By Jon Herskovitz FORT WORTH, Texas, July 10 (Reuters) - A federal mediator will jump-start talks between American Airlines and its pilots' union who are negotiating over pay in a new contract as the world's largest air carrier struggles with slashed demand after Sept. 11. Both sides welcomed the National Mediation Board's appointment on Wednesday of a mediator for the slow-moving talks that began a year ago but have stalled as the union seeks pay in line with competitors' pilots. Union spokesman Capt. Sam Mayer said the sides will head to Washington for talks that will also include bringing pilots at affiliated airlines such as American Eagle, who are typically paid less, into the same fold as American pilots. Also under discussion are safety and crew conditions at the airliner, which -- owned by AMR Corp. (AMR) -- has posted losses and reduced its capacity and workforce since September's hijacked plane attacks made many Americans reluctant to fly. If mediation fails, it opens the way for the U.S. president to appoint an emergency board to oversee labor negotiations, or for a labor stoppage if the president does not intercede. Both sides said mediation was needed to accelerate the talks and the move follows a recent trend in the air industry where companies and unions have opted for federal mediation instead of going through drawn-out negotiations as spelled out by a decades old labor law that governs the industry. Last month, the Allied Pilots Association, which represents 13,500 pilots at American, called for a mediator. AMR Corp.joined the call and asked for federal help in resolving the 350 proposals the union submitted at the beginning of contract talks. Under the 1920s Railway Labor Act, which spells out the procedures for labor negotiations in the transport industry, contracts for airline unions do not technically expire. If both sides fail to reach a settlement or a federal mediator declares an impasse, the President George W. Bush can impose an emergency board that aims to keep both sides from interrupting commerce after a 30-day cooling off period. MORE JOB CUTS POSSIBLE The Fort Worth, Texas-based AMR, which is also parent of TWA and American Eagle posted a total net loss of $1.79 billion in the three quarters since Sept. 11. Mayer said despite the difficult times, American Airlines should not put the squeeze on its pilots, who he said are paid on average about 20 percent to 30 percent less than their counterparts at major competitors UAL Corp.'s United Air Lines (UAL) and Delta Air Lines (DAL). "The company should first fix its business model to make sure that its revenues are more than its costs," Mayer said. American said in a statement, "We welcome the involvement of the National Mediation Board in the negotiations as we need to reach an amicable agreement without any further delay." "We cannot afford to do otherwise, particularly when you consider the market share lost recently by other carriers that were in protracted negotiations," it said. Last week, mechanics at low-cost carrier Southwest Airlines Co. (LUV) asked for a federal mediator to step in and try to resolve their contract dispute with the company. It was the first time in the 15 years the union has been represented by the Teamsters that it has sought federal mediation. Chief Executive Donald Carty said earlier this month job cuts will unfold as AMR Corp. tries to figure out what travelers want and how much they will to pay to fly in post-Sept. 11 America. Carty has said all items are on the table as American tries to cut costs to compete with Southwest Airlines (LUV) and smaller no-frills competitors, acknowledging cost-conscious consumers are forcing changes in the way the world's largest airline does business. Like American, other major carriers are battling to cut costs after sustaining heavy losses with fewer people flying, particularly among business travelers, following the September attacks. AMR cut capacity by about 20 percent after the Sept. 11 attacks and also laid off about 20,000 workers. As of March, AMR had 123,732 employees. An executive council of the union representing United Airlines pilots last month approved concessions, including 10 percent pay cuts sought by the airline as part of a financial recovery plan. Some 9,000 rank-and-file United pilots represented by the Air Line Pilots Association must still vote on the concession package. AMR shares closed down about 2.5 percent, or 37 cents at $14.33. ©2002 Reuters Limited.