Alpa Mec Vice-chairman Report

[Analyst]

The following report by Kim Snider is a must read.


ALPA MEC vice-chairman 4th quarter report to the MEC

The MEC directed the Negotiating Committee to reach an agreement to participate in returning the Company to profitability not to avoid bankruptcy, but rather to survive it! Since that agreement was not achieved prior to bankruptcy it is important to look at what alternatives there were to a negotiated agreement for the Company and for ALPA.

During the ALPA Negotiating Seminar I attended years ago at the George Meany Center for Labor Studies, one of the most important concepts discussed was BATNA. BATNA stands for Best Alternative To Negotiated Agreement. Before saying no to any potential agreement or before refusing to further compromise any professional negotiator will consider the alternatives (his BATNA). If better alternatives exist than what the other side is proposing a negotiator will resist further compromise. Therefore, prior to bankruptcy both the Company's negotiating committee and our Negotiating Committee must have each believed that better alternatives existed than agreeing to the others side's proposals.

First, lets look at why the Company believed that their BATNA was better than our "best" pre-bankruptcy proposal that contained a 20.25% pay reduction and a 40% pension contribution rate reduction. If no DIP financer steps forward (and no one has leaped at the chance to sink more money into this Company so far with all of our assets tied up by the ATSB) the Company will have to finance the bankruptcy with employee contract concessions. Given that $800 million ($950 million once in bankruptcy) savings from labor (including $295 million in cash savings from the pilots) is a minimum in the Company's view to fund the bankruptcy filing, it is not a surprise that the Company did not accept an offer from our Negotiating Committee that fell several tens of millions of dollars per year short of the requested cash savings as evaluated by both ALPA and the Company. The Company's BATNA (alternative) was to look to the 1113(e) and 1113© process in bankruptcy to obtain even greater savings.

Because the cash savings from Notional contribution reductions do not take place until the pilot owed the "IOU" retires, such Notional contribution reductions do not address the Company's current financial needs for bankruptcy funding. Although the Company's and ALPA's productivity valuations were only $10 to $12 million per year apart, the shortfall in cash savings caused by the Notional contribution issue is almost $60 millions dollars1 over the next two years (because cuts in Notional contributions do not produce immediate cash savings). When negotiations resumed with the lifting of the restrictions on the Negotiating Committee, after entering bankruptcy, this cash issue had to be addressed by increasing the pay cut for all pilots working under the Transformation Plan for the next 5 years, in order to provide the additional $70+ million in cash savings needed to meet the total cash savings requirements of the Transformation Plan.

Based on the Company's withdrawn proposal with a 23% pay reduction and a 50% pension contribution rate reduction.

By the way, the MEC mandate just prior to bankruptcy of a 16.25% pay reduction with only a 10% pension contribution rate reduction fell over $100 million dollars short in the first year in the Company's view. You could argue that the Company's numbers are off the mark, but it becomes harder to support such an argument with a yearly shortfall of $100 million dollars.

Why would the Negotiating Committee believe that their BATNA is better than the Company proposal with a 23% pay reduction and a 50% pension contribution rate reduction? It is highly unlikely that a bankruptcy judge will rule against a Company request for relief under the 1113(e) (as history proved) and/or 1113© provisions of the Bankruptcy Code. As predicted by our professional advisors the level of the relief sought in bankruptcy was greater and more painful then the earlier offers prior to bankruptcy.

I personally cannot explain the logic and reasoning that led us to entering bankruptcy without an agreement, so I will leave it up to those who have chosen this path for all of us to explain their choices.

Since a bankruptcy judge who denies a company request for relief would be blamed for any resulting failure to reorganize and a bankruptcy judge who grants more than what a company really needs would still be the judge who helped "save" a company, bankruptcy judges usually side with companies and against labor.

We can judge how good a job has been done in gauging our BATNA by comparing the end result in bankruptcy to what was offered by the Company prior to bankruptcy. Those who have advocated not reaching an agreement prior to bankruptcy stated that we would do better by waiting out the process, contrary to the advice of each of our professional advisors. History has in fact proved our professional advisors correct. Although the give still started at about $300 millions dollars, the make up of that give became more painful in bankruptcy. For example, an additional week of vacation was lost along with minimum aircraft fleet protection and management added other additional demands once in bankruptcy. If the MEC chooses to keep all the profit sharing, equity will be reduced from 19.3% to 4.25% (subject to adjustment to match management's take of the equity), a loss of about 15% of a potentially very valuable company, as the company will be worth much more in the future than it is worth today or it will be worth almost nothing!

The results can also be judged against the original ask by the Company. The Company asked for AWA pay reflecting the AWA average FO longevity of 8 years. To make up for all of our FOs being Top of Scale the Company asked for JetBlue like productivity. The Company obtained much of the JetBlue productivity they sought and our average pay for Captains and FOs is even below AWA pay with their 8-year average longevity for FOs! (Transformation Plan averaged combined Captain and FO Group II pay of $105.09 verses AWA average combined Captain and 8 year FO pay of $111.06.)

Although we cannot change what has already taken place with our contract negotiations, we can either learn from our past negotiations or repeat them in the future.

Note- Based on Group II $124.88 Captain pay and $85.29 FO pay under the Transformation Plan verses $137.72 Captain pay and $84.40 FO pay at AWA.

 

[repeet]

Their is always a choice.

Remember Masada.

 

[us0004us]

is this the Masada you refer?

After the fall of Jerusalem in 70 C.E. Masada remained the only point of Jewish resistance. Few surviving Jewish fighters that managed to travel across Judean mountains joined the defenders of Masada, and it became the rebels' base for raiding operations.

In 72 C.E. the Roman governor Flavius Silva resolved to suppress this outpost of resistance. He marched against Masada at the head of the Tenth Legion, its auxiliary troops, and thousands of Jewish war prisoners, total ten to fifteen thousand people. The troops prepared for a long siege; they established eight camps at the base of the Masada rock and surrounded it with a high wall, leaving no escape for rebels.

Then Romans started to build an assault ramp to the top; thousands of slaves, many of them Jewish, have done that in nine months. After the ramp was complete, the Romans succeeded to move the battering ram up and to direct it against the wall. They broke the stone wall, but the defenders managed to built a wall of earth and wood that was flexible and hard to break. Eventually Romans managed to destroy it by fire, and decided to enter the fortress the next day.

At night Eleazar gathered all the defenders and persuaded them to kill themselves rather than fall into the hands of Romans. The people set fire to their personal belongings, and then ten people chosen by a lot killed everyone else and then committed suicide. In the morning Romans entered a silent fortress and found only dead bodies. Two women and five children survived the mass suicide by hiding in a cave; they came out to Romans. Josephus describes all the dramatic details of the last hours of the Masada defenders as told by these survivors.

A Roman garrison was stationed in Masada for some time after the fall.

 

[repeet]

Yes.

 

[javaboy]

As another "infamous" poster puts it

With all due respect.,,,,,,,

what was needed and still is, is a solution to a problem, not finger pointing, not let's see what we can save. but rather i submit, a new way of doing business by both management and labor.

if Managment continues to hold up JB/ AWA contracts yet with a direct question/answer says oh everybody's salary but not the CEO's needs to be in line. he obviously doesn't or does not want to see what it means. It's not the few hundered thousand dollars difference in pay, its the LEADERSHIP of I will not ask anything I would not be willing to do myself. LEAD FOLLOW OR GET OUT OF THE WAY.

On labor's side, BATNA, is flawed, time would have been better spent oh, how should i put it? how about a term i know you have heard many times before, THINKING OUTSIDE THE BOX. perhaps? or if you will a unique solution to a given problem that has not yet been viewed in quite the same way.

Example Pensions, Company: we cant pay Unions: you owe us. and so it goes.
creative solution, rather than battling out (read here MILLIIONS in lawyer fees) in court. If Both parties agreed to a Voluntary Termination of the plan. it would have netted roughly 75% of what was owed to its participants. instead of the PBGC getting the assets, you could have simply said ok year to date, these are the assets, this many participants here is the distrubution (very simplified answer but correct in every sense). 1. no more pension obligations 2. instead of the 56,000 or so PBGC maximum you would have gotten almost twice that (but less than originally owed to you) that to me is a win win outside the box.

but wait there's more. ok smart guy now what, well now you replace the Defined benefit with something else, hey mr mgmt guy/gal we just Voluntarily released you from hundreds of millions of dollars in obligations, now how about a 1/1 match in a 401k to start (yeah i know but you gotta start someplace). and along with that a % of Pretax (EBITDA) Profits goes into "the plan" a formula to be figured out later, sort of a profit sharing 401k deposit (er ah just like the world of jetblue you are so fond of)

Next up give the CEO 1.0 million shares or options on shares in return for 1 dollar salary. now 1. he shows by leadership he is in it with "the employee group" 2. he takes the biggest hit (remember LEAD FOLLOW or GET OUT OF THE WAY) but at the same time can make the biggest paycheck IF HE manages the company well. so guess what he is in it for himself as well ( a vested interest in success) as opposed to what do i care i got mine attitude. (ps Jetblue's ceo makes 250,000 a year for comparrision, and donates 100% to get this an EMPLOYEE catistrophic fund). ok sure he has millions in shares (NOT OPTIONS) but then He STARTED the company with millions of his OWN money.

now there was 0 in the contract to prevent scheduling a crew to work 8hrs of flight a day. nor accomplishing this in say a 12-14 hour period. more over by doing this you could raise productivity to say (with again more OUTSIDE THE BOX thinking..read here relief from 85 hr max) to say 95 yeah thats right 95 hrs but why would i work so much? well at 6.5 hrs per day thats 14.5 days of flying how much do you do now? and at 7.0 hrs a day that drops to 13.5 days so you would work 95 hrs ( a win for the company) and end up with 16 days off ( a win for crew) of course it must be scheduled that way otherwise you fall into the trap. the trap is what we are in now. which is you make us sit so you got to ensure a Min pay day. well if you FLIP it around and ensure Maximum productivity on trips then the pay takes care of itself. and guess what this can be done WITHOUT altering any present dutyrigs. you simply schedule above it.

but now we will "lose jobs" wrong, time to the managment cap back on now you generate " excess crews" or if you will if others go to 95 then we need less total crew to fly the genreated block hours. but What if you took those crew (which now are costing you 0 dollars ... that is 0 dollars more than last year ie 3500 to fly x total block hours) you would still have same block hours just some crews flying more and others almost nothing. so now you fly them, and extra leg here there new cities restart old cities, guess what your already paying for the gates, the planes, the maintence, the reservations, the ground crews. it costs only the addtional fuel to fly the plane. and guess what that does. IT generates MILLIONS of additional ASMs at almost no additional costs. result a lower CSM immediately with 0 jobs lost, 0 pay increase, more time off for the workers involved, more incrmental revenue generated,increased hours per day usage in aircraft and facilities.

i think thats enough to start with. SO sorry while given the advantage of looking aftward, i can see it was more business as usual for both sides. I still say its one Heck of a company with outstanding employees, they are in need of creative leadership ablitiies, you get that and this place called USAIRWAYS turns around in less than 12months.

h34r:

 

[vc10]

What you suggest is not permitted under ERISA, which basically states that once you've promised a pension item to someone, you can't take it away---even if they agree to let you take it away.

There's currently only one legal way to reduce pension obligations once incurred: distress termination. That's a fact. The most you can do, outside of a distress termination, is freeze pension obligations.

You may want to think outside the box on this, but the law says you can't.

Example Pensions, Company: we cant pay Unions: you owe us. and so it goes.
creative solution, rather than battling out (read here MILLIIONS in lawyer fees) in court. If Both parties agreed to a Voluntary Termination of the plan. it would have netted roughly 75% of what was owed to its participants. instead of the PBGC getting the assets, you could have simply said ok year to date, these are the assets, this many participants here is the distrubution (very simplified answer but correct in every sense). 1. no more pension obligations 2. instead of the 56,000 or so PBGC maximum you would have gotten almost twice that (but less than originally owed to you) that to me is a win win outside the box.

[post="226829"][/post]​

 

[javaboy]

voluntarly terminations are allowed

on this we disagree