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Southwest Ends Mechanics Row, Ratifies Contract With AMFA

Southwest Airlines Co. LUV has announced the ratification of its five-year labor contract with the Aircraft Mechanics Fraternal Association (AMFA), representing its 2,400 mechanics. The deal, said to have been voted upon by 95% of the AMFA members, will be amenable in April 2024. Per the agreement, Southwest mechanics will receive a pay hike of 20% and bonuses worth $160 million.

Earlier in March, the company inked a tentative deal with the AMFA following a bitter dispute with the party, which caused multiple flight cancellations and generated millions of dollars in losses for the company. Moreover, negotiations between the two groups have carried on for six long years before reaching the agreement in principle. (Read more: Southwest Inks Tentative Deal With AMFA: What's Ahead?)

Apart from this encouraging news on the labor front, Southwest investors were recently rewarded with a 12.5% dividend hike to 18 cents per share (annualized 72 cents). Additionally, the company’s board of directors approved a new share buyback program worth $2 billion. (Read more: Southwest Hikes Dividend, Announces New Buyback Plan)

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American Airlines in the Same Boat as Southwest

American Airlines Group AAL has lately been facing the same issue that Southwest had to endure a few months back. The carrier has alleged that its mechanics unions are making deliberate attempts to affect the company’s operations by taking longer than usual time to repair aircraft, which resulted in a spike in out-of-service aircraft. Consequently, the airline has filed a lawsuit against the unions.

Zacks Rank & Key Picks

Southwest carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader Transportation sector are SkyWest, Inc. SKYW and GATX Corporation GATX. While SkyWest sports a Zacks Rank #1 (Strong Buy), GATX carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Both companies boast an impressive earnings history, having outperformed the Zacks Consensus Estimate in each of the trailing four quarters.

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