Crandall Testifies Before Senate Commerce Committe

[WingNaPrayer]

Former Airline Exec Says Bankruptcy Laws Hurt Industry



WASHINGTON (Dow Jones)--Lax U.S. bankruptcy laws have led the airline industry to its current financial crisis, former AMR Corp. (AMR) Chairman and CEO Robert Crandall testifed Thursday before the Senate Commerce Committee.

Crandall is known for revolutionizing American Airlines, which in 1982 reorganized under the newly-formed holding company AMR Corp., and the airline industry, by introducing the "frequent flyer" concept.

He said Thursday that U.S. bankruptcy laws have allowed "failed ventures to continue operating until the last dollar of available cash has been spent."

Crandall said bankruptcy laws have acted as a "fail safe for imprudent managements and unions" allowing them to maintain excess capacity in the market and prevented the industry as a whole from setting prices at levels necessary to recapture costs.

He said that under tougher bankruptcy laws "failed airlines would have no choice but to liquidate their physical and operating assets, thus removing excess capacity from the market."

Crandall said labor and competition laws should also be reviewed.

He was testifying at a hearing on the effect of airline bankruptcies on the pension benefits of airline employees.

While Congress tried last year to help the airlines by easing pension contributions, Crandall said that there is no way any of them will keep their defined benefit pension plans over the long run.

Crandall said the airlines will either drop their plans as part of concessions won from employees or simply dump them onto the Pension Benefit Guaranty Corporation during one of their repeated trips to bankruptcy.

*****

Makes me wonder if he knows something not many others do . . . .

 

[WorldTraveler]

I think he's right. It's not a given that they will dump them through bankruptcy. WSJ had a good article on cash balance pension plans recently; since it is copyrighted, I can't post it. It said that essentially cash balance plans are frozen defined benefit plans. Delta imposed cash balance plans on its non-contract employees a couple years ago and is asking that pilots convert to one now. Whether through cash balance plans or some other mechanism, defined benefit plans for airlines are history.

Yes, bankruptcy laws combined with government resistance to mergers and acquisitions has created the disaster that is the airline industry today. There is no doubt that low cost carriers would have eventually grown but the US airline industry is now the laughing stock of the world and will take years to recover.

 

[Oneflyer]

Makes me wonder if he knows something not many others do . . . .

I would guess pretty much everyone deep down really knows this. Why do you think so many Delta pilots are retiring early and taking lump sum payouts?

The real problem here is that upper management at most airlines are afraid of a worker rebellion and union leadership is afraid of looking like they're giving more "concessions" so nothing gets done to solve the problem.

 

[NewHampshire Black Bears]

WingNaPrayer.

"Makes me wonder if he knows something not many others do"

WNP,
Seriously, would you have expected any less from our (ex) "Uncle Bobby"

I tell ya, the man was(and mabey THROUGH Arpey still IS) "The Babe Ruth of airline Exec's"


(Paul Simon)
"Where have you gone uncle Bobby-O, our industry turns it's lonely eyes to you, Oohh Oohh Oooohh",

"What's that you say uncle Bobby-O, Wolf,Bethune, Andersen, Mullin, Herb,Greenwald, have LEFT and gone away, Hey, hey, hey,,,,,, hey, hey, hey"

NH/BB's

 

[JS]

I would venture a guess that personal bankrupcty laws do more damage than corporate bankrupcties. Unless you have no loans at all, you are paying for the wasteful spending practices of individuals who declare bankruptcy.

Corporate bankruptcies hit the stockholders, but that's easy to avoid -- don't invest in the stock.

Crandall is just bitter that AA is profitable (for the most part) and US isn't but hasn't gone out of business yet. File this article away in the trash bin where it belongs.

 

[NewHampshire Black Bears]

I would venture a guess that personal bankrupcty laws do more damage than corporate bankrupcties. Unless you have no loans at all, you are paying for the wasteful spending practices of individuals who declare bankruptcy.

Corporate bankruptcies hit the stockholders, but that's easy to avoid -- don't invest in the stock.

Crandall is just bitter that AA is profitable (for the most part) and US isn't but hasn't gone out of business yet. File this article away in the trash bin where it belongs.

[post="189099"][/post]​

===================================================

JS,

Please believe that "uncle Bobby" was NOT there to "speed up" the (99% certain) chance that (sadly) US Airways will join the Eastern's, Pan Am's, and Brannif's of this Industry.
However, I would suggest to you that he WAS "there" with much "BIGGER fish" to FRY !!!!!!!

NO other airline exec. (past or present) has dealt with LCC's,(which US would become, if successful) LONGER, than Crandall.

Sometimes folks forget, that RLC co-existed quite nicely with "HERB"/WN in DAL for years, and "never broke a sweat"!!!!

An easy way to figure out what "uncle Bobby" is up to, is,
Think of any area of commercial aviation that YOU think that Crandall is "up to something". Just when your certain that you've got the answer, "FAST FORWARD" 4/5 steps, then that IS where you'll find him.

Love him, or hate him(and many do) the man NEVER "had"(and most likely) NEVER "will" have an equal.

Also, when anyone thinks of Gerard Arpey/AA, think Crandall "lite".

NH/BB's

 

[LaBradford22]

Crandall is just bitter that AA is profitable (for the most part) and US isn't but hasn't gone out of business yet. File this article away in the trash bin where it belongs.

[post="189099"][/post]​

AA is profitable?

That's news to me ... last I checked, Wall Street's consensus estimate is a loss of $700 million, and Wall Street's propensity to be behind the curve, coupled with $52 per barrel oil, leads me to an educated guess that the real loss will be in the $1 billion range.

 

[Fly]

The biggest mistake he is making now is that American is not out of the woods yet. He should not encourage bankruptcy revisions because they will not affect those already in bk but will affect those not yet there. It's a gamble he may live to regret.

 

[AAquila]

The bottom line is just that, the bottom line.

Calling Crandall names at this point, is useless. The airline industry is in a race to the bottom. Unless you've got a niche product like, Virgin's upper class massage pallor, or low cost Jetblue's in-flight TV, your airline is headed for the BK roundup. American's product is old, unexciting. the latest ad campaign, we know why is 'toast.' It just doesn't stand out. AA needs a controversial figure, somebody 'hot and happening' as a spokesman to bring the message home. Something along the line of a reality ad, with this guy/gal flying American and visiting with friends along the way.

They also have to rev up business on profitable monopolistic routes where the public has no other choice and dump all the other routes. Do it now before, the seasonal rush, make it policy, no profit, dump it.

Even with all these suggestions, that fact still remains that the price oil, creeps upward daily, and this turns management to look to labor for savings. So BK court is always available. Just don't count on your pensions being there later on.

BK as in Bankruptcy and Burger King, where we'll all be working soon.

 

[funguy2]

Some of these comments are completely out there...

I agree with World Traveller... Crandall has a point, and you all know it. Airline bankruptcies go on for years... Even tiny Midway and National hung on for over a year while "mystery" investors came and went. While these airlines flounder (and skip payments on some bills), they lower fares in order to raise cash, thus causing a race to the bottom putting the non-BK airlines in the position of less revenue, and still have to pay the bills. This then makes BK a competitive choice to lower costs, wiping out equity in the process. This encourages the financial markets to shy away from airlines, and yes, is very dangerous.

Having said that, I am not sure there is a better system. And I'm not sure that as a society we want to create "easy" BK laws. Although perhaps a time-limit of duration is called for. Or a rule stating, if you BK a company, you automatically don't get to run it anymore. And we already have the recently introduced 3-strike rule.

 

[Wretched Wrench]

I would venture a guess that personal bankruptcy laws do more damage than corporate bankruptcies. Unless you have no loans at all, you are paying for the wasteful spending practices of individuals who declare bankruptcy.

Corporate bankruptcies hit the stockholders, but that's easy to avoid -- don't invest in the stock.

Crandall is just bitter that AA is profitable (for the most part) and US isn't but hasn't gone out of business yet. File this article away in the trash bin where it belongs.

[post="189099"][/post]​

I would venture that corporate bankruptcies do more damage than personal bankruptcy. I suspect any ex EAL, Braniff, etc employees would be able to offer some perspective on the subject.

And corporate bankruptcies hit more than the stockholders. Again, the employees.

Whatever financial impact an individual BK has, it does not deprive anyone of their pay, retirement, benefits or job security.

Chap 11 for corporations allows the corporate execs to continue their pay and benefits while the proles die a slow economic death. Then, when finally in chap 7, they skate away with their BK proof retirement packages.

 

[goingboeing]

I have 19 years as an AA union employee. No CEO we've had is even worthy to carry Robert Crandall's briefcase.He could be pure hell at contract time but he really cared about the long term viability of AA.
He had a grasp on the airline business and could change direction on a dime.
He was not perfect and some problems still remain that are leftover from his tenure as as CEO.

We still have way too many problems that haven't been corrected quick enough.
One example is we can order a part that is in stock at the local wharehouse and it takes 4-5 hours before we recieve it at the A/C.There is a tremendous amount of productivity lost due to this ineffiency.The part needed many times must be installed before we can continue completing a task or work card.

Commonly used parts on every aircraft are not even available at the load centers or on the aircraft dock.This is insane and might have been acceptable when we were earning a billion dollars a year profit but we cannot stay in business operating this way in today's market.

AA is not changing fast enough to make it a healthy airline.

 

[JS]

I would venture that corporate bankruptcies do more damage than personal bankruptcy. I suspect any ex EAL, Braniff, etc employees would be able to offer some perspective on the subject.

And corporate bankruptcies hit more than the stockholders. Again, the employees.

Whatever financial impact an individual BK has, it does not deprive anyone of their pay, retirement, benefits or job security.

Chap 11 for corporations allows the corporate execs to continue their pay and benefits while the proles die a slow economic death. Then, when finally in chap 7, they skate away with their BK proof retirement packages.

[post="189214"][/post]​

The employees of failed businesses are going to lose their jobs anyway. The topic concerns the impact a prolonged bankruptcy has on other competitors.

 

[markkus757]

He's got a point though. Why should UA stay in BK for almost two years? What about the people they owe millions to? We are seeing the effect of companies going in and out of bankruptcy. They are damaging the credit industry as well as people's lives. And if you don't think that is a problem, try getting a new mortgage from someone besides Fannie Mae and see how much other money they have for FHA loans or any other more risky borrowers. The credit companies only have so much money to lend to risky borrowers.

 

[WorldTraveler]

Easy bankruptcies exist in the US for both individuals and corporations because growing the economy requires risk. People and companies will start behaving much more rationally if they know that mistakes could cost them everything they have - exactly what bankruptcy means in many countries and has meant for centuries. Unfortunately, the US economy is far too fragile to NOT have people taking risks. And as long as private companies provide the funding for that risk, the government is not likely to stop the process.