AAobserver - It''s the unions fault Thread


Aug 20, 2002
I have opened this thread for use by the poster using the alias AAObserver.

Everytime this person feels compelled to blame the unions s/He can come here and post.

But for openers:

Once upon a time, when companies went broke, managers suffered along with them. Oh, sure, they were generally well compensated while the companies were in operation, but their equities, their pensions, and their ongoing salaries were deeply affected, if not wiped out altogether. Not anymore.
Bankruptcy, as we've seen in the last few years, doesn't have to be traumatic to management teams at all. In fact, they can profit handsomely from reorganization, and once the process is done, they can replace their old canceled equity stakes with new shares and options. Meanwhile, the common shareholders are wiped out, and the retirement benefits and ownership stakes of employees are obliterated.
AMR, like many airlines, has lost billions of dollars since the terrorist attacks on Sept. 11, 2001. Even in the best of times, airlines are a miserable business, with massive fixed costs, highly specialized and unionized employee bases, and heavy competition that, despite enormous advertising and differentiation campaigns, generally come down to price. Add to these things the reduction in air travel, enormous overcapacity, a rapid increase in fuel costs, and rising insurance and security premiums, and it's easy to see that these are not the best of times. In fact, several carriers are already in bankruptcy, several more seem destined to be there soon -- including American.
Its management addressed its powerful unions and gave them a choice: They could keep their current compensation agreements, which would doom the company to bankruptcy, or they could accept deep salary cuts and give the company a chance to survive. Not a great choice, but when a company goes bankrupt, all of its assets are available to creditors, including pension funding. A bankruptcy would put the retirements of current and past employees at risk. So, the unions opted for Plan A. They accepted lower salaries in the hopes of staving off Chapter 11. All told, the concessions total more than $1.8 billion.
Meanwhile, back at the AMR ranch
Even while the unions worked under the assumption that sacrifices would be required to save American, corporate executives took measures to ensure that, come rain or shine, they got theirs.
This took on a three-pronged approach. First, at the end of last year, AMR canceled a plan that deferred compensation for executives. This meant that money the company had retained was paid out to executives in a lump sum. Certainly, it's their money, but this act doesn't jibe with the company's need to retain as much cash as possible to stave off a liquidity crunch.
Second, as was disclosed in a securities filing last week, AMR last October partially funded a secular trust to protect some pension benefits for 45 executives in case of company bankruptcy. These arrangements lie outside the grasp of creditors, while the company's own pension fund does not. And finally, its directors approved retention bonuses for top executives if they remain with the company through 2005, bonuses that range from 150% to 200% of their base salaries.
AMR defends its actions, stating that its executive salaries are below those of its competitors and that the untouchable pension is no different than that of American's pilots. And finally, it pointed out that several executives have in fact departed since the difficulties began -- few retired, one took a job at AT&T In all instances, the company has a point. Barely. After all, for most people, the argument of Well, he's doing it more than me stopped having much power when we were six.
The proper basis for such actions ought to be: Is this the right thing to do? At a time when the majority of employees and shareholders are in danger of losing everything they have in AMR, an answer other than no would be unacceptable. Executives taking cash out of a company while they cry that the company is running out of cash is, frankly, unforgivable.


It's the unions fault and dont you forget it!