Credit Defaults on AMR soar to nearly 3X levels af industry

[commavia]

Tell me again why we bought TWA?

Two reasons, both related:

1. TWA had MD80s and slots at JFK/LGA/DCA that were available at a relatively bargain-basement price due to the company's impending liquidation

2. At the time, airline industry dogma (by no means unique to AA) was that market share was the ultimate goal to financial success because, it was believed, higher market share generated disproportionately higher unit revenues in a given market (the vaunted S-curve). Post-9/11, and particularly once low-cost carriers like JetBlue, Frontier, AirTran and JetBlue began expanding rapidly, this correlation was proven to be a fallacy.

That's the point WT..Many a AA decision did not work.
Opeining up hubs in RDU and BNA only to close them not too many years later....Buying MD-11s only to retire them not too many years later, Folkkers? MRTC?
Just to name a few.

AMR bought MD-11s because at the time they were the only option. MD - by that time in decline - offered AMR a set of capabilities they never delivered, and thus AMR unwound that commitment as quickly as possible once a viable alternative came along (the 777).

As for Raleigh and Nashville, they came at a time when AA was growing astronomically, and needed to put new capacity somewhere - to the monumental benefit of union labor, which grew just as rapidly during the Crandall Growth years. That capacity was quickly reallocated to other locations when economic growth slowed.

I never see management being told to ADAPT,,,,,like say to managing effectively and responsibly."

Well, one might argue - and then be summarily attacked here on this forum - that AMR management has ADAPTED enormously to the evolving market conditions by continuing to honor union contracts, pension and healthcare obligations, and other legacy labor expenses and liabilities, when every one of their competitors have chosen the alternate ADAPTATION method (bankruptcy, and screwing their employees far more than any of the alleged ills AMR employees have suffered).

So when you're wondering why AMR management haven't been "held responsible" for their mistakes, perhaps take a moment to reflect on what AMR management has gotten right: they haven't filed for bankruptcy, which for the leadership of a publicly-traded corporation, is sort of the definition of success. They have kept their concern a going concern, and not wiped out the common shareholders who own the company.

And - minor detail - in the process they have treated AMR employees, overall, in the aggregate, far better than the treatment many employees at Northwest, USAirways, etc. have gotten. They haven't outsourced half of the system ASMs to non-union regional operators. They haven't outsourced overhauls to El Salvador and China. They haven't cut your base pay even further beyond the 2003 concessions. They haven't frozen or dumped your pension.

I'm not defending every decision AMR management has made. Trust me - I know how horrific some of the "management" is at AMR, and how truly despicable some of the leaders at the company can be. I get that - totally - and I'm not minimizing it one bit. Further, I could add many things to the list of mistakes that I think AMR management has made in recent years.

But, that being said, I continue to find stunning the lack of perspective of some AMR employees, and the lack of recognition that a huge reason why AMR is having financial difficulties relative to peers is precisely because it has not filed for bankruptcy, and further screwed its employees. While that is by no means a responsibility of labor, it is amazing to hear, for example, politicians like Laura Glading talk about AMR's leadership "failures" in the abstract, with a total disconnection from the direct benefit thousands of AMR union employees have gotten from AMR's leadership successes.

 

[eolesen]

Interesting perspective, and I agree management did try to adapt to the changing business without forcing massive change on the employees. And yes, while the pay cuts were huge, the issues which hit the other airlines harder, e.g. insourcing, health & retirement, were left for the most part untouched at AA.

It's only been six years since the rest of the industry giants screwed over their employees, so while the short term gains have been apparent, it's too early to say that the long term benefit was really worth the severity of the action taken. Maybe ten years from now, we'll all be saying how short lived the effects of lowering labor costs thru bankruptcy was...

 

[sixty/4]

Bring back Bob!!!!!

 

[Hopeful]

But, that being said, I continue to find stunning the lack of perspective of some AMR employees, and the lack of recognition that a huge reason why AMR is having financial difficulties relative to peers is precisely because it has not filed for bankruptcy, and further screwed its employees. While that is by no means a responsibility of labor, it is amazing to hear, for example, politicians like Laura Glading talk about AMR's leadership "failures" in the abstract, with a total disconnection from the direct benefit thousands of AMR union employees have gotten from AMR's leadership successes.

and it is here where we have arrived full circle....At the end of the day, AA's woes lead back to LABOR costs! It's all about labor....employees gave back billions 8 years ago and barely got crumbs back.. AA still cannot be profitable due to LABOR costs? How much is enough, commavia?

You may view AA management as noblemen for not declaring bankruptcy to skirt their obligations.....Others view it as AA ARROGANCE and their unwillingness in losing some control of running the airline during their stint in bankruptcy.

I would have respect for this company if they just came out and told each union "IF YOU DON'T GIVE US THIS, THIS, AND THAT........WE WILL FILE BANKRUPTCY AND HAVE A JUDGE FORCE FEED WORSE CONDITIONS ON YOU.."
But to continually drag and stall negotiations on and on trying to look like a bunch of good guys is getting quite old.

SAY WHAT YOU MEAN AND MEAN WHAT YOU SAY!

 

[FA Mikey]

And exactly what is Sir Willie to propose? Buying AMR? Dream on. Not only is that illegal under current U.S. law, I don't think there would be a snowball's chance in Hades to get that law changed to allow more than 25% foreign ownership.

I think we will see it sooner, rather than later. Laws like that are antiquated relics of a bygone era. They may well be speaking German at the NYSE shortly, and there may be a large hub of speedbirds at DFW, sometime after that.

 

[paul1]

what about that bill H.R. 4766 someone posted something about

http://avstop.com/news_sept_2010/house_bill_hr_4766_is_a_win_for_airline_employees.htm


is there anything to this?

 

[paul1]

tried tracking it on

www.govtrack.us

but no success

 

[commavia]

and it is here where we have arrived full circle....At the end of the day, AA's woes lead back to LABOR costs! It's all about labor....employees gave back billions 8 years ago and barely got crumbs back.

AA's "woes" lead back to a myriad of things - labor costs being only one.

To suggest that AA's labor costs have absolutely nothing whatsoever to do with AMR's cost un-competitiveness and relative financial under-performance is just plain dishonest, just as dishonest as it is to suggest that AA's labor costs are the sole reason for AMR's cost un-competitiveness and relative financial under-performance. Neither is true.

Is labor the sole reason AA is losing billions? No, of course not. Is it part of the reason? Of course it is. I am truly amazed that anybody could honestly suggest otherwise with a straight face.

To suggest that somehow other airlines used bankruptcy to - among other things - void union contracts, lay off thousands more workers, cut base pay and benefits even deeper, freeze and/or dump pensions, outsource massive swaths of their network to non-union regional operators, and outsourced maintenance to third parties and/or foreign countries, and yet derived no cost advantage from any of that, is simply ridiculous. AA has not done those things - or not done them to the same extent - and yes, that does mean that they are at somewhat of a labor cost disadvantage in some areas as a result. This isn't rocket science.

AA still cannot be profitable due to LABOR costs?

I didn't say that.

How much is enough, commavia?

I'm not an AA employee - not an executive nor a union member - so I can't really say, can I? But since AMR continues to spend more money on labor per unit of capacity produced, and per passenger carried, some - looking purely at the numbers - might suggest that AMR is still labor-heavy relative to competitors, or "overstaffed" (as the APFA's paid economist so ironically put it) in some areas.

But if I had to guess, I would imagine that - off the top of my head - at least two contract language modifications that could potentially substantially help AA's competitive position would include:

(1) new pilot provisions allowing longer-haul flying that is competitive with other U.S. network carriers like Delta and United

(2) getting the pilots to agree to an effective B scale that would finally allow AA to bring 90-seaters back onto the property, at a cost competitive with the non-union pilots flying those planes at other U.S. carriers

(1) would allow AA - like Delta and United - to generate more ASMs with their existing fleet, which would have the practical effect of opening up new opportunities for AA to generate more incremental revenues without incurring substantial additional unit costs (essentially, generate more revenue spread over similar fixed assets). From the company's perspective, that would reduce costs - including labor - on a per-ASM basis and bring those per-ASM cost metrics more in line with AA's competitors, which would improve AA's competitive position, without changing one dime of the compensation structure for employees.

(2) would open up huge new market opportunities for AA where its current fleet is simply uncompetitive, particularly in places like Chicago where AA suffers hugely from not having a plane between the 140-seat MD80 and the 63-seat CRJ700. Not that I'm holding my breathe for this to happen in my lifetime, but it would be a strategic win-win for the pilots and the company: the pilots get to bring even more flying into their fold, retain more dues-paying members, and steal away from management the ability to play mainline vs regional pilots off of each other, and in return, the company gets a fleet of economically viable airplanes that can be deployed in markets (and thus capture revenue streams) currently inaccessible to AA's fleet.

You may view AA management as noblemen for not declaring bankruptcy to skirt their obligations.....Others view it as AA ARROGANCE and their unwillingness in losing some control of running the airline during their stint in bankruptcy.

Well, frankly, I do think it is noble of AA management to attempt to avoid bankruptcy. Call me old fashioned, but I believe that legally-binding contracts and financial commitments matter, as does the legal and fiduciary responsibility of the leader of a publicly-traded company to deliver returns to shareholders (i.e., not wipe them out). Apparently you believe that bankruptcy is an acceptable business strategy, but I don't.

Chapter 11 was put into place to allow companies to restructure while protected from creditors when they reached a point where they had exhausted all possible avenues to meet their obligations. That doesn't mean you just stop trying to meet those obligations. AA management has made an effort to meet those obligations - including your pay, your contract, and your pension. And you have a problem with that? Wow.

As I said, it is simply incredible to me that a union member would actually imply that management should have put the company into bankruptcy, at that somehow would have been better for any of the stakeholders involved - most of all unionized labor.

Have you not looked around at what has happened to unions at Northwest, United, USAirways? Do you think the mechanics at Northwest would say that bankruptcy was a preferable business (or as you put it, "adaptation") strategy? How about the pilots at USAirways? Or the overhaul guys at United? Respectfully, wake up and smell the pink slip and dumped pension.

Despite its faults and some horrible management, AA has some of the best people I have ever encountered in my life - I count many as longtime personal friends. But, as is often the case with many AA employees, the grass is always greener somewhere else. You've had to put up with a lot of crap in the last ten years. I get that - we all get that. The job isn't what it was pre-9/11. You had to serve FC passengers powdered milk for a few years, they've cut back on meals, they've stuffed in more seats, your real pay (adjusted for inflation) has been flat or declining year after year, you only got one measly set of stock options in 2003 and Arpey is getting them year after year, and you get treated like sh*t by arrogant, entitled business men day in and day out. Got it - got all of it, trust me.

But look around at where other flight attendants have ended up at other airlines. Do the AA flight attendants - as a group - really have it all that bad? Honestly? Are the conditions you are working under that demonstrably worse than the "market average" for the industry of 2011, when more and more of the flight attendants in this country have no union and/or are typically flying more hours, for less pay, without a union, at a regional or low-cost carrier?

Like I said: perspective.

I would have respect for this company if they just came out and told each union "IF YOU DON'T GIVE US THIS, THIS, AND THAT........WE WILL FILE BANKRUPTCY AND HAVE A JUDGE FORCE FEED WORSE CONDITIONS ON YOU.."

Funny, I don't seem to remember the unions being too crazy about that approach when Carty tried it back in 2003. Back then, the company and the unions needed congressional mediation to reach those deals.

Nonetheless, you may just get your wish, sadly.

 

[Hopeful]

I'm not an AA employee - not an executive nor a union member - so I can't really say, can I?

NO? But you sure sound like you have a vested interest.

Well, frankly, I do think it is noble of AA management to attempt to avoid bankruptcy. Call me old fashioned, but I believe that legally-binding contracts and financial commitments matter, as does the legal and fiduciary responsibility of the leader of a publicly-traded company to deliver returns to shareholders (i.e., not wipe them out). Apparently you believe that bankruptcy is an acceptable business strategy, but I don't.

I did not say that.. I said they should file already and quit negotiating because they are stalling.

Chapter 11 was put into place to allow companies to restructure while protected from creditors when they reached a point where they had exhausted all possible avenues to meet their obligations. That doesn't mean you just stop trying to meet those obligations. AA management has made an effort to meet those obligations - including your pay, your contract, and your pension. And you have a problem with that? Wow.

WOW,, I never said that either! What I have a problem with is them holding that over our heads and continually reminding us how lucky we all are to have jobs...

Have you not looked around at what has happened to unions at Northwest, United, USAirways? Do you think the mechanics at Northwest would say that bankruptcy was a preferable business (or as you put it, "adaptation") strategy? How about the pilots at USAirways? Or the overhaul guys at United? Respectfully, wake up and smell the pink slip and dumped pension.

So, by your analysis, we should bend over more and more and succumb to inept management and their demands? Just so we don't go bankrupt?

Despite its faults and some horrible management, AA has some of the best people I have ever encountered in my life - I count many as longtime personal friends.

Didn't you say you were not an AA emplyee, executive, or union member? But their your friends? hmmmmmm!

Funny, I don't seem to remember the unions being too crazy about that approach when Carty tried it back in 2003. Back then, the company and the unions needed congressional mediation to reach those deals.

Nonetheless, you may just get your wish, sadly.

I speak for myself. the unions opinions are theirs and members have their own....At least we get to vote on those issues....Does management have that option?

 

[commavia]

NO? But you sure sound like you have a vested interest.

I do. As I said, I know a lot of people at AA - from flight attendants to executives - and I want what's best for all of them, because I care about them, and frankly, I care about the company that employs them (along with you and tens of thousands of other people around the U.S. and the world).

I did not say that.. I said they should file already and quit negotiating because they are stalling.

Granted - in the short run, AA benefits from every union employee not getting any substantive inflation-adjusted wage increase for years. However, in the long-run, the cloud of uncertainty from open contracts is doing massive damage to the company. You probably think I'm naive, idealistic, or just plain stupid, but I think Arpey knows that, which is why I think he actually does want to get deals signed, rather than stall. But, alas, if Arpey says he wants a zero-net-cost-increase contract (as the company defines it), and the unions won't accept that (as they define it), perhaps it's not his refusal to deal but a good, old-fashioned, age-old case of both sides' refusal to agree on something.

On the other hand, is it possible - merely possible - that perhaps AA's management actually does, genuinely, want to make the company competitive and economically viable for the long-term, without screwing everyone in bankruptcy? Possible?

WOW,, I never said that either! What I have a problem with is them holding that over our heads and continually reminding us how lucky we all are to have jobs...

I wouldn't say you're lucky to have a job. You and every other employee chooses to work at AA, and you can leave whenever you want. That's not luck, that's just free association.

I suspect you'll no doubt disagree, but I would, however, say that you're lucky that AA's management hasn't taken the bankruptcy route and instead has attempted to honor the company's longstanding obligations to shareholders, creditors, and employees.

I think the attached graph is fairly instructive.

This comes from the MIT Airline Data Project, using numbers as reported to DOT from the airlines - this is average annual wages for flight attendants at the U.S. network carriers from 2001 to 2009. I've added the dots on the lines to correspond with when the carrier entered and exited bankruptcy (USAirways has four dots because they entered and exited twice in five years).

View attachment 9030

Looking at this chart, and considering what happened to the salaries of your peers while in bankruptcy (and that's to say nothing of the non-salary compensation that probably got even further gutted and isn't reflected in these numbers), respectfully, I'd say you're pretty lucky that AMR management has decided not to take the easy strategy of bankruptcy like other U.S. carriers. And, needless to say, if I put on there the average salary levels for the low-cost carriers that mostly have no unions and thus have never even used bankruptcy to gut a contract, you look even luckier still by comparison.

So, by your analysis, we should bend over more and more and succumb to inept management and their demands? Just so we don't go bankrupt?

First off - this company's management has managed to do something that literally no other management team at any of the other legacy carriers has managed to do: avoid bankruptcy. That, right there, earns them a bit more respect than "inept" in my opinion.

Second - as to what you "should" do - as I've already said: I think you should have some perspective. That doesn't mean give away everything, but it does mean that you realistically accept the economic environment in which you, your coworkers, and your employer, find yourself, and honestly evaluate where your union contract is making your employer less competitive relative to its post-bankruptcy peers.

Didn't you say you were not an AA emplyee, executive, or union member? But their your friends? hmmmmmm!

As much as I've flown AA in my life, you come in contact with a lot of AAers.

 

[Hopeful]

And at the end of the day, AA will once again be threatening BK...
They have been touting how they did not opt for that route, but their costs are too high.

If that is truly the case, I would prefer to no longer see any more "tip-toeing" around issues.
I want AA to say loudly and clearly exactly what they want.
I want them to use their public forum airing all union negotiations (AANEGOTIATIONS.COM) and i want AA to tell the world that

They want SCOPE gone,
pilots and FA must fly more hours
either overhaul or line maintenance operations gone or spun off
cabin service and ramp operations outsourced
everybody part time,,,,,,,etc etc

It is there article by article....But they should name specifics...the meat of it!
....
ANYTHING that they want they should post....And stop this illusion that AA is negotiating in good faith.
And make it very clear by saying.....IF THE UNIONS DO NOT AGREE TO OUR DEMANDS, WE WILL FILE BANKRUPTCY!!!!!!!!!!!!!!!!!!!

is that too hard?
It took two weeks for them to wrangle billions of concessions from us in 2003, but it's 8 years gone by and concessions continue. 3 1/2 years since contract expired.
You call that good faith?
I call it stalling because they know what the NMB will and will not do,,

So let's stop negotiating and start the bankruptcy threat! THIS IS WHAT I WANT SO WE ALL CAN MOVE ON!

 

[eolesen]

They've told each of the unions what they ultimately want, Hopeful. It's called "the offer on the table".

I don't know how much clearer the company's position could be. The only evidence I've seen that they want to spin off or outsource overhual is from everyone here and in the breakroom.

Maybe, just maybe, there really isn't a grand plan beyond the offer on the table.

 

[Hopeful]

They've told each of the unions what they ultimately want, Hopeful. It's called "the offer on the table".

I don't know how much clearer the company's position could be. The only evidence I've seen that they want to spin off or outsource overhual is from everyone here and in the breakroom.

Maybe, just maybe, there really isn't a grand plan beyond the offer on the table.

No, Eric, it is somewhat ambiguous.
the company should bare their plans with regard to overhaul especially.....
They want 24/7 coverage, different job classification, pay scales for the base...
What is their plan?
If it is to spin off Overhaul...then say it..and stop with the "we need these changes to compete.."
They have major plans.

they say they can't compete with the MRO.... Do you think they can compete with MRO wages simply by having a 24/7 operation? paying OH people way more than MRO wages? After lisitening to the critics and pundits in the business news game and in this forum, a major disadvantage is AA still doing in house heavy maintenance..
Will the 24/7 and somewhat same pay off set the cost of maintaining over 600 aircraft?
The "offer on the table." is a shell game, just like every other contract. Because after decades of bargaining with the TWU/AA....we have all seen the "fine print" once the contract was in place.
And yes, I blame the union for that!

The only thing the company is clear as daylight about it how they mention their pension, benefits and insourcing maintenance....

My point is...if they are going to run a website (AANEGOTIATIONS.COM) so the public and media can see just how generous they are...then they need to be clearer in what their intentions are...Not showing article by article of the contract!

 

[WorldTraveler]

No, Eric, it is somewhat ambiguous.
the company should bare their plans with regard to overhaul especially.....
They want 24/7 coverage, different job classification, pay scales for the base...
What is their plan?
If it is to spin off Overhaul...then say it..and stop with the "we need these changes to compete.."
They have major plans.

they say they can't compete with the MRO.... Do you think they can compete with MRO wages simply by having a 24/7 operation? paying OH people way more than MRO wages? After lisitening to the critics and pundits in the business news game and in this forum, a major disadvantage is AA still doing in house heavy maintenance..
Will the 24/7 and somewhat same pay off set the cost of maintaining over 600 aircraft?
The "offer on the table." is a shell game, just like every other contract. Because after decades of bargaining with the TWU/AA....we have all seen the "fine print" once the contract was in place.
And yes, I blame the union for that!

The only thing the company is clear as daylight about it how they mention their pension, benefits and insourcing maintenance....

My point is...if they are going to run a website (AANEGOTIATIONS.COM) so the public and media can see just how generous they are...then they need to be clearer in what their intentions are...Not showing article by article of the contract!

I would agree that AA is probably not being complete straight-forward in saying what all of their contracts really need to have... which also indicates that they aren't willing at this point to upset labor relations enough to ask for what they really need, so they are just leaving sleeping dogs to lay until they are forced to make more dramatic changes. AA probably thinks the urgency is not as great as long as they have some cash in the bank and UA/CO's merger plays out - and there is truth to that.
But it also belies the fact that other carriers including DL and the low fare carriers know where their costs are groing and continue to go after AA's key markets
.
Getting control of AA's labor cost problem also involves protecting its core revenue base and if it is eroded to the point that AA gains significant new competitors in key markets, then it becomes too late to then go to labor with "see the situation we are in" and then ratchet up the negotiations to another level.
;
We'll see soon how AA's revenue compares to the industry and its network peers but already the Air Transport Association has said that RASM is growing at 9-10% and AA has indicated their RASM will grow by lesser amounts.

 

[Maark767]

I would agree that AA is probably not being complete straight-forward in saying what all of their contracts really need to have... which also indicates that they aren't willing at this point to upset labor relations enough to ask for what they really need, so they are just leaving sleeping dogs to lay until they are forced to make more dramatic changes. AA probably thinks the urgency is not as great as long as they have some cash in the bank and UA/CO's merger plays out - and there is truth to that.
But it also belies the fact that other carriers including DL and the low fare carriers know where their costs are groing and continue to go after AA's key markets
.
Getting control of AA's labor cost problem also involves protecting its core revenue base and if it is eroded to the point that AA gains significant new competitors in key markets, then it becomes too late to then go to labor with "see the situation we are in" and then ratchet up the negotiations to another level.
;
We'll see soon how AA's revenue compares to the industry and its network peers but already the Air Transport Association has said that RASM is growing at 9-10% and AA has indicated their RASM will grow by lesser amounts.

Of course AA's numbers will be less.... Every word coming from management is less less less....Over it.