing in the United States.

Since launching its Working Together program in 2003, American has made great strides in cutting turn time and unit costs without cutting jobs, in building a new relationship with its unions, and toward its goal of generating $500 million in revenue at the Tulsa Maintenance and Engineering Base by the end of 2006.

And while the process has been at times painful and fractious, American’s union leaders and management are beginning to build trust and agree on things they never could before.

For American, its employees and the airline industry, the stakes couldn’t be higher. For the 7,100 employees at the Tulsa base, success means more jobs and more job security. For the Tulsa metro market, it means roughly 12,500 additional jobs in the area and $2.5 billion a year in economic impact. As for the airline industry itself, well, failure is not an option.

Among the many issues facing the airline industry, one was especially troubling to American. It was easy enough to understand why, as they got into trouble trying to compete with low cost carriers, legacy airlines began outsourcing maintenance to cut costs. But what, American’s leaders thought, with such a pool of talent under its corporate wings, did the airline stand to gain by following suit? That road seemed to lead to ruin.

Maybe American could perform some — or all — of those functions more effectively in-house. And if it could, maybe American could perform those services for other manufacturers — for profit. Such was the light bulb that turned on for chairman and CEO Gerard Arpey in 2003. But to accomplish this, Arpey knew he would have to find a way to overcome decades of traditionally hostile labor relations.  

Arpey based his turnaround vision for American on three tenets: involve before deciding, discuss before implementing, and share before announcing.

Working Together
The light from the bulb over Arpey’s head became the Working Together Initiative. Launched in the fall of 2003, it brought union leaders into the decision-making process and, in an unprecedented move, opened American’s books to them. Senior management and union officials began meeting monthly to discuss issues, search for solutions and share information on a level previously unknown in the industry.

From this first step came American’s Joint Leadership Team (JLT), the core group of union and management leaders who lead the cultural and technological change.

But having a vision is a far cry from realizing it. To learn more about third-party maintenance providers,  American visited some, not as a potential customer but as a company interested in shared best practices. JLT members toured facilities in North Carolina, Texas and Alabama and came away with ideas, and the belief that American could indeed become a viable competitor in the field.

“We wanted our company and union leaders to see that third party providers were everywhere, not just overseas,” explains Carmine Romano, vice president of Tulsa base maintenance. “We wanted them to see these companies’ capabilities, if they are growing and, if we were going to compete, how much it would cost. So we got everyone together and went to see them.”

American also exchanged ideas and did joint benchmarking exercises with the only two companies it knew of that had taken the union and management cooperation road before, Boeing and Harley-Davidson.

Next, American brought in a “marriage counselor” consultant to help begin rebuilding its relationship with its key union at the Tulsa maintenance base, the Transportation Workers Union of America (TWU) Local 514.

A letter of good faith
And there was a lot of fence mending to do.

“We had just come off a concessionary agreement where all of our members were ‘disgruntled,’ to put it politely,” says Dennis Burchette. president of TWU Local 514. “A lot of people were p---ed off.” 

The union was well aware of companies that launched continuous improvement programs to trim employees. Local 514 wanted nothing to do with any plan that could potentially devastate their ranks, and a simple, “We wouldn’t do that,” from management was not going to be enough.

In a tactic learned from Harley, union and management drafted and, after much contest, eventually signed a letter promising that any American employee who participated in the new program would not be laid off because of any gains due to reduced turn time.

Still, to many union employees, the letter was just paper. The larger issue in the minds of most union members, including many in leadership, was whether any lean maintenance process could actually deliver results to make it possible for American to bid for, much less win, outside work.

The movement needed a champion, and it found one in G.T. Bunch, an executive board member and RO (Resourcing Out) Committee chairman for Local 514.

“From our perspective, it was all a crock,” Burchette states. “I would say we all hated it but a few of us — and G.T. is that few — weren’t as quick to react. He educated himself on it and started taking it up when everyone else was gizzard lipping it saying what a piece of crap it was.” 

Then, slowly, came the first encouraging results.

“When we started this program, we already had 600 people on the street and our members were fearful: You cut turn time, you cut jobs,” Burchette continues. “Management promised, ‘We’re gonna back you. As you reduce your turn times, we’ll bring in more work from outside.’ 

“Well, we started cutting our turn times. People were real reluctant at first, but then we started bringing in some outside contract work and our people saw the company was really on board with us and sincere about what we were doing. We started to build that minimum of trust needed to begin getting other things done.”

Retreat into the future
From these humble beginnings, a new labor/management relationship began to form. It led to another first, a three-day retreat in January 2005 for American leaders and their union counterparts to continue repairing their relationship, hash out ground rules, develop a plan of action and set goals.

The entire group heard a report on the current state of the company, including financial information that many union members had never heard before. Then the group worked together to establish a future state vision for the base to arrive at a mission statement.

“We were sitting there arguing when one guy walked to the front and wrote, “World Class Aviation: Our Challenge, Our Passion, Our Future, Together,’ and everybody just shut up,” Burchette says. “We looked at him and said, ‘Yeah!’ ”

Next, the group was challenged to create a breakthrough goal, a point which, according to continuous improvement director Frankie Meza, is “right in front of that wall of disbelief — you know you can get there but you don’t know how.”

Finally, the group settled on a goal of generating $500 million by the end of 2006 though employee involved culture, improved turn times, returning addition aircraft to service, call savings and customer contract work.

Future states
Arriving at this goal took the group a full day and night. But they weren’t done yet. They were asked to envision the company at the end of 2006, to imagine they had reached that $500 million goal. How were things different?  How had the company, its culture and operations changed?

From these ideas, the group identified a dozen key areas for improvement, and focused on the six that would have the greatest impact on making that goal. These were: metrics, turn time and unit cost reduction, culture, job security, sales and marketing, and technology. Each was then assigned a jointly led Work Stream Team to implement ideas, drive the process and meet weekly to evaluate progress.

The Work Stream Teams then conducted their own four-day off-site retreat for 150 employees from mechanics, fleet supply, quality planning, scheduling, the union, inventory management and corporate management to take them through the same process as the JLT.

The Work Stream Teams created their breakthrough goal — a 55 percent reduction in turn time and a 50 percent reduction in unit cost.

These were critical numbers for several reasons. First, the team had to justify the expense of a four-day off-site event for 150 employees during a time when bankruptcy was looming. This was no small feat and it called for no small result.

Secondly, the entire maintenance division knew it was nearing the chopping block. “We knew the first thing the company would want to throw overboard would be MRO because everybody else in the industry was doing the same thing,” Romano explains. “We had to come up with a way to demonstrate our net worth here and show the company we mean business.”     

Success on the dock
After reaching its own hard-fought breakthrough goal, the Work Stream Teams were then posed the same “Now that we’ve done it, how have things changed,” exercise to generate specific ideas to apply on the base floor.

“A lesson we learned from Boeing was to take one area of the base, dedicate our resources and make a huge change that everyone on the base could see, that people from other parts of the base could walk into and know something different is going on,” says Dale Williams, continuous improvement director and shared resources manager for the base. “So we took our pilot dock, where we bring in aircraft for overhaul and applied those ideas. We worked with the crew chiefs, the supervisors and workers on the floor and sequenced the work according to how they believed it should be done. And we ended up exceeding what we set out to do.”  

In its first try, the pilot dock crew believed it could take a “Heavy 4 Check” aircraft overhaul from its traditional 19 days down to 12 just by resequencing the work. They did the job in nine days, reducing their labor by 45 percent.

“That was the shot heard round the world, because all the rest of the base, and headquarters, too, was waiting and watching,” Romano notes. “We had been promising headquarters we could get our costs down and this was our first attempt. The results were excellent.” 

Spreading the process
Once news of the feat spread across the 330-acre base, other dock crews quickly began clamoring for the lean treatment. Currently, the process is underway at four more docks on-site and is rolling out to other American Airlines facilities. Joint Leadership Teams are in place at American’s Fort Worth headquarters, at the Kansas City maintenance base and airports at Dallas-Fort Worth, Fort Lauderdale, Austin, Boston and Kansas City.

Key success stories so far include:
Maintenance and Engineering has reduced spare aircraft parts inventory by $137 million by selling retired fleet inventory, developing new technology to distribute inventory through the AA system and forecasting demand.

American mechanics have designed a drill bit sharpening system that is saving an estimated $300,000 per year.

Time spent overhauling Rolls Royce RB211 and Pratt & Whitney JT8D engines has been reduced by 50 percent, cutting down the need for parts and spare engines.

And American has been winning bids to perform maintenance and engineering work at all three of its bases. A joint venture with Rolls Royce to repair the RB211 engine has generated 200 jobs since its inception in 1998. In April 2004, American won a five year contract extension worth over $1.6 billion.

Other results have hit the union closer to home: there have been no layoffs, a new employee incentive plan awarded more than $15 million in performance bonuses in 2004 and the company met its pension funding obligation for the year, contributing more than $460 million. These gains are very meaningful to the union and its local leadership.

“We aren’t letting someone else decide our fate,” Burchette adds. “We’re going through this process together. Tulsa was one of the first sites with this joint vision in place, but we are building on it and breaking new ground, not only here at American but in the airline industry as well. The union is watching us; the entire industry is watching us. ”

“This entire process has been a miracle of light bulbs turning on,” says Frankie Meza, a director of continuous improvement at the Tulsa maintenance base.

“We know we’re bucking the trend of the aviation industry by keeping our maintenance work in house, but because our employees represent such a huge competitive advantage, we have agreed to take a different approach to address these challenges,” Romano summarizes.

This article appeared in the August/September 2005 issue of MRO Today magazine. Copyright 2005.

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