APFA and AA Resume Talks 5/18

[commavia]

Ok everyone keeps bringing up the BK filing issue. Answer me this... If AA was going to file BK, #1 : Wouldn't they have filed years ago?

Well, they came closer in 2003 than at any other time in the company's history. Some view that as fake, and don't believe that the company was actually going to file in April of 2003. Whether or not that was a genuine threat, it is besides the point: just because AA didn't file in 2003 doesn't necessarily mean they wouldn't in 2010 or at some future date. If anything, I think it could be argued that the fact that now every single one of AA's legacy peers has filed, and in the process substantially reduced their costs, would increase the chances of AMR filing at some point in the future.

and # 2 : Why in the world would they have paid down almost 8 billion in debt over the last 7 years or so ??

Because I don't think AMR wanted then or wants now to file for bankruptcy. I think it's a pride thing for Arpey to a certain extent - he doesn't want to be the one who put the company into Chapter 11, and likes keeping the distinction of being the only legacy never to file.

Either way, again, what has happened in the last decade does not necessarily portend what will happen in the next. AMR has faithfully paid down debt, funded pensions, etc. in the last several years - in my belief, in a genuine effort to act like a normal, solvent company and not one being prepped for a bankruptcy reorganization.

However, the cost pressures on AMR relative to their competitors has increased, not decreased, with every passing year.

I just dont see AA filing. Do you guys on here know this for sure?? Everyone seems to keep talking about it but AA hasn't filed yet. What are they waiting for?? The contracts???

Well AMR will eventually have no choice but to file if cost pressures don't ease.

The way things are going now is not sustainable forever - it is sustainable for some amount of time, maybe another few years, but not forever.

Militant flight attendants can go on and on all they want about how they want a raise and will shut the company down if they don't get it. That's fine - that is everyone's right. But that's sort of an empty stand they're making on the battlefield of a war they've already lost.

In the long-run, AMR's costs - including labor - will have to come down, either through bankruptcy or outside of it, or the company will simply cease to exist. AMR generates higher unit revenues than almost any of their U.S. competitors, but they also have substantially higher unit costs - they can't go on having higher costs than all their competitors forever. As Crandall said over a decade ago (paraphrasing), "over the long-run, in a commodity business, which the airline industry increasingly is, the lowest-cost provider will generally win." That's right.

It is really simple supply and demand: there are so many people out there willing to work as flight attendants - far more than their are spots available - that the price for their labor has plummeted in the last decade. As long as that scenario persists, the going wage for flight attendants will continue to go down. So if AA flight attendants insist on continuing to make more than their peers at other airlines, for less work per month, then all they'll do is ultimately drive the company into bankruptcy or drive it out of business. In either case, they'll lose pay and benefits, and in the latter case, they'll end up just dramatically increasing that "supply" of flight attendants on the street even more, thus just driving the going rate even lower.

I have a ton of friends that are AA flight attendants, and I have enormous respect for what they do and what they have to put up with - from the company and from the traveling public - and if it was up to me, AA flight attendants would make double what they do. But the market just can't support that - not when competitors' flight attendants are willing to work more hours each month at lower pay, with no pension, and provide just as good (if not, frankly, in many cases better) service than AA flight attendants.

So, maybe the company will ultimately do what every other legacy airline has done, and file for bankruptcy, and get massive cost benefits almost immediately. That means pensions frozen and dumped on the government, far deeper pay cuts than what the flight attendants have taken thus far, far more hours per month, and lots of layoffs, among other productivity changes.

Again - lower labor costs are inevitable. Either AMR gets them, or eventually they go out of business. That's it.

 

[jersey777]

"I have a ton of friends that are AA flight attendants, and I have enormous respect for what they do and what they have to put up with - from the company and from the traveling public - and if it was up to me, AA flight attendants would make double what they do. But the market just can't support that - not when competitors' flight attendants are willing to work more hours each month at lower pay, with no pension, and provide just as good (if not, frankly, in many cases better) service than AA flight attendants."


Here's where the tide is turning. Flight attendants aren't WILLING to work more hours at lower pay. They were forced to while in bankruptcy. I also have lots of friends in the airline industry and all of them are ready to fight and take a stand to lift themselves up from bankruptcy induced gutting of their contracts. AND, it won't be long till JetBlue unionizes now that the NMB has leveled the playing field regarding union elections.


One more thing since you know so much about the industry. How was it that AA had such a HUGE loss in the 1st quarter vs. nearly every other airline? Did AA have higher labor costs to the tune of $500 million dollars in the first quarter?

 

[commavia]

Here's where the tide is turning. Flight attendants aren't WILLING to work more hours at lower pay. They were forced to while in bankruptcy. I also have lots of friends in the airline industry and all of them are ready to fight and take a stand to lift themselves up from bankruptcy induced gutting of their contracts. AND, it won't be long till JetBlue unionizes now that the NMB has leveled the playing field regarding union elections.

That may well be. With this rule fully in force, I fully expect that we'll see lots of other people unionizing - including Delta, JetBlue, etc. That will, of course, lead to substantially higher pay and substantially lower productivity for those workgroups. That's inevitable - that's unionism. And that will of course be great for AMR, as it will force other airlines to raise fares and reduce capacity as AMR has done. That is, in my mind, precisely why AMR hasn't taken part in the ATA lawsuit against the NMB ruling: since AMR already has among the highest labor costs in the industry, they can only benefit from other airlines' costs also going up.

But, alas, in the interim, where does that leave AMR? Can they wait things out and just go on as they are doing now - just basically waiting for the "convergence" that Arpey has talked about at length, where other airlines' deflated post-bankruptcy labor costs will ultimately rise to AMR's higher levels, forcing them to raise fares and taking some of the competitive pressure off AA?

Maybe. Maybe AMR can just wait the industry out and as everyone else's costs rise, just keep their labor cost increases at a more incremental level. Arpey seems to think so, and that seems to be AMR's strategy at this point, even though many people don't seem to be particularly happy with it (witness analyst Jamie Baker's pointed "is this all you've got?" comment on the last conference call).

Although, even if AMR's strategy is to just wait until other airlines' labor costs come up to AMR's levels, that still means that AMR can't let it's labor costs rise too dramatically.

One more thing since you know so much about the industry. How was it that AA had such a HUGE loss in the 1st quarter vs. nearly every other airline? Did AA have higher labor costs to the tune of $500 million dollars in the first quarter?

First off, I never claimed to "know so much about the industry." I am sharing my opinion - an opinion I feel strongly about. But it doesn't mean I claim to know everything or be some self-appointed expert. I clearly don't have all the answers - and from your perspective, I may not have any. And that's fine - I respect that.

To your point, based on the airlines' reported numbers for Q1, AMR's unit costs were higher on average than their network peers (I'm using Continental, Delta, United and USAirways) in some areas and lower in others. AMR's labor costs were about 2% higher than a weighted-average of those four peer airlines. However, if AMR had, say, the unit labor costs of Continental, the loss would have been cut by about $222M. If they had the unit labor costs of USAirways, the loss would have been cut by $240M. And if they had the unit labor costs of Delta, it would have been $320M lower. (At United's somewhat higher unit labor cost numbers, the loss would actually have been $630M worse) This all assumes, of course, that you hold everything else constant, which in practice is basically impossible - but at least it's a single point of comparison.

 

[JFK Fleet Service]

That will, of course, lead to substantially higher pay and substantially lower productivity for those workgroups. That's inevitable - that's unionism.

Hasn't seemed to have that effect on Southwest now has it? Funny how Southwest gets left out of these "Union = Lazy" spiels.UPS seems to bust butt too...

It's quaint how everyone equates representation with lower productivity, like there is a cigar chomping stereotype in a smoke filled back room giving orders.

But, alas, in the interim, where does that leave AMR? Can they wait things out and just go on as they are doing now - just basically waiting for the "convergence" that Arpey has talked about at length, where other airlines' deflated post-bankruptcy labor costs will ultimately rise to AMR's higher levels, forcing them to raise fares and taking some of the competitive pressure off AA?

How about the highly compensated and highly motivated (Via yearly incentives) managerial team we have actually lead the company? Wringing your hands and placing the blame at the feet of labor while the company stagnates isn't a viable strategy.Fleeing from competition at every turn,doing nothing but growing the commuter partners at the expense of the mainline isn't a viable strategy either.

First off, I never claimed to "know so much about the industry." I am sharing my opinion - an opinion I feel strongly about. But it doesn't mean I claim to know everything or be some self-appointed expert. I clearly don't have all the answers - and from your perspective, I may not have any. And that's fine - I respect that.

Sure sounds like you "Know so much about the industry", railing against organized labor and blaming them for all of the ills plaguing the company.

This isn't Airliners.net.

 

[FWAAA]

Ok everyone keeps bringing up the BK filing issue. Answer me this... If AA was going to file BK, #1 : Wouldn't they have filed years ago? and # 2 : Why in the world would they have paid down almost 8 billion in debt over the last 7 years or so ??
I just dont see AA filing. Do you guys on here know this for sure?? Everyone seems to keep talking about it but AA hasn't filed yet. What are they waiting for?? The contracts???
Thanks....

I don't think AA is chomping at the bit to file Ch 11 but there are some here who firmly believe Arpey and Horton want to do just that - The Goose is one who comes to mind. His posts say that it's been the plan all along. .

I agree that it's a pride thing - Arpey doesn't want to admit defeat and go down the same path as most all of his legacy airline brethren. I think he's proud of the fact that he accomplished, without bankruptcy, almost as much as the bankrupt legacies did. He slashed wages, pared down interest rates and aircraft lease rates, contributed a couple billion to the pensions, burned some non-core furniture, built up an enviable cash balance and saw AA pay down some of its huge debt in the past seven years.

I don't doubt the resolve of the flight attendants and believe that they will not shy away from self-help if released.

I also don't think any form of self-help will cause management to open up the purses any wider; unless AA's fortunes turn around in a big way, there just aren't the billions necessary to satisfy the varous workgroups.

My prediction is that a work stoppage will necessitate a Ch 11 filing in an attempt to preserve the $4.5 billion of cash, not because management wants to file for bankruptcy protection. But I've been wrong before.

 

[AANOTOK]

I agree that it's a pride thing - Arpey doesn't want to admit defeat and go down the same path as most all of his legacy airline brethren. I think he's proud of the fact that he accomplished, without bankruptcy, almost as much as the bankrupt legacies did. He slashed wages, pared down interest rates and aircraft lease rates, contributed a couple billion to the pensions, burned some non-core furniture, built up an enviable cash balance and saw AA pay down some of its huge debt in the past seven years.

And the Billion dollar question is "AT WHAT COST"

A. Bottom dwellers in the DOT rankings
B. A demoralized workforce
C. Customers leaving in droves
D. Getting fined continuously by the FAA
E. A once proud industry leader that is now viewed as an industry loser by many

Again, at what cost!

 

[commavia]

Hasn't seemed to have that effect on Southwest now has it? Funny how Southwest gets left out of these "Union = Lazy" spiels.UPS seems to bust butt too...

It's quaint how everyone equates representation with lower productivity, like there is a cigar chomping stereotype in a smoke filled back room giving orders.

Well, it actually has had an effect on Southwest. Their labor costs have skyrocketed in the last few years - to the point that their average compensation is now pretty much the highest of any U.S. airline. That has thus far been sustainable for Southwest because their costs in other areas are much lower than their peers - driven by things like having only fleet type, no international, and outsourcing overhauls. Would you prefer AA do those things? Besides that, Southwest is beginning to feel dramatic cost pressures because the fuel hedges that were basically subsidizing their labor costs are going away, and thus they are fundamentally changing their business model in various ways to emulate in many ways the legacies on the revenue side (codesharing, congested close-in metro airports, probably ultimately international, etc.).

How about the highly compensated and highly motivated (Via yearly incentives) managerial team we have actually lead the company? Wringing your hands and placing the blame at the feet of labor while the company stagnates isn't a viable strategy.Fleeing from competition at every turn,doing nothing but growing the commuter partners at the expense of the mainline isn't a viable strategy either.

What do you suggest they do differently, exactly?

I'm not placing the blame "at the feet of labor," but merely stating the reality - whether you like to hear it or not - that labor costs are an aspect of AMR's cost disadvantage versus virtually every single one of their competitors. It's not the only point of cost disadvantage, but it is one of them.

And as for AA's management "fleeing from the competition at every turn," and "growing the commuter partners at the expense of mainline," how do you recommend they do anything else? This is a commodity business - as one of my best IDF friends once said, for most people, a bus with wings. They look at the lowest price and don't pay attention to anything else. In that environment, and with costs - including, yes, labor costs - substantially higher than competitors, how do you expect AA to be able to compete against JetBlue, Frontier, AirTran, Southwest, etc.? How much more competitive would that have made AA?

Put another way, how many of these markets do you think AA wouldn't have had to "flee" or shift to Eagle if, for example, they had done what just about every other U.S. legacy had done - dumped everyone's pension, cut your pay even further and raised monthly minimums even higher, laid off thousands more people, and outsourced all heavy overhauls?

 

[jersey777]

"To your point, based on the airlines' reported numbers for Q1, AMR's unit costs were higher on average than their network peers (I'm using Continental, Delta, United and USAirways) in some areas and lower in others. AMR's labor costs were about 2% higher than a weighted-average of those four peer airlines. However, if AMR had, say, the unit labor costs of Continental, the loss would have been cut by about $222M. If they had the unit labor costs of USAirways, the loss would have been cut by $240M. And if they had the unit labor costs of Delta, it would have been $320M lower. (At United's somewhat higher unit labor cost numbers, the loss would actually have been $630M worse) This all assumes, of course, that you hold everything else constant, which in practice is basically impossible - but at least it's a single point of comparison. "






Here is where I need help understanding these figures. If you divide $320m (as in Deltas case) by 70,000 AA employees that means that we were paid on average $4571.00 more then Deltas employees over the quarter. That is $18,164 per employee per year. As in my case as a flight attendant, do I really make that much more then a Delta flight attendant? That would mean I would make $20.00 more per hour based on a 75 hour month then a Delta flight attendant!

 

[commavia]

"To your point, based on the airlines' reported numbers for Q1, AMR's unit costs were higher on average than their network peers (I'm using Continental, Delta, United and USAirways) in some areas and lower in others. AMR's labor costs were about 2% higher than a weighted-average of those four peer airlines. However, if AMR had, say, the unit labor costs of Continental, the loss would have been cut by about $222M. If they had the unit labor costs of USAirways, the loss would have been cut by $240M. And if they had the unit labor costs of Delta, it would have been $320M lower. (At United's somewhat higher unit labor cost numbers, the loss would actually have been $630M worse) This all assumes, of course, that you hold everything else constant, which in practice is basically impossible - but at least it's a single point of comparison. "






Here is where I need help understanding these figures. If you divide $320m (as in Deltas case) by 70,000 AA employees that means that we were paid on average $4571.00 more then Deltas employees over the quarter. That is $18,164 per employee per year. As in my case as a flight attendant, do I really make that much more then a Delta flight attendant? That would mean I would make $20.00 more per hour based on a 75 hour month then a Delta flight attendant!

To be honest, I have not read all through the airlines' 10Qs and 10Ks to parse out how they account for labor expense. Remember - it's an expense, not cashflow, so it is a somewhat accounting-based "paper" number. There are other things in there based on estimates, accounting rules, etc. But, I would suspect - though could be wrong - that most major U.S. airlines account for those things fairly uniformly, a lot of it (especially related to deferred retirement benefits) being governed by fairly extensive accounting rules and standards. Thus, long-story short, when it account for the fact that AMR still funds every U.S. union members pension - which Delta doesn't - and the higher pay, and perhaps that $20,000 figure isn't too unreasonable. If you look at the MIT Airline Data Project here (I know a lot of people don't believe this data, but still), it shows AA's 2008 per-flight attendant pay at about $12,000 more than Delta's. That was in 2008 - after Delta had exited bankruptcy - and I don't think either AA or Delta pay has changed too dramatically since then.

Also remember that that comparison is based on an average for all employees - not just flight attendants. So the difference in pay between flight attendants at the two companies may not be exactly $20,000. Some AA work groups may make more relative to Delta, some less, but either way, on a unit basis (per ASM), AA pays more.

Further, it is important to look at this as a per-ASM number. Which means that the more ASMs you fly per employee, the lower than number is. Thus, productivity and efficiency also plays into that number heavily.

So it may not necessarily be exactly $20,000 more per person.

 

[jersey777]

To be honest, I have not read all through the airlines' 10Qs and 10Ks to parse out how they account for labor expense. Remember - it's an expense, not cashflow, so it is a somewhat accounting-based "paper" number. There are other things in there based on estimates, accounting rules, etc. But, I would suspect - though could be wrong - that most major U.S. airlines account for those things fairly uniformly, a lot of it (especially related to deferred retirement benefits) being governed by fairly extensive accounting rules and standards. Thus, long-story short, when it account for the fact that AMR still funds every U.S. union members pension - which Delta doesn't - and the higher pay, and perhaps that $20,000 figure isn't too unreasonable. If you look at the MIT Airline Data Project here (I know a lot of people don't believe this data, but still), it shows AA's 2008 per-flight attendant pay at about $12,000 more than Delta's. That was in 2008 - after Delta had exited bankruptcy - and I don't think either AA or Delta pay has changed too dramatically since then.

Also remember that that comparison is based on an average for all employees - not just flight attendants. So the difference in pay between flight attendants at the two companies may not be exactly $20,000. Some AA work groups may make more relative to Delta, some less, but either way, on a unit basis (per ASM), AA pays more.

Further, it is important to look at this as a per-ASM number. Which means that the more ASMs you fly per employee, the lower than number is. Thus, productivity and efficiency also plays into that number heavily.

So it may not necessarily be exactly $20,000 more per person.

Thank you for the clarification. That all makes sense. Going forward in this round of negotiations you will likely see us as a work group fly more hours and pay more for insurance and lose our pension for new hires. In exchange for that, we want higher pay rates and more sick/vacation time. It will be interesting to see how the company and union cost out these items. After speaking with some former APFA negotiators, the union will require exact costing out of all concessions. Where there are doubts the APFA will challenge some of these figures. For example, exactly how much will the company save by eliminating pre-65 retiree medical benefits? Here is where it will get interesting because all these items were costed out in 2003 and now both parties will be on the opposite end when it comes to pricing something as a concession vs. a pay increase.

 

[Maark767]

No they won't file bk. They will just wait until the APFA tries to put their f/as in a self help mode and the will implement their last offer and I'll bet that will contain everything they want. No defined benefit for new hires, cross utilization, 95 hrs of flying, high flying based sick leave and vacation accrual.....and, and, and....

This is what happens when you don't negotiate snap backs into concessionary agreements.

Ok, sounds so easy to negotiate a snap back clause ..... Do you remember who you are dealing with here ???? Remember how it was back in '03...." Take it or we file and APFA loses way more than what we are offer" .
There was NO negotiating !!! It was thrown on the table... this is it...
Did TWA ever negotiate any snap back clauses in later years??? Just wondering...

 

[nbmcg01]

Ok, sounds so easy to negotiate a snap back clause ..... Do you remember who you are dealing with here ???? Remember how it was back in '03...." Take it or we file and APFA loses way more than what we are offer" .
There was NO negotiating !!! It was thrown on the table... this is it...
Did TWA ever negotiate any snap back clauses in later years??? Just wondering...

Absolutely plus "me too".
When you are offering to give $340,000 in concessions you CAN negotiate. The APFA just dropped the ball. or.......

 

[damajagua]

Media block out impose by the mediator on both parties till they get an agreement.

 

[MCI transplant]

Ok, sounds so easy to negotiate a snap back clause ..... Do you remember who you are dealing with here ???? Remember how it was back in '03...." Take it or we file and APFA loses way more than what we are offer" .
There was NO negotiating !!! It was thrown on the table... this is it...
Did TWA ever negotiate any snap back clauses in later years??? Just wondering...

<_< ------- That depends on your definition of what "later years" is? TWA's AMT's went over ten years without a contract! AA is now at what? Seven, and counting?------- They say history repeats itself. Well, AA is going down the same path TWA did. That's why putting a stop to Managements tactics of dragging their feet in negotiations for years, is so important through a snapback, and, or, retroactive pay!-------- But to answeer your question, yes we did have at least one contract with a snapback clause in it!

 

[Maark767]

<_< ------- That depends on your definition of what "later years" is? TWA's AMT's went over ten years without a contract! AA is now at what? Seven, and counting?------- They say history repeats itself. Well, AA is going down the same path TWA did. That's why putting a stop to Managements tactics of dragging their feet in negotiations for years, is so important through a snapback, and, or, retroactive pay!-------- But to answeer your question, yes we did have at least one contract with a snapback clause in it!

Same path as TWA ??? Not quite....
Anyways, Everyone has all these good ideas about contract issues like snapback clauses and getting management to stop dragging their feet.
Dont you think the unions on the property have thought of these ideas ??? You keep forgetting who you are dealing with here. I have friends who have worked in the union and have worked side by side with senior management and they have told me how they operate. It's not pretty.
Very easy to sit there and say one thing but to get it done is entirely a different ball game.