Economy Grows

[Decision 2004]

American seeks meetings with unions

Carrier says it wants an ongoing dialogue on ways to cut costs

01/17/2003

By SUZANNE MARTA / The Dallas Morning News

After dropping hints for weeks, American Airlines Inc. on Thursday asked union leaders to begin weekly meetings with management on Monday as the airline looks for ways to cut costs.

The company did not characterize the meetings as an attempt to ask the unions for concessions, but American chief executive Donald Carty said in a recorded message to employees Thursday that the carrier needs to change the union contracts.

"And, as I have said before, any solution inevitably will include the restructuring of our labor agreements," Mr. Carty said. "It is fundamental to our survival."

A spokesman for Fort Worth-based American said the airline didn't have a wish list of what it wants from the unions, simply that it wants an ongoing dialogue about how to solve its financial problems.

"We've made it clear that labor isn't the problem, but it's going to be part of the solution," spokesman Bruce Hicks said. "It's important that they understand where this company is, what issues it's facing and the industry as well. We have to be sure that we're on the same page."

Mr. Carty and company president Gerard Arpey also said in a letter to nonunion employees that the airline plans to hold group meetings over the next few months to discuss cost-cutting ideas.

Union leaders said late Thursday that they were open to meeting with the company, but they wanted more details about what would be discussed.

"We don't have any idea what's on their agenda," said George Price, spokesman for the more than 26,000-member Association of Professional Flight Attendants. "We're open to talking to the company at any time."

American's management has met periodically with its unions over the last year. In July, the company invited union leaders to meet with upper management about the business. In December, American asked its flight attendants to forgo a 3 percent raise that began Jan. 1, and also asked the Transport Workers Union to forgo a 3 percent pay raise scheduled for this spring.

Mr. Price said an outside consultant for the flight attendants is still in the process of preparing a financial analysis.

James Little, director of the Air Transport division of the 37,000-member Transport Workers Union, said any additional concessions from labor would have to be weighed carefully.

"If they're looking for concessions from us, I'd like to see that the company's putting up the same amount," Mr. Little said.

Mr. Carty has been suggesting for some time that American would be going to its unions with a request for relief. At a Senate hearing last week, Mr. Carty told lawmakers that American would need help from employees to whack $4 billion from its annual costs.

However, the unions have been cautious about volunteering to make massive changes. The pilots' union has accused American of intentionally negotiating slowly to avoid having to match the pay of Delta pilots, the best compensated among pilots of major airlines.

In his hotline message to employees Thursday, Mr. Carty said the carrier's financial condition has worsened since it froze management pay and asked two unions to forgo 2003 pay raises.

"Two of our biggest traditional competitors, United and USAir, have used the bankruptcy process to eliminate billions in cost," Mr. Carty said. "And much of the burden is being imposed on labor by the bankruptcy court and by creditors."

In addition, American is feeling pressure from low-cost carriers, which continue to grow in its markets. Fuel prices have shot up over the last six weeks, and security and insurance costs have soared. He also pointed to a stagnant economy and the potential risks of war in Iraq.

Excluding special items, AMR Corp., American's parent, is expected to announce a net loss of nearly $600 million when it reports fourth-quarter results next week. That will bring its full-year 2002 loss to more than $3 billion.

The airline industry, hammered by a slowing economy and the effect of the 2001 terrorist attacks, has struggled with record losses in the last two years. A federal transportation official last week estimated that U.S. carriers lost $10 billion in 2002.

Delta Air Lines Inc., the nation's third-largest carrier behind American and United Airlines Inc., reported Thursday that it lost $1.27 billion last year, topping 2001's loss of $1.21 billion.

A day earlier, No. 5 Continental Airlines Inc. said it lost $451 million last year, up from a $95 million net loss in 2001.

Staff writer Terry Maxon contributed to this report.

 

[Decision 2004]

Posted on Sun, Jan. 19, 2003

What's at stake: American's future
As American Airlines launches a campaign to cut labor costs, union leaders are skeptical about the company's strategy.
By Trebor Banstetter
Star-Telegram Staff Writer

Veteran pilot Chris Roberts knows the huge problems facing his employer, American Airlines: billions in losses, unrelenting competition from discount carriers and a looming war that could discourage people from flying.

Still, Roberts isn't convinced that he should sacrifice any of his six-figure paycheck or benefits to help the company get back on solid footing.

"From management's point of view, if they are paying labor a buck, they are paying them a buck too much," said Roberts, an MD-80 captain who has been with American for 13 years. "The real problem is mismanagement and the dynamics of the industry itself."

His stark skepticism reflects the thinking among the leaders of American's three major unions and reveals a crucial credibility gap that executives must bridge to turn the airline around.

After trimming $2 billion in operational costs, American Chief Executive Don Carty now says labor costs must be lowered significantly for the airline to become profitable again and compete effectively in a dramatically changing industry. He has asked workers to forgo raises for this year and has said he will request other concessions in the weeks ahead.

But to succeed, Carty must win the confidence of unionized workers, who have long distrusted management and now have a more serious concern: whether executives can develop a successful plan for steering the airline.

Jeff Brundage, American's vice president of employee relations, says structural changes in the airline industry demand a new approach to union contracts.

"We believe we have to restructure every aspect of our business, and clearly our relationship with labor has to be restructured," said Brundage, a former Atlantic Coast Airlines pilot and union officer with the Air Line Pilots Association who joined American three years ago.

Wall Street analysts who follow the airline industry say lowering labor costs is essential to a rebound at American. This week, after losing money for three quarters at a record-breaking pace, AMR Corp., American's parent company, will report annual losses for 2002, and they are expected to top $3.5 billion. American's labor costs are among the industry's highest.

Pressure has mounted in recent weeks, as two other airlines have moved to slash costs in bankruptcy court. Union workers at US Airways and United Airlines have had their wages cut significantly. At United, wages will be as much as 30 percent lower, while workers at US Airways have given up more than $1 billion annually in wages and benefits.

In recent interviews with the Star-Telegram, the executive leading negotiations for American and the heads of each of the unions discussed the airline's challenges and Carty's strategy to keep the carrier afloat.

Brundage said the two sides must break out of an old cycle, which he dubs a "rent-controlled mentality": building up costs in good times and then slashing them when the economy goes sour. He envisions labor contracts that provide a permanently lean structure and don't require downsizing during every downturn.

He also notes that American doesn't have a lot of time in which to accomplish its ambitious goal. "Clearly, the clock is ticking," he said.

But union leaders say executives are singing the same old song: When times get tough, they ask workers for givebacks. Although they admit that they don't have all the answers, they also say they have yet to see innovative strategic thinking from management on issues such as flight scheduling and pricing that could make the company more competitive and raise revenue without draconian cuts in labor costs.

"We don't see that American has put forward a viable, long-term plan to compete with Southwest," said John Darrah, president of the Allied Pilots Association, which represents 13,500 American pilots. "They're just taking the same old business model they've always had and are tweaking around the edges, cutting costs. That's not going to do the job."

Jim Little, international vice president of the Transport Workers Union, which represents 37,000 mechanics, baggage handlers, maintenance personnel and other workers, described his union's members as "bitter and skeptical."

He said that while American executives call for a new era of trust between management and employees, the airline's lobbyists in Washington are pushing for changes in the federal law that governs airline labor contracts, which would significantly hurt their ability to negotiate contracts favorable to workers.

"It's not surprising, then, that there's a tremendous lack of trust in management," he said.

John Ward, president of the Association of Professional Flight Attendants, said his union's members have no illusions about the gravity of American's financial situation and realize that a request for concessions is likely.

"It doesn't take a rocket scientist to figure out what's coming," he said. "But this is not a simple exercise, and it's not something we're going to rush into."

Although executives have not detailed what they will seek, Carty recently said before a congressional committee that contractual talks with the unions will be "well under way" by March.

The upcoming talks hold enormous consequences for North Texas. American is the area's top employer, with about 28,000 workers locally, so any move to significantly trim wages will ripple through the economy. The airline also controls nearly 70 percent of the passenger traffic at Dallas/Fort Worth Airport.

Labor strife is nothing new at American or within the airline industry. Several major airlines, most notably Eastern, have gone out of business over the years after battles with recalcitrant unions over costs. American has suffered two strikes and a costly sickout in the past decade, as management and unions grappled over wages and work rules.

Given the acrimonious history of labor relations at American, "it's going to take a miracle worker to make these two sides trust each other," said Richard Gritta, a finance professor at the University of Portland in Oregon who has studied the airline industry extensively.

High stakes

American, the world's largest airline, is fighting for a short-term rebound and long-term stability.

Since the bubble burst on the long-running economic expansion nearly two years ago, the major U.S. airlines have battled intense competition from low-fare carriers like Southwest Airlines, as well as a steep drop in lucrative business travel. They also face continued fallout from the Sept. 11, 2001, terrorist attacks, which involved two American jets.

After losing $3 billion in the first nine months of 2002, American had about $2.8 billion in cash and short-term investments on hand as of Sept. 30. But analysts said it was burning up to $5 million a day on operations. At that rate, the airline would deplete nearly its entire cushion in 18 months. And a war with Iraq could bring additional losses.

Last year, Carty set a goal of cutting $4 billion in annual expenses, and he has already slashed about $2 billion. American has worked to simplify its fleet by grounding 83 airplanes. It also cut unprofitable flights and smoothed out schedules at hub airports to save money and improve efficiency.

The airline has also pushed money-saving technology, like installing automated check-in machines at airports. It consolidated its headquarters staff, which had worked out of 11 locations across North Texas, to American's two major office buildings in Fort Worth.

To trim another $2 billion in costs, most analysts agree that the bulk will have to come from employees, both through wages and changes to work rules that govern where, when and how often employees work. Executives believe that if they adjust those rules, employees will be more productive and labor costs will fall.

Flight attendants and ground workers signed industry-leading contracts in 2001, before the terrorist attacks. Pilots are currently negotiating a new contract. They have been making less than counterparts at United Airlines and Delta Air Lines, although the United pilots recently agreed to pay cuts.

As is the case at other large airlines, American's pilots are the highest-paid

 

[Decision 2004]

Chapter 11 throws airlines a life vest
By Mitchell Schnurman
January 29, 2003
Star-Telegram Staff Writer

Is bankruptcy a better turnaround plan for the workers at American Airlines?

Management would recoil at the suggestion, and most employees would dismiss the idea out-of-hand. They'd point out that several airlines, including Eastern, Pan Am and TWA, never recovered after bankruptcy.

More recently, workers at bankrupt US Airways and United Airlines are facing even deeper pay cuts since the carriers filed for Chapter 11.

But there's one counterargument to consider: Bankruptcy may be the only tool to force sacrifices from everybody, not just workers and management.

At American, that would include the banks, the aircraft lenders, the bondholders and others that provided the financing so that American could expand ambitiously and become the largest airline in the world.

If executives and employees get some of the blame for American's troubles, why not the financial enablers?

The notion of sharing the pain is almost universally accepted when a company is struggling to survive. The trick is getting everyone to play along.

That's often impossible without the hammer of bankruptcy.

"I try to do out-of-court restructurings all the time, but it's very difficult," said Jeff Prostok, a Fort Worth bankruptcy lawyer. "Some groups always complain that they're suffering more, so bankruptcy is the only way to make sure everyone is treated equally."

That equal-treatment principle is worth noting, because American management is hoping the unions will make concessions that could save up to $2 billion annually.

Let's hope they get a big break from lenders, too.

It's probably early for debt negotiations to get serious. American has a few billion dollars in hand, and bankers are likely to stay on the sidelines as long as possible, hoping that business turns around before American burns through its cash.

American CEO Don Carty wants to avoid bankruptcy, but some key competitors are gaining advantages that will be hard to match with simple persuasion.

American says it already has cut $2 billion in expenses, primarily through operational improvements, layoffs and the grounding of some jets. Now the focus is on labor, which accounts for about 40 percent of American's costs.

Pay cuts, along with big changes in work rules, seem inevitable. Fitch Ratings said last week that American will have to reduce labor costs by 20 percent to 25 percent to stay in line with the expected pay scales at United and US Air.

Another benchmark that American has to worry about: US Air expects to save $500 million annually by restructuring its debt deals with aircraft lessors, lenders and financiers.

US Air plans to abandon 92 aircraft, including 57 that were parked in the desert, leaving the collateral to the lenders.

That's the kind of hardball tactics that bankruptcy permits, and it's tough to imagine American persuading its lenders to accept similar terms. Unless it, too, was in bankruptcy.

The US Air reorganization plan was approved by a bankruptcy judge this month and still needs creditor approval. It provides one road map to an airline restructuring and shows how the pain would be spread among all the stakeholders.

US Air envisions emerging from bankruptcy with its annual operating costs slashed by $1.9 billion.

Half the savings would come from concessions by workers. About $400 million would come from vendors, management cuts and business re-engineering.

The rest, up to $500 million, would come from the money men. That represents more than a quarter of US Air's total annual savings.

Loosely apply the same percentages to American, and you'd expect the lender class to eat about $1 billion. But so far, we don't know of any major concessions from American's lenders.

A spokeswoman said American has not formally requested that some debt be forgiven or that a bunch of aircraft leases be dropped.

That would be a tough sell, considering that American executives have been borrowing more, not asking for givebacks.

American executives borrowed almost $3 billion last year, including $675 million in December alone.

The airline has deferred the delivery of 35 Boeing jets. That accounts for the bulk of $4.4 billion in capital spending that executives have delayed or canceled in the past two years.

But Boeing wouldn't agree to delay 11 more jets, scheduled to arrive in 2003. American says it doesn't need the jets now, but Boeing needs the work.

In bankruptcy, American could cancel the contract.

American surely has a better use for the money it now spends on the naming rights for sports arenas in Dallas and Miami. But it can't break those contracts without big penalties. Unless it's in bankruptcy court.

Those are some of the advantages of Chapter 11, but it's a course full of peril. A bankruptcy filing usually wipes out shareholders, often dooms the senior management team and usually alienates lots of employees. Many companies never regain the same stature.

But a filing also forces an enterprise to confront its toughest issues.

US Air's pension plan, for example, is underfunded by $3 billion. Creditors won't let the company be hobbled by the burden after it emerges from bankruptcy, but that means a big hit for its pilots.

Avoiding bankruptcy lets American avoid that kind of dilemma. But it may also let American's lenders avoid a haircut.

In a restructuring that goes this deep, nobody should get a free ride.

 

[Nightwatch]

So why didn't the stooges forego the raise ealry on instead of waiting until they damn near eliminated the company? Is this because Jim is stupid or just a liar?

As I recall it was the request for the deference of pay that led to the finding of the Vermont Plan. Jim Little did not want to forego the raise, he was willing to ask the membership to stall the raise for a couple of months if the Company's financial situation warranted it in order to stay competitive with the other airlines. Also, must you lower yourself to the "name calling"? Remember, those that sling mud, lose ground young man.

Secondly, less we forget, Jim Little and the entire International received very nice raises in pay and benefits, while the membership took the shaft.

You should read up on how the International's pay is calculated prior to making statements as this. This is the AMFA way of swaying members of the TWU into their flock. Our floor needs to learn the truth and not the AMFA style of stating the facts.

 

[PRINCESS KIDAGAKASH]

Hey NIGHTWATCH, the chart below doesn't lie!

 

[Nightwatch]

Hey NIGHTWATCH, the chart below doesn't lie!

And how do you prove that? It states it was prepared by who, why am I to trust that? Because you stated it and you wouldn't lie huh?

 

[Thrustfuljet]

All you have to do is check the LM-2 forms over the last two years.

 

[Buck]

It would appear that Night Watch is hear just to disrupt these discussions.

To use his method;

Typical TWU supporter!

 

[Bill]

It seems not too long ago there was some crying (and I do mean crying...wailing in fact) from the amfa camp about some LM2 and how much money some folks made. . . .then come to find out the LM2 reflected pay for 18 months I think it was. Don't believe everything you read boys and girl(s)!!

That's what's wrong with most of you amfa folk. . . you beleive EVERYTHING you are told without finding out if it is true or not then you continue the cycle by repeating it to someone else.

I mean my goodness, Chuck Schaulk and Bob Owens have most of those folks up there in NY believing that they can walk on water. They spit out the same rhetoric that Bob does on these boards. Kind of like programmed robots. No wonder Bob gets on here and preaches so much. He thinks he's all that and a bag of chips and can do no wrong. That the problems up in NY are theirs and theirs alone that noone else in the system has the troubles they do and that there is noone to help them out if they need it. Another wannabe on his high horse. It's rather pathetic what has happened up there. Don't worry fellas, help is on the way!!!!!

 

[Rusty]

And how do you prove that? It states it was prepared by who, why am I to trust that? Because you stated it and you wouldn't lie huh?

It does not matter how you try and spin it up Nightwatch, the facts speak for themselves. The facts are the entire twu International took handsome raises in pay and benefits while we (the membership) got the shaft, period!!!

You can look it up yourself and I will even provide a link for you.

twu International corruption

Here is a screen capture from the 2001 twu International LM2.

 

[Rusty]

Here is a screen capture from the 2002 twu International LM2.

 

[Rusty]

And here is a screen capture from the 2003 twu International LM2.

 

[Steve Connell]

I've looked at LM 2's in the past Rusty, one that cought my eye was AMFA's 2000 LM2 where it stated we owed big bucks for Stewart's law suit, you know, the one he said we didn't owe. So tell me, who do we believe, ourselves or our lying eyes?

 

[Decision 2004]

I've looked at LM 2's in the past Rusty, one that cought my eye was AMFA's 2000 LM2 where it stated we owed big bucks for Stewart's law suit, you know, the one he said we didn't owe. So tell me, who do we believe, ourselves or our lying eyes?

You are a common liar.

If you knew anything about the truth, you would know the "loan" was challenged by AMFA Agency Due Payers and the complete reporting and "loan" designation had to be changed to organizing.

Why do you lie?

I have never signed my name to any loan requirement, nor does Tulsa AMFA Local 12 owe any money to the National Office.

 

[The Dissident]

Why is it that when we had a souless woman chasing,lying democrat in the white house and unemployment wat at 5.6% t was low. Now that we have a god fearing, faithful, and truthful Republican in the white house unemployment has suddenly soard out of control to an astounding 5.6%