Bob Says

[WorldTraveler]

AA's total labor expense decreased by 17% between 2002 and 2011. You can decide how much of that was due to layoffs, salary, and benefit cuts etc.

Already happening...

if DAL employees can get a better deal w/ unions, then they should by all means try to get it.
I simply don't believe that DL employees are going to give up compensation which will now be pushing the upper end of network carrier employees by the time you factor in profit sharing.

I am not against labor unions - I just don't think they will be able to demonstrate that they can deliver anything better to DL employees.

Let us know when the first vote is scheduled... that will be the first sign things might change, even though DL employees have had lots of union votes but no change in union makeup at the largest groups in a half century or so.

 

[WorldTraveler]

Are you claiming that Delta employees didnt suffer? Delta is one of the few carriers (Eagle being the other one) where AA has been able to get mechanics.

You claim that the relationship between the Unions and AA have been adversarial, OK lets take the TWU, cite examples where the Union has been adversarial and placed AA in an uncompetative position.

AA is banking on the new airplanes not breaking because they know that the lowest paid mechanics in the industry are not going to jump through hoops to get them fixed. They will be wrong. Again.

I didn't say DL employees haven't suffered or seen cuts... I have repeatedly said on here that DL employees took the smallest amount of total cuts to compensation and the the smallest number of headcount reductions among the carriers that filed for BK.
AA prior to this BK fared better than DL employees - but that is now changing and DL employees will have endured the smallest amount of cuts of any of the network carriers during the past 10 years.
And a big reason why DL employees have fared better than other employees is because DL has been very aggressive at revamping its business model to go after new revenues... .Africa, Latin America, and Asia of which NW gave DL a big advantage.
But no company is going to be able to solve the financial problems of the company without delivering alot more revenues. AA says they are going to grow the company with new aircraft but I have yet to see any evidence that AA or US have been successful in gaining revenues from any other airline... and airline revenues worldwide are not growing much if at all.

Less than half of $15billion WT. You said fuel at up 85% of the increased revenues, which was $7billion , what about the fact that a third of the operation was gone, and Revenue increased, a double bonus , one third of the costs was around $8 billion. You seem to keep forgetting that AA shed 300 airplanes and 40,000 employees and cut the pay of those who remained by 25%.

Bob,
A quick review of AA’s financials over some of AA’s financials seems to be in order… you are playing footloose with a lot of numbers and in doing so are not going to come close to understanding AA’s financial problems.
B is billion, M is million
2002
AMR Revenues $17.4B
Labor expense $8.4B (48% of revenues)
Fuel $2.5B (14.3% of revenues)
$3.3B operating LOSS

2003
AMR Revenues $17.4B
Labor Expense $7.2B
Fuel $2.7B
$844M operating loss

2004
AMR Revenues $18.6B
Labor Expense $6.7B
Fuel $3.9B
$144M Operating loss

2009
AMR Revenues $20B
Labor Expense $6.8B
Fuel $5.5B
$1B Operating loss

2010
AMR Revenues $22B
Labor Expense $6.8B
Fuel $6.4B
$300M Operating PROFIT

2011
AMR Revenues $24B
Labor Expense $7.0B (29%)
Fuel $8.3B (34%)
$1B Operating loss

In the past year since AMR filed for BK, AA has had operating losses of $1.8B

Discussion,
In 2002-2004, AA’s labor expense (and these are AMR Corp. numbers so include Eagle) dropped by $1.7B. Fuel went up by $1.4B but revenues went up almost that amount, so revenue increases did cover most of the increase in fuel.

By 2009, labor expenses were almost the same as they were in 2004. By 2011, they had started to increase because of higher seniority etc.
Fuel has increased by $6B but so have revenues.

Problem is that AA started out losing $3.3B and they haven’t really cut costs enough to be profitable. Given their loss over the past year, the labor cost cuts they are planning to make (approved but not implemented) plus lease costs will only be enough to come close to bringing AMR to breakeven, not sufficiently profitable.

So, Bob, revenues have increased to cover most of the increase in fuel costs but AA’s revenues still need to grow by more than $1B more in order for AMR to achieve profits on par w/ other airlines of AMR’s size.
BTW, DL and US’ labor costs as a % of revenue are about 17-18%. The problem is that AA needs more revenues… AMR’s labor costs including Eagle are as much as DAL’s labor costs which include Comair (or did as of the last financial statements). DAL generates $10B more revenue per year than AMR.
DL has been consistently profitable as a network carrier, their employees are at or above average in compensation esp. when you factor in profit sharing, and DL employees are recovering what they gave up in BK faster than other legacy airline employees.
UA employees might start seeing those kinds of increases but so far the company is not generating profits large enough to justify those kinds of pay raises.

 

[Bob Owens]

I didn't say DL employees haven't suffered or seen cuts... I have repeatedly said on here that DL employees took the smallest amount of total cuts to compensation and the the smallest number of headcount reductions among the carriers that filed for BK.
AA prior to this BK fared better than DL employees - but that is now changing and DL employees will have endured the smallest amount of cuts of any of the network carriers during the past 10 years.
And a big reason why DL employees have fared better than other employees is because DL has been very aggressive at revamping its business model to go after new revenues... .Africa, Latin America, and Asia of which NW gave DL a big advantage.
But no company is going to be able to solve the financial problems of the company without delivering alot more revenues. AA says they are going to grow the company with new aircraft but I have yet to see any evidence that AA or US have been successful in gaining revenues from any other airline... and airline revenues worldwide are not growing much if at all.

Bob,
A quick review of AA's financials over some of AA's financials seems to be in order… you are playing footloose with a lot of numbers and in doing so are not going to come close to understanding AA's financial problems.
B is billion, M is million
2002
Discussion,
In 2002-2004, AA's labor expense (and these are AMR Corp. numbers so include Eagle) dropped by $1.7B. Fuel went up by $1.4B but revenues went up almost that amount, so revenue increases did cover most of the increase in fuel.

By 2009, labor expenses were almost the same as they were in 2004. By 2011, they had started to increase because of higher seniority etc.
Fuel has increased by $6B but so have revenues.

Problem is that AA started out losing $3.3B and they haven't really cut costs enough to be profitable. Given their loss over the past year, the labor cost cuts they are planning to make (approved but not implemented) plus lease costs will only be enough to come close to bringing AMR to breakeven, not sufficiently profitable.

So, Bob, revenues have increased to cover most of the increase in fuel costs but AA's revenues still need to grow by more than $1B more in order for AMR to achieve profits on par w/ other airlines of AMR's size.
BTW, DL and US' labor costs as a % of revenue are about 17-18%. The problem is that AA needs more revenues… AMR's labor costs including Eagle are as much as DAL's labor costs which include Comair (or did as of the last financial statements). DAL generates $10B more revenue per year than AMR.
DL has been consistently profitable as a network carrier, their employees are at or above average in compensation esp. when you factor in profit sharing, and DL employees are recovering what they gave up in BK faster than other legacy airline employees.
UA employees might start seeing those kinds of increases but so far the company is not generating profits large enough to justify those kinds of pay raises.

Still ignoring the fact that if some of AA's other costs are not significantly less than competitors then that is where the problem is. Its unreasonable to expect AA to have similar labor costs when they do the work in house. Thats not saying that Higher total labor costs mean higher operating costs, the in house driven higher Labor costs should offset what they pay to banks in interest since they can keep old planes (like you cited at DELTA), what they pay to leasing companies, what they pay to vendors and what others pay to MROS. But you are stuck in the same box as FWAAA and EO. You just look at the numbers and assume that everything else is the same. Yes the labor costs are higher, why, because they do work in house that others outsource, in other words they pay somebody else to do it, the cost doesn't go away. OK so now you have your answer, the next logical question should be , then why are your other costs comparable? Because if they are comparable now, and Aa decides to outsource to get their labor costs in line that means that some other category will now be much higher than the rest of the industry.

You have yet to break it down to what AA pays per hour for labor, for aircraft maint the figure according to the company is $27/hr. Thats without benefits, but if we added that then AA looks even better off than their competitors. Thats for Title I. I doubt that any other carrier is anywhere near that low because those carriers don't have Parts Washers, OSMs and Cleaners which bring the average way down. Another thing is you are ignoring the fact that AA didnt have anyplace to send their narrowbody work to. Do you think that Timco and CAS would resort to hiring kids that are in school if they could find mechanics? Even the school distanced themselves from such a practice, they do not recommend that kids that have not even completed the course go out and work live aircraft. Yet the vendors cited how Doctors let unlicensed residents give medical care , leaving out the fact that there are very few residents that are 18 years old and those residents have already completed around 5 or six years of schooling.

Christine Negroni wrote in a recent article:

American is aware that students are working on its planes and defends the practice, as does Timco. “Physicians use non-medical-degreed personnel to perform certain tasks, providing learning and development opportunities, but the doctor oversees their work,” said Leonard Kazmerski, a vice president at Timco.

An A&P is a license to learn, not a replacement for experience. Students should not touch an airworthy in use aircraft until they get their license. You don't see 18 year old kids who are Bio or Chem majors working as residents in Hospitals, you shouldn't have kids who may not even be 18 working on passenger aircraft.

You also keep sticking to your argument that since AA laid people off that they drove their costs higher, well they have been hiring in NY for several years now, before Delta, before United. Both of those carriers laid off more mechanics than AA. Only 15 people opted to go to NY on the recent RIF and NY is still short, as is Boston, LAX, RDU and several other stations. They have not laid off anyone in NY and most of those who were laid off in AFW were at top pay. In order to qualify for the early out you had to be at top pay. So oddly enough this layoff would actually lower the average hourly rate, not increase it.

The less senior people aren't leaving AA because of a RIF, they are quitting for better jobs elsewhere. There are vacancies in the system that are going unfilled.

 

[dfw gen]

Eolsen is gods gift to aa while he was here. Clowns like him landed aa in this condition. Now he is off "consulting" his vast wisdom.

 

[WorldTraveler]

Still ignoring the fact that if some of AA's other costs are not significantly less than competitors then that is where the problem is. Its unreasonable to expect AA to have similar labor costs when they do the work in house. Thats not saying that Higher total labor costs mean higher operating costs, the in house driven higher Labor costs should offset what they pay to banks in interest since they can keep old planes (like you cited at DELTA), what they pay to leasing companies, what they pay to vendors and what others pay to MROS. But you are stuck in the same box as FWAAA and EO. You just look at the numbers and assume that everything else is the same. Yes the labor costs are higher, why, because they do work in house that others outsource, in other words they pay somebody else to do it, the cost doesn't go away. OK so now you have your answer, the next logical question should be , then why are your other costs comparable? Because if they are comparable now, and Aa decides to outsource to get their labor costs in line that means that some other category will now be much higher than the rest of the industry.

You have yet to break it down to what AA pays per hour for labor, for aircraft maint the figure according to the company is $27/hr. Thats without benefits, but if we added that then AA looks even better off than their competitors. Thats for Title I. I doubt that any other carrier is anywhere near that low because those carriers don't have Parts Washers, OSMs and Cleaners which bring the average way down. Another thing is you are ignoring the fact that AA didnt have anyplace to send their narrowbody work to. Do you think that Timco and CAS would resort to hiring kids that are in school if they could find mechanics? Even the school distanced themselves from such a practice, they do not recommend that kids that have not even completed the course go out and work live aircraft. Yet the vendors cited how Doctors let unlicensed residents give medical care , leaving out the fact that there are very few residents that are 18 years old and those residents have already completed around 5 or six years of schooling.

You also keep sticking to your argument that since AA laid people off that they drove their costs higher, well they have been hiring in NY for several years now, before Delta, before United. Both of those carriers laid off more mechanics than AA. Only 15 people opted to go to NY on the recent RIF and NY is still short, as is Boston, LAX, RDU and several other stations. They have not laid off anyone in NY and most of those who were laid off in AFW were at top pay. In order to qualify for the early out you had to be at top pay. So oddly enough this layoff would actually lower the average hourly rate, not increase it.

The less senior people aren't leaving AA because of a RIF, they are quitting for better jobs elsewhere. There are vacancies in the system that are going unfilled.

Bob,
The problem is precisely that AA’s costs are not lower than its competitors in any cost category and AA also is well below DL and UA in its ability to generate revenues per employee.
You always bring these discussions down to maintenance and I can understand that since that is your area. But AA’s labor cost problem is not relegated to one part of the company.
Since many of you consistently say that outsourced labor is not much cheaper than inhouse labor, then how is it that other airlines manage to have lower maintenance costs per ASM? DL’s maintenance cost per ASM has been on the low end of the network carriers for years and at one point DL’s maintenance costs per ASM were 40% lower than AA’s? You tell me what DL does that makes their maintenance operation so much cheaper than AA’s… and don’t forget that DL will have the largest inhouse maintenance operation in the US once AA’s layoffs take place.
DL’s maintenance costs are lower than UA’s as well, and they both outsource maintenance – in fact, UA outsources more.

Are those new hires in NY replacing the thousands of jobs being lost in TUL and Alliance? I don’t think so.

Keep in mind that DL overall has TOTAL labor costs comparable to AA, yet DL generates $10B more in revenues…. you certainly need to add in the additional cost which DL and UA spend on regional carrier capacity purchases but it still does not bring AA’s labor costs to levels comparable with DL and UA for the same amount of revenue that is generated.

The simple answer – you can make it more complex if you want – is that DL has a more productive workforce than AA or UA which allows DL people to make more per employee AND DL generates revenues better than AA. UA does a better job of generating revenues than DL but UA’s labor costs are almost 10% higher than DL’s… which probably explains in part why DL is much more profitable than UA.

Some people don’t like these comparisons but this is the world that AMR competes in and AA will negotiate/impose labor terms based on what it needs to do to match its competitors.
Some parts of the equation such as revenue are beyond AA employees’ ability to significantly alter – but that doesn’t mean it doesn’t matter and doesn’t influence what AA employees will ultimately be paid.

I have never doubted, Bob, that AA’s mechanics have been disproportionately underpaid relative to its peers; the theory might have been valid that AA maintenance costs were higher because they did maintenance inhouse which required more workers… but the chances are quite high that DL will do more maintenance inhouse than AA within a couple years – and DL mechanics will be higher paid. AA mechanics are getting laid off and watching their pay fall lower compared to competitors. I’m not arguing in the least w/ the plight of AA mechanics.

I am saying that overall AA’s labor costs have been well above comparable levels at AA’s competitors and AA’s revenues have lagged as well.

After this round of cost cuts, it is impossible to cut costs any lower w/o dramatically affecting AA’s ability to attract premium passengers. AA needs to generate billions of dollars in new revenues – and they have to find some carrier that they can win against in competitive battles, something that hasn’t happened in over 10 years – and given that AA’s cost are not going to be lower than their peers, is unlikely to happen now.

My point has been and continues to be that AA’s labor costs have been too high but the cuts the company is making will put AA pretty close to other airlines’ labor costs. AA MUST generate significant amounts of new revenue in order for AA employees to be paid even close to industry average wages; new revenues must be found in far larger quantities than what they have said they will generate in their business plans and far more than what US is saying a combined AA/US can generate.

AA’s business plan standalone or in a merger is built around very low paid employees, with mechanics being some of the lowest compensated compared to their peers.

Not sure where you found disagreement with that statement, but that is exactly what I believe to be the case.

 

[Bob Owens]

Bob,
The problem is precisely that AA’s costs are not lower than its competitors in any cost category

Exactly, and why is that? AA by keeping work in house and having old planes should enjoy lower costs elsewhere.

and AA also is well below DL and UA in its ability to generate revenues per employee.

Man just when I thought we were getting somewhere! You slide back into the box. Havent we already agreed that revenue per employee comparasions between carriers are irrelevant if they outsourced the work unless you count the employees who have a job at the vendors where they sent the work?

Forget reveunues per employee, OUTSOURCING destroys any usefulness for that metric!! Ding Ding If you outsource, lay off your employees and pay someone else more to hire people to do it than you paid to do it in house and maintain the same revenue your revenue per employee will increase, even as profits decrease.

You always bring these discussions down to maintenance and I can understand that since that is your area. But AA’s labor cost problem is not relegated to one part of the company.

True but maint is the primary driver for the discrepancy, whereas as AA may have 15 mechanics per airplane vs 5 somewhere else thats pretty much all due to outsourcing. Whether or not at the end of the day one is cheaper than the other even Arpey could not say. I would imagine if we compare Pilots and other workers per airplane, we are pretty close to everyone else.

Since many of you consistently say that outsourced labor is not much cheaper than inhouse labor, then how is it that other airlines manage to have lower maintenance costs per ASM?

Newer Fleets.But thats going to change. Again, Delta will likely see their Maint cost per ASM pass AA as their fleet age passes AA but they will be saving money as far as interest payments on debt used to purchase new aircraft compared to AA.

DL’s maintenance cost per ASM has been on the low end of the network carriers for years and at one point DL’s maintenance costs per ASM were 40% lower than AA’s? You tell me what DL does that makes their maintenance operation so much cheaper than AA’s… and don’t forget that DL will have the largest inhouse maintenance operation in the US once AA’s layoffs take place.
DL’s maintenance costs are lower than UA’s as well, and they both outsource maintenance – in fact, UA outsources more.

DL did a lot more 3p work than AA which helped pay for and offset the cost of their own maintenance. Delta got in hot water with one of their MRO customers when they wanted to sub out the work to a vendor. The Customer objected and delta had to have their mechanics do the work.

Are those new hires in NY replacing the thousands of jobs being lost in TUL and Alliance? I don’t think so

What do you mean by lost? Riffed or the buyout? If you mean Riffed its not in the thousands. AA made a stingy offer because they wanted two things from the Early Out, enough to pass 50% +1 and they wanted guys to leave the industry. They didnt want to provide competitors mechanics labor.
.

I have never doubted, Bob, that AA’s mechanics have been disproportionately underpaid relative to its peers; the theory might have been valid that AA maintenance costs were higher because they did maintenance inhouse which required more workers… but the chances are quite high that DL will do more maintenance inhouse than AA within a couple years – and DL mechanics will be higher paid. AA mechanics are getting laid off and watching their pay fall lower compared to competitors. I’m not arguing in the least w/ the plight of AA mechanics.

Sure you are, and you still keep sticking to the same arguements of revenue per employee and total labor costs and fail to recognize that the question is why arent AA's other costs much lower when they are doing this work in house.

AA’s business plan standalone or in a merger is built around very low paid employees, with mechanics being some of the lowest compensated compared to their peers.

According to the company pilots will be earning 50% more in 2017 than they are now. Our Fleet service are pretty much in line with their peers, stock clerks behind WN, of course when you subtract our inferior benefits the gap widens but nobody else is as far behind as mechanics are.

To make it as simple as possible

Lets say we have two identical airlines with identical fleets that are the same age with the same hours and the same revenue.

If it takes 25 million man hours to perform all your maintenance on a fleet of 600 airplanes then you need 12000 mechanics.



Lets say they both make $40/hr. The labor cost is $1 billion and the carriers both have $10 billion in total revenue.So they both see RPE at $833,333

Airline A keeps all the work in house.

Airline B outsources 15 million hours of the work and only needs to keep 4800 mechanics, but you still have to pay someone to provide the 15 million hours or maintenance labor, that labor will no longer be counted as a Labor expense. Lets say they pay $600 million, so in reality its a wash. However on paper now their labor costs are down to $400 million and their revenue per employee soars to $2,083,333. According to you Airline B has much more productive workers and in order for Airline A to compete they have to get their labor costs and RPE to match Airline B. According to you the workers at airline A have to be willing to work for 16 cents an hour so they can match their labor costs to Airline B, or if they want to be paid the same they have to generate $25 billion in revenue with the same number of airplanes, the $600 million that Airline B pays for the outsourced work somehow gets lost in your example and makes the whole comparasion meaningless.



There is no possible way that their labor costs or revenue per employee could ever be comparable since they are completely different models due to the outsourcing.

In this example Airline B pays $600 million more for outsourcing than Airline A. If Airline A was paying a comparable amount in outsourcing then thats where the problem is, not with what the workers are paid. To claim that we need to produce a comparable RPE and have similar labor costs while maintaining completely different models is just plain stupid.

 

[WorldTraveler]

Bob,
first, thanks for the discussion. It's always a pleasure - really.

I understand everything you are saying... but how many extra mechanics does it take to do overhaul inhouse that other airlines don't have. Before you answer, remember that DL does a significant amount of insourcing. I don't know how many extra mechanics DL uses to do the insourcing work but they employee just under 10K employees in Tech Ops so they are not that much smaller than AA. Those Tech Ops employees who do insourcing work are counted as DL employees and are used in the calculuations of revenue/employee.

I'm ok w/ not using revenue/employee statistics because there are other statistics to show that AA is simply not generating the level of revenues they need to generate in order to be profitable at sustainable levels....

You continually say that AA is doomed... other than the older mechanics who don't care and the younger ones who don't know what they are doing, why is AA doomed, Bob?
Maybe I'm too analytical but it would seem to me that if AA is doomed, it is because their business plan in one form or another is doomed.
I'm not sure I totally agree w/ you but I do know that AA and UA are locked into an ongoing battle to take the other one out while other carries somehow manage to find niches for themselves. In my mind, AA's threat to its existence is that it can't generate revenues sufficient to cover its costs, including to pay its people high enough levels.

The problem w/ AA's costs, BTW, is that they are not lower in other categories to make up for the work done inhouse. IF they were, then AA wouldn't be posting $1.8B operating losses over the past year. AA labor - even the mechanics cannot close that gap on top of the cuts that were made almost 10 years ago.

Crandall and everyone talk about a merger or standalone plan yet they don't seem to address how AA is going to come up w/ the billions in new revenues that it will take to turn AA around.

That, Bob, is the real issue.
I have no doubt that AA employees and esp. maintenance cannot give another drop of blood.

 

[Bob Owens]

Bob,
first, thanks for the discussion. It's always a pleasure - really.

I understand everything you are saying... but how many extra mechanics does it take to do overhaul inhouse that other airlines don't have. Before you answer, remember that DL does a significant amount of insourcing. I don't know how many extra mechanics DL uses to do the insourcing work but they employee just under 10K employees in Tech Ops so they are not that much smaller than AA. Those Tech Ops employees who do insourcing work are counted as DL employees and are used in the calculuations of revenue/employee.

Who else does OH in house?

DL does outsource a lot of their OH, they also insource a lot of the high dollar work, they also act like a middleman and sub out work that other carriers sent to them.

How many airplanes does Delta have compared to AA? Whats the age of the fleet? How many different fleet types do they work? Does Delta Tech Ops include their RJs as well? There are so many variables, thats why I keep telling you the metrics you are using are meaningless.

I'm ok w/ not using revenue/employee statistics because there are other statistics to show that AA is simply not generating the level of revenues they need to generate in order to be profitable at sustainable levels....

Revenues are up a lot, the problem is in the costs, and despite what you guys think is the obvious its not Labor. The problems are in the non-labor costs that should be much lower than their peers. AA currently has an old fleet, that means what they pay for airplanes and their debt servicing should be very low compared to those with younger fleets. If not then why not? If there are problems with their labor costs its because they went top heavy with management and probaly have to employ more people to get the same amount of work done because they pay less and workers are not going to give max productivity when they are getting minimum pay.

You continually say that AA is doomed... other than the older mechanics who don't care and the younger ones who don't know what they are doing, why is AA doomed, Bob?

Because this is a service industry and if your service deteriorates so will your business. Right now capacity is tight and they can get away with it, but it wont stay that way. Unhappy workers make unhappy customers and the workers at AA are unhappy.

Maybe I'm too analytical but it would seem to me that if AA is doomed, it is because their business plan in one form or another is doomed.

You said it earlier, their business plan is based on super low wages.

The problem w/ AA's costs, BTW, is that they are not lower in other categories to make up for the work done inhouse. IF they were, then AA wouldn't be posting $1.8B operating losses over the past year. AA labor - even the mechanics cannot close that gap on top of the cuts that were made almost 10 years ago.

Exactly, it remains to be seen how much of that they addressed in BK, (they are selling the house in London) I dont think they did enough, because they are banking on getting away with screwing over the workers. Obviously paying for airplanes you dont fly and facilities you dont use made those owners happy for the last 10 years but it certainly didnt make AA a healthy company, but despite all the talk thats the way this industry has always been and always will be. they will never consistantly make profits because they know if they do they wont get away with paying us low wages. $25 billion went through AA last year, more than ever before and less than ever went to us, a lot of other people made a lot of money off the airline industry and they want to keep it that way. As far as the $1.8 B in losses thats all paper BS and stuff tied to the scam of BK.

 

[eolesen]

Eolsen is gods gift to aa while he was here. Clowns like him landed aa in this condition.

AA landed in its present condition because it was being run by guys like Garton, Del Valle and Redding. They managed to run off a couple hundred people in the L5-L8 ranks at HDQ and out in the field starting in 2004.

That's when the wheels started to come off the bus. Some of us were awake enough to notice, and to get out while we could.

 

[WorldTraveler]

Not sure that it really matters who did what and who is “in” or “out.” AA has to be fixed and a $1.8B operating loss says that goal is not anywhere near close…. AA still needs to make a $3 billion per year swing to the positive; tell me if that is a realistic goal but I remain skeptical.

Who else does OH in house?

DL does outsource a lot of their OH, they also insource a lot of the high dollar work, they also act like a middleman and sub out work that other carriers sent to them.

How many airplanes does Delta have compared to AA? Whats the age of the fleet? How many different fleet types do they work? Does Delta Tech Ops include their RJs as well? There are so many variables, thats why I keep telling you the metrics you are using are meaningless.

700 will tell you that US does half of its airframe OH inhouse….DL does some and obviously has the capability to do it but they choose to use their resources to do other work which they perceive to be higher value.

DL has about 725 mainline aircraft right now and that is supposed to grow towards 760-775 as the 717s and 739s arrive.
AA and DL’s mainline fleet has been of similar age; DL’s age is obviously partly driven by the older DC9s which, surprising, DL keeps pushing back when they are finally going to leave the fleet. DL pilots seem to think that DL is going to keep them around potentially for two more summers – until the majority of the 717s have arrived.

DL’s maintenance proposition is based on being a full service MRO. They don’t want to do airframe overhaul and part of the AeroMexico maintenance joint venture is to allow DL and AM to bid for MRO work using each others’ expertise to maximize revenues and still maintain high quality.

DL says they do maintenance on almost if not every fleet type that DL has or recently has had. Yes, DL does RJ engine maintenance but not airframe – at least not at competitive prices.

The metrics you don’t want to use are revenue related per employee. While there is truth to your statement that AA’s inhouse maintenance does skew the numbers, AA’s workforce has been bloated compared to its peers for years in areas other than maintenance. AA did not cut enough employees in 2003 and counted on internal growth that never came. Remember that AA said they expected one or more carriers to fail in BK, providing an opportunity for AA to grow. Those carriers all survived and it was AA that had costs that were too high. Despite what a lot of the AA fanboys want to say, it was not AA’s competitors that made AA’s costs uncompetitive it was AA mgmt that did not cut deep enough and did not grow the airline after 2003, leaving AA with costs that were way too high compared to its competitors, and those costs have only increased more as AA’s workforce has aged even more.
AA mgmt made a major strategic error during its 2003 restructuring by counting on someone else’s demise in order to succeed – and you and other AA employees are paying heavily for that mistake through a second round of cuts that will put AA on the upper end of the amount of cuts in the 10+ years of restructuring since 9/11.

Revenues are up a lot, the problem is in the costs, and despite what you guys think is the obvious its not Labor. The problems are in the non-labor costs that should be much lower than their peers. AA currently has an old fleet, that means what they pay for airplanes and their debt servicing should be very low compared to those with younger fleets. If not then why not? If there are problems with their labor costs its because they went top heavy with management and probaly have to employ more people to get the same amount of work done because they pay less and workers are not going to give max productivity when they are getting minimum pay.


Because this is a service industry and if your service deteriorates so will your business. Right now capacity is tight and they can get away with it, but it wont stay that way. Unhappy workers make unhappy customers and the workers at AA are unhappy.



You said it earlier, their business plan is based on super low wages.

I’ve never said that labor costs are the whole problem; I’ve repeatedly said that AA’s labor costs are due to too many people because AA didn’t grow. Individual wages are not the problem. But absent the ability to cut deeper, AA is going to cut individual wages. AA has been so overstaffed for so long they couldn’t go to the level of staffing they need to be at in one move – via layoffs. They have to grow into lower costs which is why some of us are skeptical. Their growth has to come at someone else’s expense and no other airline has given up anything to AA in recent years except for UA who has been in an ongoing up-down relationship with AA.
You are absolutely right that AA cannot expect labor to produce as long as there are serious levels of dissatisfaction among the workforce. After saying there was no impact from the operational problems of the fall, AA now admits it cost tens of millions of dollars – losses AA cannot afford to sustain now or in the future. Other airlines simply are not enduring losses due to labor unrest – and they are in better financial shape than AA.

Exactly, it remains to be seen how much of that they addressed in BK, (they are selling the house in London) I dont think they did enough, because they are banking on getting away with screwing over the workers. Obviously paying for airplanes you dont fly and facilities you dont use made those owners happy for the last 10 years but it certainly didnt make AA a healthy company, but despite all the talk thats the way this industry has always been and always will be. they will never consistantly make profits because they know if they do they wont get away with paying us low wages. $25 billion went through AA last year, more than ever before and less than ever went to us, a lot of other people made a lot of money off the airline industry and they want to keep it that way. As far as the $1.8 B in losses thats all paper BS and stuff tied to the scam of BK.

Except, Bob, you are looking at the industry through the lens of a broken company. There are airlines that have managed to pay their employees well…. WN obviously is first to come to mind but B6 does as well. As much as some don’t want to admit it, DL employees are doing better than their peers in the industry, in large part because DL examined the business model and said they will not continue to run their business the way airlines have been traditionally run. IN part, that involves throwing out the notion that fleet commonality and new planes are necessary for lower costs which is why DL has/is acquiring 150 used 717s and M90s, aircraft that have operational costs very similar to current production aircraft. DL does more maintenance inhouse than any other carrier other than AA up to this point and then insources in order to be able to keep the cost of operating older aircraft to a minimum. And it doesn’t hurt that McD-D built planes that can last a lot longer than other jets. And, yes, DL expects its interest costs to be far lower than its competitors; the difference between what AA and DL pay for their fleets – leases and mortgages – might amount to more than $1B in a few years. There is no way DL’s maintenance and extra fuel costs on those 150 aircraft will cost $1B/year – and the M90 has almost identical fuel burn per passenger to the 737-800 and 320. Same thing w/ DL’s philosophy of keeping the 767-300ERs in service for another ten years instead of spending over $5B to replace them.
The industry is not yet consolidated and there will be further movement among the four US network carriers. Even a merger with AA/US may not be enough to remove the excess capacity and provide what is necessary for the then three surviving airlines to win long-term.
As long as the industry remains unsettled strategically, employees will face pressure.

 

[Bob Owens]

As long as the industry remains unsettled strategically, employees will face pressure.

Which is why workers need strong militant unions.

 

[chris perry]

Bob is right this airline is doomed with the current maintenance contract alone.People are extremely pissed just over the holiday pay alone, even chop shop MRO's pay better.It was evident Christmas day when over 100+ people exercised their options and stayed home at DFW. In the past people would stay here for days during bad weather to get the job done.It's clearly pay that motivates Production.

Why in the world would you bust your ass in the freezing cold for nothing? "1/2 pay 4 hours" For the love ,not hardly after "shared sacrifice".Besides all that If we Merge with US AIR down the road,all their mechanic's are going to be pissed if their contract even resembles ours on holiday pay etc.

 

[TWU informer]

AA landed in its present condition because it was being run by guys like Garton, Del Valle and Redding. They managed to run off a couple hundred people in the L5-L8 ranks at HDQ and out in the field starting in 2004.

That's when the wheels started to come off the bus. Some of us were awake enough to notice, and to get out while we could.

While the mechanics contract, pay/benefits is one issue of many that this is causing this airline to falter, there are many more. But ONE is glaring in every department.

What is really killing this airline is that every time an employee that knows his/her job leaves this company for whatever reason, the managemet in place tends to replace the individual with a person that cannot do the job. It appears that the normal operation is to just place a warm body into a position without regard to their ability to do the job.

The nepotism, good old boy buddy system, along with the unwillingness to fire those that cannot get it done is killing this company. Maybe the reason that many long for the days of Crandall was not really because of him personally, but more because at that time, AA had people in positions that could actually do their jobs and were good at it.

In other words, I believe the internal politics has allowed this airline to be paying people to fail and that somehow has become acceptable.

And the reason the mechanics contract along with others is causing accelerated failure, is because instead of fixing or reversing the problem mentioned above, the company just keeps expecting the employees to fund the problem through pay/benefit cuts. The employees are smart enough to know that they are funding through concessions, something that is still very wrong and not getting corrected.

This company has one chance left. And that is along with a merger, the Board of Directors changes, and the rapid replacement of employees that are failing begins in earnest.

In my view this issue is not isolated to L5-L8 ranks at HDQ, is actually the same problem in every single department within the carrier from the top to the very bottom. This is what will doom American Airlines.

 

[WorldTraveler]

fixing a culture of mediocrity in any company is extremely difficult and a merger will make it far, far more difficult, esp. since US is not known as a company that is top of the industry (to be really honest).

There are many of us that shake our heads at how badly AA has fallen from its glory days - and people long for Crandall because he was the leader during that era - but no single person can fix AA and the entire culture you cite has to be changed - and the "fix" will take a very long time and require the vast majority of people to make it happen.

Based on what a lot of AA people say, I'm not sure there are enough people willing to rally behind the company one more time.

 

[TWU informer]

fixing a culture of mediocrity in any company is extremely difficult and a merger will make it far, far more difficult, esp. since US is not known as a company that is top of the industry (to be really honest).

There are many of us that shake our heads at how badly AA has fallen from its glory days - and people long for Crandall because he was the leader during that era - but no single person can fix AA and the entire culture you cite has to be changed - and the "fix" will take a very long time and require the vast majority of people to make it happen.

Based on what a lot of AA people say, I'm not sure there are enough people willing to rally behind the company one more time.

Maybe if NEW leadership would step in, openly and honestly admit the faults and short comings with a plan to improve then the employees will get behind them. I have never heard anyone in management honestly admit their faults in detail with a plan to change, all I hear is labor cost this and labor cost that. In return, we in labor never admit our faults either, we just complain about management this and management that.

Freaking Dysfunctional bunch of stool pigeons on both sides. And together we will most likely kill this company before we pull our collective heads out of our asses

If all we have is new livery, new branding, and more slogans and BS, then I even say screw it. I cannot afford anymore of the same.

To be fair, we have same situation with our Union, it's Constitutional Structure, and it's current leadership, but some are either too stupid or too afraid to make change.