American Going Eastern? A GOOD READ

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Mar 12, 2012
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American Going Eastern?


by Todd Wissing

In what is undoubtedly the most aggressive attack on private sector collective bargaining in decades, American Airlines is about to destroy the labor unions representing over 50,000 airline workers using the "rubber-stamp" bankruptcy laws of the United States.

Make no mistake: this is not about the survival of AMR corporation or American Airlines. Entering bankruptcy with over $5 billion, the company is not in legitimate jeopardy; the bankruptcy filing is, all involved acknowledge, simply a strategy employed to break the unions, its employees and to completely throw out union contracts. Following the path of other airline managements, but in particular, the cynical use of the law by United Airlines CEO Glenn Tilton, and, before him, Frank Lorenzo of Texas Air and Eastern, this new tool is simply known as The Bankruptcy Strategy. It's goal: to make a few airline executives very, very wealthy.

Since winning over a billion dollars in annual, year-over-year savings from employees in agreed-to concessions in 2003, American's executives have skimmed the airline with millions in generous bonuses while posting loss after annual loss, craftily steering the airline toward a thinly-veiled, intentional Chapter 11 bankruptcy.

It is not difficult to track the trail of blatantly corrupt decision-making that illuminates the pathway corporate leaders at AMR took to the ultimate attack on their own employees. While using the tangled and hypocritical rules of the Railway Labor Act (a process which requires contracted airline and other transportation employees to work despite expired contracts in a "status quo" arrangement ) to hamstring employees at the bargaining table, American set about dismantling it's ability to compete with other legacy and lower-cost airlines. In rapid succession, American gave up their hub in Boston to competitors; gave away their long-time presence in the Caribbean in an obvious drive to lose market share and revenue; diluted money-making international routes in "codesharing" and "joint alliances" with direct competitors and continued to cripple the mainline by sloughing off domestic flying to small, inefficient jets flown by corporate little brother American Eagle, which could not hope to compete directly with even the 100 seat E-190 aircraft flown by Jetblue, let alone Southwest's 737s.

And while their A-list competition, legacy carriers Delta and Northwest/United and Continental, merged and launched new routes, American conspicuously stalled, not only failing to grow, but aggressively shrinking. As the President of the American pilot union, the Allied Pilot's Association (APA), David Bates noted in a letter to his membership this week, in 2001, American employed 13,000 pilots; today, it counts only 8300; if management convinces the bankruptcy judge to allow them to proceed with their policy of scorched-earth, the APA estimates at least 2000, possibly many more, pilots will be laid-off.

Along with destruction of labor, the Bankruptcy Strategy necessarily causes similar decimation to shareholder value, a fact federal regulators seem to blindly overlook. This intentional misuse (actually, since lavish bonuses continued to be paid to executives, it can easily be described with the criminal terms "fraud" and "theft") did not go unnoticed by industry analysts; for several years, the "cornerstone" retrenchment "business plan" propped up with little explanation by AMR has been widely jeered by business experts. Indeed, upon hearing then-AMR CEO Gerard Arpey decribe the plan for the first time in a now infamous AMR conference call in 2009, highly-regarded airline analyst Jaime Baker of JP Morgan sneered disdainfully: "Is that all you got?"

As labor contracts expired and employees entered the contrived "limbo" framed by labor law, AMR negotiators blatantly stalled the talks for nearly 6 years, refusing to move an inch from their demands and aided by an either complicit or wholly incompetent National Mediation Board that shirked its duty to insure "Good Faith Bargaining. " With recent aggression committed against labor groups at international alliance member airlines in the Oneworld group, as British Airways, Iberia and Qantas boldly attacked their labor contracts with assistance from the government, the global pattern is clear: it is now American's turn to go to war.

As for the US government, American's plan to bust their unions is, by all appearances, receiving not just a green light, but a red carpet. While President Obama quickly moved to side with public unions last year in Wisconsin and Ohio in attacks of collective bargaining, the administration sits quietly while American management prepares to "roll the tanks" on 50,000 union families. In what is now clear was probably a "deal" between AMR and the administration, in return for a clear path to abrogating union contracts, the company backed-off their plan to terminate employee pensions, choosing to "freeze" them instead and saving the government-backed Pension Benefit Guarantee Corporation billions in liabilities.

And the actions of the bulk of the Unsecured Creditor's Committee is also conspicuous in its' irrational allegiance to a corporate leadership that has performed so poorly in all categories and whose "cornerstone" plan has failed so miserably. By ignoring a clearly-better plan by US Airways (already agreed to by American's unions) an acquisition that would save thousands of jobs, but more importantly, represents a course of consolidation, growth and aggressive aspiration for excellence, the creditors and the court are committing malfeasance by shunning a path that other legacy carriers used to proven success. This fact only encourages the suspicion of corruption in the process held by many employees.

In an an apparent reaction to growing sentiment among industry experts that the AMR plan is inferior to a deal with US Airways, recently AMR again shuffled executive personnel, removing long-time employee-irritant Jeff Brundage from the Human Relations top-spot to bolster confidence that management can win some manner of consensual deals with employees as they exit bankruptcy. But, to undermine the management effort, employees note that Brundage remains in an advisory role and are unconvinced any sincere cultural change is imminent, especially with the draconian 1113c term sheet still aggressively pursued by the teams of AMR's bankruptcy lawyers.

What happens next in this tragedy will be a historical event regardless of the outcome.

Will the judge actually approve the continuation of a business plan that has not worked for a decade and not supported by any industry analyst not on the payroll of AMR? Will the judge reward the poor-faith bargaining and stall tactics of a cynical AMR leadership, complete the charade and allow AMR to abrogate all union contracts and pick and choose their arrangements with employees?

If that happens...will the employees at American simply accept the complete destruction of their collective bargaining rights? The pilot's contract alone represent's over 70 years of give-and-take at the negotiating table, with the concessions of 2003 setting pay alone at 1993 levels with no raise since. As APA President Bates considered, management is in serious danger of overplaying their hand and causing American to end up like the infamous "corporate vulture" Lorenzo's Eastern Airlines:

"After watching this once-proud airline continuously deteriorate for more than a decade because of poor decisions made by management—and knowing how disillusioned our pilots have become—if Mr. Horton succeeds in his goal of emulating Mr. Lorenzo, it would not be surprising if a great many of our pilots were to decide they’ve had enough."

Will US Airways, on the other hand, play the role of White Knight and convince the creditors that their plan represents a much better chance of protecting their investments as well as saving over 6,000 jobs for the beleaguered American workers?

Time will tell. But it is clear that AMR leadership is not particularly adept at doing anything well these days; they misjudged how to run an airline; how to build a team and rally them around a plan for the future; they have failed to deal honestly with their employees or win any friends inside or outside the industry; and it is quite possible they have pushed their employees way too far. The industry is very, very close to the first complete shutdown of an airline since Eastern; only superior, measured decisions by both the judge and executives will avert a national aviation industry disaster.
 
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Ed Norton

Veteran
Sep 29, 2003
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328 Chauncey Street
I have a family to support like everyone else. Yet if this contract is ratified it spells the end of our profession as we know it. We, along with our running dog lackey TWU will open the flood gates and ruin it for the rest of the industry. So, for the greater good I see no recourse but to SHUT IT DOWN!
But alas, I see no repeat of the 1989 IAM strike. The coward Jim Little is no Charlie Bryan; he's not even an Ed Koziatek or a John Orlando (RIP). The TWU is...well..What about the TWU membership? We don't have the chutzpah to do anything but sit on our asses and complain.
Our demise will not come quickly, it will be a slow and painful death; a death by a thousand cuts. All the yes voters will see. They think that their jobs will be saved, or they think their 30 pieces of silver (lets see how long that lasts) will serve as a good pillow for their conscience.
 
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787nightmare

Veteran
Aug 28, 2010
722
153
Good article.
But left out one topic at the end.....

"Will the proud M & R at American Airlines, finally, once and for all, rid themselves of the cancer known as the TWU? Time will tell."
 

Hopeful

Veteran
Dec 21, 2002
5,998
347
Good article.
But left out one topic at the end.....

"Will the proud M & R at American Airlines, finally, once and for all, rid themselves of the cancer known as the TWU? Time will tell."

The same people who support the TWU in this will support them regardless of what has happened.
 

Frank Szabo

Veteran
Aug 21, 2010
1,622
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Broken Arrow, Okiehoma
Big surprise.

Now a question - is Arpey still one of the three amigos or have Parker and Horton dropped him as a friend and the "numero de amigos" dropped to "dos"?

It seems the union backing early on was curry favor in the future with Parker and company. The entire idea of three unions backing a failure equivalent to AA/AMR smelled funny from the outset as Parker still hasn't settled his last mess caused by the America West acquisition.

All that needs done by US Air now is to schmooze and convince the creditors they'll get paid and acquire AA. Parker will, without a doubt be in far over its head and "in order to restore order" to the business will file another round of Chapter 11 to whip the unions into line as well as cut costs - ie, renege from the promises made to AA's unions.

It seems al Qaeda and the Tallywhackers aren't the only "purveyors" of terrorism in the USA - add MBA School to the list.

Of course, this is all an opinion - they wouldn't do any of this to us, would they?
 

Soaring Eagle

Newbie
Apr 21, 2012
12
5
Braniff...Eastern...American, I know the South American routes are supposed to be a gold mine and just print cash, but you've got to wonder.
 

eolesen

Veteran
Jul 23, 2003
15,714
9,343
Ironic, yes... Aside from the original deal with Panagra in 1967,each time they've changed hands was due to a bankruptcy proceeding. Braniff got the routes in 1967, Eastern got them in 1981, and AA in 1989.
 
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CMH_GSE

Veteran
Apr 22, 2012
710
708
Ironic, yes... Aside from the original deal with Panagra in 1967,each time they've changed hands was due to a bankruptcy proceeding. Braniff got the routes in 1967, Eastern got them in 1981, and AA in 1989.

Interesting take.
There are sharks in the water right now if you read enough financial boards.
Some are saying AA could well be sold off in pieces, and it really has nothing to do with how we vote this weekend.
 

amtide

Advanced
Mar 5, 2012
164
75
Good article.
But left out one topic at the end.....

"Will the proud M & R at American Airlines, finally, once and for all, rid themselves of the cancer known as the TWU? Time will tell."

Can't wait for that to happen. I signed a card what else we can do?