Us Airlines Say Pension Costs Could
- Thread starter USA320Pilot
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Real classy Bob, NOT!PineyBob said:
Organized labor has done more good for the American Worker then any other thing in the United States.
But I guess you have 320 syndrome, you don't let the facts get in your way.
WorldTraveler
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Obviously your point of this post, USA320Pilot, is to make you feel like the "contribution" you made to your company's attempt at survival was worthwhile. So, you now are on a mission to prove that every other legacy airline will dump their pension plans because US and UA succeeded. It is no surprise that DL, as the carrier with the 2nd most underfunded pensions behind UA and the carrier that started reorganization next to last behind NW and thus has not turned the corner financially, will speak very loudly about its need to obtain pension reform if it is to stay out of bankruptcy. It is also not surprising that in a span of less than six months NW has decided to change its tack from all is well to "we've got to face our cost problem and if we don't we will be filing just like DL will." I hope it doesn't come as too big of a surprise to you, jet jock, but airlines are highly visible companies and because of that their managements are highly political. The whole pension relief issue is one last attempt for the solvent four airlines to equalize the gains, although they may be small, that the two bankrupt U* airlines have achieved.
See my recent lengthy post on the United forum, however, and you will see that UA and US are far from cost leaders despite the "advantage" of bankruptcy reorganization. Further, despite all the expectations that DL will file for bankruptcy, the cost story says that DL is one of the most competitive legacy carriers on cost despite having just begun its transformation plan. Delta is within just a few percent of surpassing AA as the most cost effective legacy airline and yet DL has already said they will eliminate another billion and a half of costs that could not have dropped to the bottom line by the end of the first quarter of '05 because of timing but will hit the bottom line later this year. In any business, it's all about costs and revenues. AA and DL are well on their way to attaining industry leading costs and even becoming a viable threat to LCCs. AA has retained much of their revenues over a five year period and DL is embarking on significant growth of the company while costs decrease, a formula that will drive unit costs even lower.
As with many issues, the pension issue is not unique with the airlines but it reaches a crisis point in the airline industry because of the razor thin profit margins that can be achieved in the best times and the horrific losses which the airlines sustain during the worst times. Pension underfunding is a national problem and it needs to be dealt with as part of the whole process of transformation American business is facing as they adapt to legacy business models that don't work in the new, meaner, global business market.
It is in everyone's best interest that the pension problem is fixed to the benefit of all Americans. One need only look at western Europe and see that they have had to ally with countries all over the continent in order to find economic growth rates high enough to support the costly social systems of western Europe. Ultimately, those alliances come at a cost and that cost for western Europe is the loss of its identity and ulimately control of its destiny. I would far rather that the United States find solutions to our problems within our borders. If you think pension terminations in the airline industry are nasty, just wait until the US auto industry starts talking about terminating pension plans.... and they will if pension laws are not changed.
What the solvent four airlines, led by DL and NW, are asking for is not a bailout. They are asking for the opportunity to live up to their obligations while managing the transition to a highly competitive and cost-efficient airline environment. DL and NW should be commended for their efforts and given every opportunity to succeed. While you may not like it, ulimately, their employees will be better compensated and motivated to deliver better service. If those carriers can create an operating plan that includes funding their pensions over a period of years rather than the huge balloon payments they face in the near future while remaining current on all of their other obligations, more power to them. We need to give companies the tools to succeed not wish for their demise.
Finally, although it has been well established that you, USA320Pilot, are one of the ultimate manipulators of the truth, there are enough people who do recognize Washington did hear what the airlines had to say. While the adminstration has been no fan of providing pension relief to airlines, we do have a balance of power in this country and many legislators have been responsive to the plight of legacy airline pensions. Yes, they are tired of handing out money to the airlines, and no they do not warmly embrace the thought of giving another cent. However, most on the Hill are realists and recognize that if they don't help the airline industry, the American taxpayer will pick up the tab for the pension underfunding of all six legacy airlines. Given that the most populous states all have significant populations of airline employees that can be very loud when provoked, I don't think there is a legislator in Washington who is willing to push an airline into bankruptcy for failing to provide a pension reform plan that the solvent four airlines can live with, even given their fragile finances. Thankfully, they also recognize that the issue is one for all business but the airlines are probably too far along the path not to be given some special help in the near future. DL and NW have succeeded at raising the issue to national levels; they won't give up until it is addressed. That's what political organizations do.
Despite your wishes to the contrary, the solvent four airlines will get some sort of pension reform that will allow them to reorganize their businesses. If DL and NW choose to reorganize in bankruptcy, it will be because they needed to do so for other reasons but it won't be because they couldn't get Washington to hear their concerns about pensions.
See my recent lengthy post on the United forum, however, and you will see that UA and US are far from cost leaders despite the "advantage" of bankruptcy reorganization. Further, despite all the expectations that DL will file for bankruptcy, the cost story says that DL is one of the most competitive legacy carriers on cost despite having just begun its transformation plan. Delta is within just a few percent of surpassing AA as the most cost effective legacy airline and yet DL has already said they will eliminate another billion and a half of costs that could not have dropped to the bottom line by the end of the first quarter of '05 because of timing but will hit the bottom line later this year. In any business, it's all about costs and revenues. AA and DL are well on their way to attaining industry leading costs and even becoming a viable threat to LCCs. AA has retained much of their revenues over a five year period and DL is embarking on significant growth of the company while costs decrease, a formula that will drive unit costs even lower.
As with many issues, the pension issue is not unique with the airlines but it reaches a crisis point in the airline industry because of the razor thin profit margins that can be achieved in the best times and the horrific losses which the airlines sustain during the worst times. Pension underfunding is a national problem and it needs to be dealt with as part of the whole process of transformation American business is facing as they adapt to legacy business models that don't work in the new, meaner, global business market.
It is in everyone's best interest that the pension problem is fixed to the benefit of all Americans. One need only look at western Europe and see that they have had to ally with countries all over the continent in order to find economic growth rates high enough to support the costly social systems of western Europe. Ultimately, those alliances come at a cost and that cost for western Europe is the loss of its identity and ulimately control of its destiny. I would far rather that the United States find solutions to our problems within our borders. If you think pension terminations in the airline industry are nasty, just wait until the US auto industry starts talking about terminating pension plans.... and they will if pension laws are not changed.
What the solvent four airlines, led by DL and NW, are asking for is not a bailout. They are asking for the opportunity to live up to their obligations while managing the transition to a highly competitive and cost-efficient airline environment. DL and NW should be commended for their efforts and given every opportunity to succeed. While you may not like it, ulimately, their employees will be better compensated and motivated to deliver better service. If those carriers can create an operating plan that includes funding their pensions over a period of years rather than the huge balloon payments they face in the near future while remaining current on all of their other obligations, more power to them. We need to give companies the tools to succeed not wish for their demise.
Finally, although it has been well established that you, USA320Pilot, are one of the ultimate manipulators of the truth, there are enough people who do recognize Washington did hear what the airlines had to say. While the adminstration has been no fan of providing pension relief to airlines, we do have a balance of power in this country and many legislators have been responsive to the plight of legacy airline pensions. Yes, they are tired of handing out money to the airlines, and no they do not warmly embrace the thought of giving another cent. However, most on the Hill are realists and recognize that if they don't help the airline industry, the American taxpayer will pick up the tab for the pension underfunding of all six legacy airlines. Given that the most populous states all have significant populations of airline employees that can be very loud when provoked, I don't think there is a legislator in Washington who is willing to push an airline into bankruptcy for failing to provide a pension reform plan that the solvent four airlines can live with, even given their fragile finances. Thankfully, they also recognize that the issue is one for all business but the airlines are probably too far along the path not to be given some special help in the near future. DL and NW have succeeded at raising the issue to national levels; they won't give up until it is addressed. That's what political organizations do.
Despite your wishes to the contrary, the solvent four airlines will get some sort of pension reform that will allow them to reorganize their businesses. If DL and NW choose to reorganize in bankruptcy, it will be because they needed to do so for other reasons but it won't be because they couldn't get Washington to hear their concerns about pensions.
WT,
One can only hope you are right.
Question. If the airlines, and then presumably the auto industry afterwards, succeed in stretching out the time period to bring their pension plans up to snuff, are we merely postponing the inevitable?
I would like to see some stringency, well overdue, added to the oversight.
Corporations, as with all human endeavours, cannot be left alone near an open cookie jar.
One can only hope you are right.
Question. If the airlines, and then presumably the auto industry afterwards, succeed in stretching out the time period to bring their pension plans up to snuff, are we merely postponing the inevitable?
I would like to see some stringency, well overdue, added to the oversight.
Corporations, as with all human endeavours, cannot be left alone near an open cookie jar.
And on a tangent, but part of the bigger picture we proles are not to see, and couldn't understand if we did, I refer you to BusinessWeek's May 30 article.
------------------------------------------------------------------------------------------------
"Why The Greenspan Fix Didn't Work
Slower-than-expected wage growth and soaring inequality have wreaked havoc
One of the more puzzling questions about the debate over Social Security is why we're even having it again. After all, everyone thought the problem had been fixed in 1983 by the commission headed by Alan Greenspan, who went on to become chairman of the Federal Reserve Board.
Advertisement
At the time, the youngest baby boomers were 19. So all of the experts were fully aware of the demographic statistics now cited by President George W. Bush as the root cause of Social Security's shortfall: that the ratio of workers to retirees would plunge from 16 to 1 to 2 to 1 when the last boomers retire decades hence. To eliminate the deficit this would create, the commission suggested hiking the Social Security payroll tax and lifting the retirement age to 67 by 2026. Congress promptly passed legislation doing just that, and President Ronald Reagan signed it.
A new study sheds light on what happened since 1983 to bring back the shortfall, which is projected to be $4 trillion over the next 75 years. Two major economic shifts occurred that Greenspan's commission didn't anticipate: The growth of average U.S. wages slowed, and income inequality soared. Together these trends explain 75% of the reemergence of Social Security's long-term deficit, according to a paper by L. Josh Bivens of the Economic Policy Institute in Washington.
The upshot: Democrats and Republicans alike may be trying to solve the wrong problem. Rather than focusing on how many workers will be around to support retired boomers, some experts think the logical response is to recapture the revenue lost as rising inequality lifted a greater share of aggregate U.S. wages out of the reach of the 12.4% Social Security payroll tax. This year the taxable income level has been set at $90,000 a year. But the unanticipated spurt in inequality pushed more Americans over that amount. Because Social Security has forgone this extra revenue, it now taxes only 85% of collective payroll earnings, not the 90% that Greenspan and the commission had intended it to. If Congress put the aggregate taxable income level back to 90%, it would eliminate fully 40% of the deficit (or 75% under the smaller shortfall projected by the Congressional Budget Office). The progressive benefit cuts Bush endorsed recently would also remedy the problem, though they may be overly broad, sweeping in even those making as little as $25,000 a year.
True, taxing higher incomes would be painful to big earners. A 90% level would put individual taxable income as high as $140,000 a year today. So anyone making that much or more would be on the hook for an extra $3,100 in annual Social Security taxes, as would their employers. The hit to their wallets could hurt small-business owners, possibly dampening job creation, warns David C. John, a research fellow at the conservative Heritage Foundation who supports Bush's private accounts. Still, high earners would also get higher Social Se"curity benefits when they retire. Liberal economists also point out that if Greenspan's design had worked, affluent Americans would have been paying at the higher level for two decades anyway. "It would be nice to reverse inequality, but meanwhile it makes a lot of sense to restore the tax cap," says Dean Baker, co-director of the Center for Economic & Policy Research in Washington
No one can blame Greenspan for not anticipating the return of inequality to levels not seen since the Great Depression. Still, his commission's fix barely lasted a year. By 1984, Social Security had slipped back into deficit, where it has remained ever since. What happened? The program's cash intake has been caught in a crunch caused by the interaction of slower average wage growth and heightened income inequality, says Bivens.
Every year the Social Security Administration (SSA) adjusts the taxable wage level in tandem with the growth in the average U.S. wage base. So if average payroll growth slows, the annual adjustment in the wage cap does, too -- which is what has happened in the past 20 years. The Greenspan commission assumed that wages would grow at an average long-run pace of 1.5% a year. Today the SSA's Office of the Actuary has chopped its assumption to 1.1%, which compounds to a dramatic slowdown over 75 years.
Escaping the System
At the same time, rising inequality has lifted a greater share of wages above the taxable amount. So while sluggish wage gains have slowed the increase in the cap, faster pay growth at the top has allowed a greater share of overall income to escape the system. "No one anticipated this in 1983," says SSA Chief Actuary Stephen C. Goss, who worked with the Greenspan commission as a young staffer in the actuary's office.
Goss says that while his office sees the rise in inequality slowing a decade from now, the long-run trend isn't likely to ever reverse. So if nothing is done, the 85% of all wages taxed today will slip to 84%, says Goss -- and hover there for decades to come.
Seen in this light, Social Security's long-run problems seem more fixable. In fact, they may partly fix themselves: The boom of the late 1990s lifted average payroll growth back up to 1.4% a year since 1995. If Congress decided to restore the taxable wage level to 90%, it wouldn't make sense to try to recapture all the billions Social Security lost as the cap sank over the past 20 years; that would entail impractical moves such as retroactive taxes. But it could alter the formula for future years by linking it to a fixed share of payrolls. Even if high earners are given extra benefit payouts, the additional tax raised still would plug 40% of the long-run deficit because every extra dollar of Social Security tax results in less than a dollar of additional retirement benefits.
A look back at the Greenspan commission shows that Social Security's problems are economic, not demographic. From this standpoint, private accounts that cut benefits for middle-class Americans don't address the real issue. In debating how to fix the system, we first need to understand what's broken.
By Aaron Bernstein
So the '83 Greenspan fix didn't last a year; they knew it, the fix was simple, and they didn't do it.
------------------------------------------------------------------------------------------------
"Why The Greenspan Fix Didn't Work
Slower-than-expected wage growth and soaring inequality have wreaked havoc
One of the more puzzling questions about the debate over Social Security is why we're even having it again. After all, everyone thought the problem had been fixed in 1983 by the commission headed by Alan Greenspan, who went on to become chairman of the Federal Reserve Board.
Advertisement
At the time, the youngest baby boomers were 19. So all of the experts were fully aware of the demographic statistics now cited by President George W. Bush as the root cause of Social Security's shortfall: that the ratio of workers to retirees would plunge from 16 to 1 to 2 to 1 when the last boomers retire decades hence. To eliminate the deficit this would create, the commission suggested hiking the Social Security payroll tax and lifting the retirement age to 67 by 2026. Congress promptly passed legislation doing just that, and President Ronald Reagan signed it.
A new study sheds light on what happened since 1983 to bring back the shortfall, which is projected to be $4 trillion over the next 75 years. Two major economic shifts occurred that Greenspan's commission didn't anticipate: The growth of average U.S. wages slowed, and income inequality soared. Together these trends explain 75% of the reemergence of Social Security's long-term deficit, according to a paper by L. Josh Bivens of the Economic Policy Institute in Washington.
The upshot: Democrats and Republicans alike may be trying to solve the wrong problem. Rather than focusing on how many workers will be around to support retired boomers, some experts think the logical response is to recapture the revenue lost as rising inequality lifted a greater share of aggregate U.S. wages out of the reach of the 12.4% Social Security payroll tax. This year the taxable income level has been set at $90,000 a year. But the unanticipated spurt in inequality pushed more Americans over that amount. Because Social Security has forgone this extra revenue, it now taxes only 85% of collective payroll earnings, not the 90% that Greenspan and the commission had intended it to. If Congress put the aggregate taxable income level back to 90%, it would eliminate fully 40% of the deficit (or 75% under the smaller shortfall projected by the Congressional Budget Office). The progressive benefit cuts Bush endorsed recently would also remedy the problem, though they may be overly broad, sweeping in even those making as little as $25,000 a year.
True, taxing higher incomes would be painful to big earners. A 90% level would put individual taxable income as high as $140,000 a year today. So anyone making that much or more would be on the hook for an extra $3,100 in annual Social Security taxes, as would their employers. The hit to their wallets could hurt small-business owners, possibly dampening job creation, warns David C. John, a research fellow at the conservative Heritage Foundation who supports Bush's private accounts. Still, high earners would also get higher Social Se"curity benefits when they retire. Liberal economists also point out that if Greenspan's design had worked, affluent Americans would have been paying at the higher level for two decades anyway. "It would be nice to reverse inequality, but meanwhile it makes a lot of sense to restore the tax cap," says Dean Baker, co-director of the Center for Economic & Policy Research in Washington
No one can blame Greenspan for not anticipating the return of inequality to levels not seen since the Great Depression. Still, his commission's fix barely lasted a year. By 1984, Social Security had slipped back into deficit, where it has remained ever since. What happened? The program's cash intake has been caught in a crunch caused by the interaction of slower average wage growth and heightened income inequality, says Bivens.
Every year the Social Security Administration (SSA) adjusts the taxable wage level in tandem with the growth in the average U.S. wage base. So if average payroll growth slows, the annual adjustment in the wage cap does, too -- which is what has happened in the past 20 years. The Greenspan commission assumed that wages would grow at an average long-run pace of 1.5% a year. Today the SSA's Office of the Actuary has chopped its assumption to 1.1%, which compounds to a dramatic slowdown over 75 years.
Escaping the System
At the same time, rising inequality has lifted a greater share of wages above the taxable amount. So while sluggish wage gains have slowed the increase in the cap, faster pay growth at the top has allowed a greater share of overall income to escape the system. "No one anticipated this in 1983," says SSA Chief Actuary Stephen C. Goss, who worked with the Greenspan commission as a young staffer in the actuary's office.
Goss says that while his office sees the rise in inequality slowing a decade from now, the long-run trend isn't likely to ever reverse. So if nothing is done, the 85% of all wages taxed today will slip to 84%, says Goss -- and hover there for decades to come.
Seen in this light, Social Security's long-run problems seem more fixable. In fact, they may partly fix themselves: The boom of the late 1990s lifted average payroll growth back up to 1.4% a year since 1995. If Congress decided to restore the taxable wage level to 90%, it wouldn't make sense to try to recapture all the billions Social Security lost as the cap sank over the past 20 years; that would entail impractical moves such as retroactive taxes. But it could alter the formula for future years by linking it to a fixed share of payrolls. Even if high earners are given extra benefit payouts, the additional tax raised still would plug 40% of the long-run deficit because every extra dollar of Social Security tax results in less than a dollar of additional retirement benefits.
A look back at the Greenspan commission shows that Social Security's problems are economic, not demographic. From this standpoint, private accounts that cut benefits for middle-class Americans don't address the real issue. In debating how to fix the system, we first need to understand what's broken.
By Aaron Bernstein
So the '83 Greenspan fix didn't last a year; they knew it, the fix was simple, and they didn't do it.
WN is the only airline to be profitible for over 30 years straight.
WN pays there employees the highest wages in the industry.
WN has the highest percentage of unionized employees.
WN keeps growing and not shrinking.
Yet they still make money, carry more passengers domestically then any other carrier.
I would like to see you factual basis as why you say WN will be joining the rest of the airlines that are losing money.
WN pays there employees the highest wages in the industry.
WN has the highest percentage of unionized employees.
WN keeps growing and not shrinking.
Yet they still make money, carry more passengers domestically then any other carrier.
I would like to see you factual basis as why you say WN will be joining the rest of the airlines that are losing money.
ClueByFour
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PineyBob said:
Where? Or, where can I read about it?
I find this curious, since LUV initially staffs their stations with transfers from other stations.
This here is the key to any LCC. The minute they stop growing, that minute their average costs start going up. Which is why LUV keeps growing so fast these days.700UW said:
Anecdotal, and not a new station, but WN has been running radio ads in the DC Metro area trying to attract rampers to BWI. Their whole spin was that working on a tarmac beats working in an office.ClueByFour said:
Article on the human toll of pension defaults:
http://www.washingtonpost.com/wp-dyn/conte...5061201367.html
http://www.washingtonpost.com/wp-dyn/conte...5061201367.html
AA protects employee pensions
As Other Carriers Dump Pensions, American Airlines Satisfied With 2003 Decision to Protect Them
When American Airlines teetered on the brink of bankruptcy in 2003, employees agreed to $1.8 billion worth of concessions, with one comforting condition: their pensions would be protected.
That deal, which saved the nation's largest carrier from a Chapter 11 filing, is a key factor that distinguishes American from its rivals at a time when the retirement benefits of workers throughout the industry are increasingly at risk. UAL Corp.'s United Airlines and US Airways Group Inc. have dumped their pension plans through bankruptcy restructuring, and other carriers are threatening to do the same.
"We are trying very hard to strike another path," said Tommie L. Hutto-Blake, president of the Association of Professional Flight Attendants, which represents flight attendants at American Airlines, a unit of AMR Corp.
AA protects employee pensions
As Other Carriers Dump Pensions, American Airlines Satisfied With 2003 Decision to Protect Them
When American Airlines teetered on the brink of bankruptcy in 2003, employees agreed to $1.8 billion worth of concessions, with one comforting condition: their pensions would be protected.
That deal, which saved the nation's largest carrier from a Chapter 11 filing, is a key factor that distinguishes American from its rivals at a time when the retirement benefits of workers throughout the industry are increasingly at risk. UAL Corp.'s United Airlines and US Airways Group Inc. have dumped their pension plans through bankruptcy restructuring, and other carriers are threatening to do the same.
"We are trying very hard to strike another path," said Tommie L. Hutto-Blake, president of the Association of Professional Flight Attendants, which represents flight attendants at American Airlines, a unit of AMR Corp.
AA protects employee pensions
WorldTraveler
Corn Field
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- 10,662
Human history is full of examples of organizations, people, and countries that once dominated the world or their industry but fell. There is nothing that prevents WN from falling from its position of supremacy in the industry but there is also nothing that says that they will. Part of WN's success is that they have adapted to the changing industry -something the legacies refused to do during the heyday 90s when they had the resources to implement alot of changes.
I commend AA and its employees for committing to save its DB plans; perhaps they alone are in a position to do so because they achieved such dramatic cost cuts so early in the current business cycle and AA mgmt didn't underfund their pensions to the point they could have. I hope a solution is developed that offers AMR the option to keep its defined benefit pensions and stretch payments out somewhat while allowing DL and NW the option to freeze their current plans and pay the rest of the bill over the next several decades.
Diogenes,
yes, I do think we as a country have an impending financial collapse coming. Once again, the airlines are an example of how overconsumption and inadequate savings collide. A history of civilizations shows that there is a distinct inward turn in civiliizations on their way out the door; the US has consumed so much, saved so little, and increasingly turned its back on others while gorging itself that it is well on the road to economic collapse. While Europe has behaved similarly, the US has alienated far more people and countries than Europe. Although the US economy is the largest in the world and keeps many other economies afloat, other countries will grow tired of propping up the US.
I commend AA and its employees for committing to save its DB plans; perhaps they alone are in a position to do so because they achieved such dramatic cost cuts so early in the current business cycle and AA mgmt didn't underfund their pensions to the point they could have. I hope a solution is developed that offers AMR the option to keep its defined benefit pensions and stretch payments out somewhat while allowing DL and NW the option to freeze their current plans and pay the rest of the bill over the next several decades.
Diogenes,
yes, I do think we as a country have an impending financial collapse coming. Once again, the airlines are an example of how overconsumption and inadequate savings collide. A history of civilizations shows that there is a distinct inward turn in civiliizations on their way out the door; the US has consumed so much, saved so little, and increasingly turned its back on others while gorging itself that it is well on the road to economic collapse. While Europe has behaved similarly, the US has alienated far more people and countries than Europe. Although the US economy is the largest in the world and keeps many other economies afloat, other countries will grow tired of propping up the US.
