By John Stancavage--

The gulf between American Airlines and its union mechanics stretched to a record distance Tuesday with the workers' rejection of a "best and final" contract offer. That separation can be traced to cracks that formed almost a decade ago.

Transport Workers Union mechanics, along with stock clerks and crew chiefs, rejected a contract that American said was the best it could do to still be able to cut $1.25 billion annually in labor costs and exit bankruptcy. The two groups of TWU members, however, concluded the offer wasn't good enough.

The no-vote allows American to return to a March 22 set of terms that - if implemented as is - are less attractive and contain significantly more job cuts.

In Tulsa, that could mean more than 2,100 jobs eliminated, versus about 1,000 if mechanics had approved the contract this week. American, which operates its largest maintenance base here, employs 7,000 overall in the city. Several hundred other jobs also are on the chopping block.

The fact that union members would take such a potentially destructive step illustrates the intense frustration that has built up. Indeed, steam has been shooting out of the pressure cooker for years as round after round of negotiations - and even federal mediation - has gone nowhere.

Management claims to feel equally stymied.

The intense legal battles and media firefights have obscured a Tulsa experiment in the middle of the last decade that for a short time looked as though it could become a model for cooperation between union members and management. But more on that failed effort in a minute.

You have to go all the way back to 2003 to try to understand the issues that now are driving the actions of both sides.

In January of that year, American's parent, AMR Corp., reported a $3.5 billion loss for 2002. Things weren't getting any better, either, as the airline was hemorrhaging more than $5 million a day.

American asked its labor leaders and employees for $1.8 billion in annual savings made up of wage cuts, adjustments in work rules, benefit changes and, ultimately, the layoffs of 718 people in Tulsa.

At that time, the TWU agreed to the cuts, citing American's promise that the remaining workers would be rewarded when things turned around. "Shared pain and shared gain" was the motto, as management also was expected to participate in the strategy.

To help the airline return to profitability, the union and management decided to try an unprecedented plan - working together on ways to take third-party maintenance contracts and turn the Tulsa base into a profit center for AMR.

"It was a rare time," recalled TWU 514 chairman of maintenance John Hewitt. "Management stepped up and let us help run the base. We set a $500 million profit target - and hit it."

Despite that success, the program trailed off. Hewitt said management "stopped listening" to workers.

In the recent contract offer, extra work to increase revenue is not a key component. Labor says the airline is only focused now on cutting costs and outsourcing to others, rather than being an outsoucing center itself.

Meanwhile, what happened to the "shared pain and shared gain" and rewards for workers?

To hear labor tell it, management never felt that much pain, taking bonuses as the airline continued to plummet.

Management, in turn, downplays the bonuses and instead puts the blame on three large factors it says were unanticipated when it made its deal with the TWU in 2003: much higher fuel costs, many competitors going through bankruptcy and the subsequent massive consolidation in the industry.

So, which side has the accurate take on what really happened?

"There's some truth to what labor is saying, but there's also truth in management's side," says analyst Seth Kaplan of Airline Weekly.

Perhaps Kaplan's observation is the best reason for why AMR and the TWU have been in a stalemate for so long. Neither wants to give when both feel they are right.

"The unions are correct when they say there are some things AMR's leaders could have done to manage their way through those times better - some were small things and some were bigger things," he said. "Indeed, there were strategies used successfully by their competitors that American didn't use."

Kaplan points out that Delta carefully studied its schedule and found that fewer people were flying on Tuesday than Monday. It cut 7 percent of its Tuesday flights, while American trimmed only 1 percent.

At the same time, though, American is right to point out that the industry changed in unpredictable ways, Kaplan said. And once those changes were in place, American was at a disadvantage.

"A lot of airlines began outsourcing maintenance, in many instances out of the country, where costs were a fraction of doing it in-house," Kaplan said. "About half of the cost gap between American and its competitors could be attributed to labor costs. In fact, if it was not for this cost gap, American probably wouldn't be in bankruptcy today."

Hewitt said he's heard these arguments but points out that there's more to overall costs than simply dollars per hour to pay labor. Doing maintenance in-house offers an airline total control of its fleet. As a result, scheduling can be optimized so that each plane is flying when it needs to, maximizing income.

Again, it's a case of both sides making fair and accurate points. There may not be a wrong or right. So, that being the case, how do the two sides ever reach an agreement?

"We will start talking again in a few days," Hewitt said. "We are hopeful we can reach some kind of agreement that is good for the employees and good for the company."

American, for its part, has sent mixed signals. After terming the most recent offer as its last, it issued a news release Tuesday with a carefully worded final sentence:

"... American will be prepared to continue to negotiate in good faith with the TWU with the goal of reaching consensual agreements."

AMR officials declined to be more specific than that, but one could read the statement as meaning American would talk if approached by the union, not the other way around.

For the TWU, the clock is ticking, The bankruptcy judge is scheduled to decide by June 6 on whether American can impose its March 22 terms on the union. But even if the judge does rule that American is free to do so, the company has suggested that, even then, it would like the agreements to be mutually accepted.

Will there be an end? The other wild card is a potential merger offer by US Airways. American has the exclusive right in bankruptcy court until late September to present its own plan. But if US Airways can get the backing of most of the unsecured creditor's committee, it could offer its plan before then. Analysts are divided on whether US Airways could get enough support to do that.

American's unions, meanwhile, have said they like US Airways' terms. But those have not been turned into a legally binding contract, and full consolidation after a merger could take years. There is the unknown of what could happen during that time.

More so than probably many other corporate struggles, this one has few easy answers. And new questions crop up every day.