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.
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.