What Happens if AMR wants to abrogate our contract

[BoeingBoy]

What did you guys lose in BK#1?

If you're asking about maintenance, I can't help you other than every group gave concessions - some groups more than others since US set targets for each group that matched the percentage of employee costs of each group to reach the total "give". So if a group represented 20% of employee costs and the total "give" was $1.5 billion/year, that group would have 20% of $1.5B for it's target - $300 million/year. Apparently like at AA with the TWU, the IAM represented more than just mechanics at US. I think there are 3 "class/crafts" that fall under maintenance & related and have separate contracts but 700 could give the details.

If you want pilot into I can give that.

Overall, I believe BK 1 resulted in about $1.5 billion/year in concessions from employees before the pilot's DB pension was terminated just prior to exiting BK. In BK 2 it was about $1 billion/year. When adjusted for size, US' employee concessions in 2002/2003 were greater per employee than AA's, as is the case with the 2004/2005 US concessions vs what AA wants now.

Jim

 

[Buck]

I forsee all narrowbody's (save the 757) being flown as domestic, and at close to A/E rates.

75/76 and 777 flown as International and paid at close to current AA rates.

Eagle may "disappear", but the Eagle $$$ wont.

A situation like that would be a hybrid to what RLC predicted in the late 80's/early 90's !

Why would Eagle disappear when they announced new aircraft on the way? It might be that some of the aircraft AMR ordered, will be used on select markets.....

 

[Buck]

A real hybrid would be a AA and WN merge

Southwest's routes feeding AA's international routes, that would be brilliant. AMR could sell off their domestic market to Southwest and a whole new model would be born.

 

[WorldTraveler]

Southwest's routes feeding AA's international routes, that would be brilliant. AMR could sell off their domestic market to Southwest and a whole new model would be born.

in a deregulated market, there isn't much value to domestic markets - any carrier can come in and start the routes on their own anyway. A continuing operation such as a viable hub does have value regardless of whether it is domestic or int'l but no two US carriers can share revenue on domestic operations so AA would be giving away the majority of its revenue only to turn around and buy seats back from another carrier. Sure, WN might produce seats at a lower cost than AA but for now it is likely it will be the other way around. DL's mainline CASM is already lower than WN's; AA knows it must beat DL's CASM in order to successfully restructure. (DL is also a lower CASM operator than US even on a stage length adjusted basis which adds even more doubt to the notion that US would contribute anything to an AA-US merger since AA must be able to successfully compete with all network carriers and US cannot do that right now.)
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You also haven't factored in that WN cannot fly from DFW.

 

[tech2101]

If you're asking about maintenance, I can't help you other than every group gave concessions - some groups more than others since US set targets for each group that matched the percentage of employee costs of each group to reach the total "give". So if a group represented 20% of employee costs and the total "give" was $1.5 billion/year, that group would have 20% of $1.5B for it's target - $300 million/year. Apparently like at AA with the TWU, the IAM represented more than just mechanics at US. I think there are 3 "class/crafts" that fall under maintenance & related and have separate contracts but 700 could give the details.

If you want pilot into I can give that.

Overall, I believe BK 1 resulted in about $1.5 billion/year in concessions from employees before the pilot's DB pension was terminated just prior to exiting BK. In BK 2 it was about $1 billion/year. When adjusted for size, US' employee concessions in 2002/2003 were greater per employee than AA's, as is the case with the 2004/2005 US concessions vs what AA wants now.

Jim

Damn, these discussions are depressing. My concessions are bigger than yours, etc...

I am so glad NWA forced us out in 2005.

Who will be next to board the pay-cut train after AA cuts their costs below the other majors? ...and SWA.

 

[DNTULSA]

Southwest's routes feeding AA's international routes, that would be brilliant. AMR could sell off their domestic market to Southwest and a whole new model would be born.

Sell off AA's domestic market?

Do you know why TWA and PanAm went down the tubes? It did take a long time, as they sold parts of thereselves off, but a huge part of it was the lack of a domestic route system. There were of course, other factors also.

 

[Overspeed]

Yes and BK II took place after the largest carrier in the industry at the time, AA, was able to get 25% from their unions and keep low paid OSMs, something US did not have, in the OH shops.

Not true. AA has been under 15% and as low as 10% since all TAESL work is reported as outsourced from AA to TAESL. That's all the RB211 and Trent engines. Tell the truth Bob. You can do it if you try.

And if all your "facts" about outsourcing, bonuses, and that the NMB, Int'l, Obama, and a multitude of conspiracy theories are correct, how will that affect the outcome of BK? Will the judge make everything "fair" in your opinon? Will we get top pay, will outsourcing be stopped, will the new aircraft not be bought, will the pensions stay intact, will the retiree medical remain, will management stop getting bonuses they don't deserve, etc...? No, so in your opinion we should burn it all down so nobody can have it. Sorry Bob, that's not reality and you know it.

 

[Overspeed]

Southwest's routes feeding AA's international routes, that would be brilliant. AMR could sell off their domestic market to Southwest and a whole new model would be born.

If AA gets what they want we may be cheaper than WN.

If this all plays out the only winners will be the senior execs. With their new stock options in the reorganized and new low cost AA, I expect AA to be the darlings of Wall Street. AA will show immediate profits after they wring out $1.25B in lower costs from labor plus reduced debt they have to service once they shed unwanted liabilities. Horton and Company will exercise their options when the stock price shoots up in year or two. They will make bank maybe some will walk away and when AA gets out of the post BK honeymoon, the reality that they still have not fixed their systemic operational and management issues will come back to haunt them. If they don't change the way AA functions we will be screwed for the third time.

 

[Buck]

Factoring in DFW, is just throwing a little money in the right direction. .(especially if some campaign funding is required) even without DFW, WN can fly to ORD right? So a modified domestic super feeder for AA' international market.

As for being lowest paid, do not forget how long AA has had an advantage. With the 1983 contract the company got half price mechanics and has had them basically ever since.

 

[BoeingBoy]

If AA gets what they want we may be cheaper than WN.

It'll be hard to do unless you do what WT does to claim that DL has a lower CASM than WN - either compare mainline only to WN or use CASM Ex - several things like fuel, ancilliary business expense, profit sharing, special items, etc. to cut 5.6 cents off their CASM. And then never, ever stage length adjust it when comparing to WN - doing so either increases the network carrier's CASM or decreases WN's CASM.

US uses the same tricks to claim it's CASM is lower than the other network carriers. In other words, each network carrier finds the comparison that makes it's costs look as low as possible in relation to it's competition. Operating a hub/spoke network carrier with significant international operations and Express-type RJ ops is almost impossible to do cheaper than a WN-type carrier with one basic fleet type and domestic ops in primarily point to point service. That's why WN can pay it's people what it does and still have the lowest stage-length adjusted CASM in the industry.

Jim

 

[eolesen]

An AA-WN linkup isn't too far fetched. The domestic network by itself might not have any unique value, but WN's customer base does. And it's no secret that WN is looking beyond the US...

Put WN into AAdvantage and oneworld, and both DL & UA might have to redefine what it means to be in a new world of hurt.

You also haven't factored in that WN cannot fly from DFW.

Wrong.

They can operate from DFW the moment they stop serving DAL, and a gate limited DAL may not be too hard to part with if they could walk in the door at DFW with 80% of the market.

 

[BoeingBoy]

The domestic network by itself might not have any unique value

I don't buy WT's pat answer. If he's so sure he's right, let him figure how much DL would make if you took away their domestic operation , Rj's and all. I'm sure they won't miss the 92 million domestic enplanements (and that's just mainline) while they cater to that 15 million international enplanements.

Now, given fuel prices the domestic network is mature - growth will come from minor market share changes and population growth (with the usual ups and downs with the economy). But the 637 million enplaned passengers that traveled domestically last year represents a huge pile of money - before you even look at ancillary revenues from domestic passengers. If DL doesn't want any of it I'm sure the other carriers would be glad to have bigger shares of that cash.

Jim

 

[WorldTraveler]

I didn't say that domestic is worthless... I said that if you think you can sell off the domestic operation and expect to get any money out of it, you (collectively) would be seriously mistaken. Any carrier can and will start service in domestic markets - and that is precisely the business model that the LFCs are comfortable doing.
And it is also why the notion that low fare carriers such as WN are going to walk away from doing what they know how to do - and the airports they have built - in order to buy a carrier with whom they can't even codeshare, you are seriously grasping for straws. WN will have indigestion over the FL merger for years - they aren't about to consider going after AA, even if every analyst on Wall Street told them it was their last best hope - because it would quickly take the company down.
Some people seem to forget that part of the reason AA is in the trouble it is in is because it bit off TWA at a time when the industry was already contracting and AA did very little to fix the problem for years.
The best companies in the world know what they do well and they don't try to do what they can't do well.
Why would WN dump its own operation at DAL or MDW in order to run over to DFW or ORD and feed traffic to AA - or think they would be willing to do both?
Why, why, why?
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The simple answer is that there are people who are desperately looking for answers to AA's problems - answers that should have been found a decade ago.
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Jim,
the mainline to mainline comparison on the same basis is EXACTLY what I have done numerous times - but you don't seem to want to accept the answer that DL is a lower cost producer than WN.
What you can't argue with is that DL is delivering margins today better than WN - driven both by lower costs (including fuel, a cost which WN used against the network carriers not that long ago) as well as better revenue generation.
If WN was delivering the financial results they have been doing in the past, they would be doing what they did in the past which is to continue to grow.... they are in a zero growth mode, are predicting losses, and are desperately trying to fix the technology issues which they have refused to deal with for decades - and on which now hangs the FL integration.
DL is indeed delivering superior financial results to WN and we will see it again in a couple weeks.

 

[Buck]

One thing for sure, years ago the company use to listen to their employees, now they bring in consultant's. Is this something that is being taught in business school now.?

 

[BoeingBoy]

Jim,
the mainline to mainline comparison on the same basis is EXACTLY what I have done numerous times - but you don't seem to want to accept the answer that DL is a lower cost producer than WN.
What you can't argue with is that DL is delivering margins today better than WN - driven both by lower costs (including fuel, a cost which WN used against the network carriers not that long ago) as well as better revenue generation.
If WN was delivering the financial results they have been doing in the past, they would be doing what they did in the past which is to continue to grow.... they are in a zero growth mode, are predicting losses, and are desperately trying to fix the technology issues which they have refused to deal with for decades - and on which now hangs the FL integration.
DL is indeed delivering superior financial results to WN and we will see it again in a couple weeks.

Except that DL, UA, AA, US have costs that WN doesn't have and mainline to mainline doesn't reflect the total cost of operation for the network carriers. I can say I'm saving every dime I take in (disregarding all spending). While it's a true statement, it gives a distorted picture. It costs US, UA, AA, DL $X to operate their system and the system produces Y ASM's. So $X/Y = CASM. Now I could say that the US 330's cost $X to operate/year and they produce Y ASM's per year so $X/Y = US' CASM*** and be absolutely correct as long as somewhere those *** say that it's for the A330 operation only, but it doesn't really mean anything. I prefer giving an accurate picture rather than making any specific carrier look better than another.

Jim