Tuesday, November 29th, 2011
17

American Airlines' Bankruptcy as Union Negotiating Strategy

While there's lots of noise today about American Airlines finally filing for bankruptcy, as an extension of its 2009 turnaround plan (oh, and its $30 BILLION in debt), there's a lot less noise about how Chapter 11 is also a strategy for its ongoing union negotiations.

American has an extremely heavy payroll load, essentially. It keeps more than 22 maintenance employees per plane, for instance; compare that to Delta's 12 or JetBlue's 3.4 or Northwest's .8. (Eek, .8?) And American's maintenance is significantly less outsourced than other airlines. American actually employs nearly 15,000 maintenance people; JetBlue employs 471.

As of a few months back, American Airlines still had more than 800 pilots out on furlough; now it's about 650. Another 800+ have been recalled from furlough and have chosen to defer. (You can only defer your recall once!) American has between 8000 and 10,000 pilots, depending on how you count the furloughed, those not recalled and those on military leave (fascinatingly, a few hundred pilots).

So, naturally, everyone looks to the employee costs for a solution to bankruptcy.

This is when everyone flashbacks to 2003—when every other major airline declared bankruptcy or consolidated in the post-9/11 period. American threatened bankruptcy and the unions, including attendants, agreed to "six-year pay cuts of between 16 and 23 percent, along with 6,900 layoffs." That's a massive concession for a union to make—the job of a union is to protect jobs!

But even as they were voting on that, the airline was secretly "setting aside $41 million for a special executive pension plan in a trust that would be protected from creditors in the event of bankruptcy." Everyone rightly flipped out, and the flight attendants' union told them to stuff it, rescinding their offer of "$10 billion in wage concessions over six years."

Unions were willing to cooperate and they got duped. Why would they stand for it again? Flight attendants and mechanics have been working without a contract since 2008. Meanwhile, in 2010, the top two execs of American Airlines made a combined $9 million.

17 Comments / Post A Comment

Astigmatism (#1,950)

Ok and no. AMR's fixed labor costs are unsustainable, and even though AMR got significant concessions in 2003, their costs are still far out of whack with the rest of the industry – which, given how cost-conscious coach flyers are, basically condemns them to operate at a loss. Meanwhile, the compensation packages senior management awarded themselves were idiotic, and so it's completely understandable that labor thinks they negotiated in bad faith. But in the grand scheme of things, that $10 million, or $41 million, is not the reason that they've been losing money. The board that approved the executive compensation needs to go (the CEO has already resigned), but the unions are still going to need to give up more, as they would even if the CEO worked for $1 a year.

Rodger Psczny (#3,912)

@Astigmatism So, cuts for thee, but not for me? Not a good way to build thrust.

turd_sandwich (#5,660)

@Astigmatism true enough, but actions (and multi-million dollar figures) carry symbolic weight. your comment recognizes this, but I take it farther. these compensation packages are a total dickpunch to the folks flying planes and asking entitled-feeling people to power down their cell phones once the cabin door closes. then, the top-dogs justify the hefty pay through allusion to the psychological difficulties they have from laying people off. meh.

turd_sandwich (#5,660)

@turd_sandwich sorry if I sound shitty. this stuff happened where I work, though on a much smaller scale, and I saw how staff react when layoffs and pay cuts start, while senior management and governance are out schwilling in napa valley…

Rodger Psczny (#3,912)

@Rodger Psczny Or "trust," but an airline needs both.

Astigmatism (#1,950)

@turd_sandwich @Rodger Psczny: I don't think I'm saying anything different. The guys at American who did this in the first place screwed over the workers then, which is a – maybe the – major reason the company is in the shitter now, and should be removed to the extent they haven't been already. But that doesn't change the fact that the company still has an unsustainable labor model, and its unions will need to bend over as far as they did with respect to every other airline, or American will go the way of TWA and Pan-Am.

@Astigmatism I'm looking for the place in Choire's post where he claimed that employees won't need to make some concessions in order for AA to survive, and I'm not finding it. Your argument is a straw man – I don't think anyone in the unions is arguing that they won't need to make some concessions too.

I think the point here is that they shouldn't make sacrifices unless management is willing to make them too. And management has shown that they won't play fair, but will instead try to secretly fuck over employees and the company to save their own asses. So they shouldn't make any concessions to THIS management.

Also, it doesn't matter that the top execs total pension was small compared with the money at stake form the union employees … that's because the managers re just a few people, and the employees are thousands of people. You can't say "Hey, the amount of money this group of people wanted to greedily gouge from a company in crisis wasn't enough to bankrupt them" … so what? It's still greedy, unfair and basically reprehensible.

Astigmatism (#1,950)

@MisterHippity Again, I don't think that you're saying anything much different than I am. I absolutely agree that they shouldn't make concessions to this management: hence my saying that this management should be canned, twice. Choire's post, by saying that "everyone looks to the employee costs for a solution to bankruptcy" and "Unions were willing to cooperate and they got duped. Why would they stand for it again?", kinda indicated that maybe the unions shouldn't cooperate this time around. But they have to, unfortunately, because the employee costs are still far out of line with the rest of the industry, regardless of what dicks management are or were.

keisertroll (#1,117)

This is why I fly Qantas between Philadelphia and Pittsburgh.

zidaane (#373)

@keisertroll My bike has more mechanics than a NW jet.

Bittersweet (#765)

@zidaane: Hoping that now that Northwest is part of Delta the average has improved since 2008.

keisertroll (#1,117)

@zidaane Northwest Airlines went to hell when Eazy-E died.

And in today's moment of plus ça change, I present this gem from January '06. Enjoy!

HiredGoons (#603)

we should probably stop letting assholes run companies.

flatfootafleet (#5,753)

@HiredGoons Good luck with that. You HAVE to be an asshole to get to that level, think Whole Foods. Everybody loved that dude until he actually HAD TO MAKE A BUSINESS out of it. It can't be all sunshine and rainbows forever.

lawyergay (#220)

This may legitimately be one of those cases where the company is just simply not able to operate with such a large payroll. I honestly don't know. But I think I'd be feeling less vicarious heartburn about this if AA's executives had agreed to tie their salaries to those of the rank-and-file when the taxpayers bailed them out in 2003.

How about a rule that the highest-paid employee of a bailed-out company cannot make more than 30 times what the lowest-paid employee makes?

uncommoncents (#186,216)

You can't blame a CEO for trying to screw everyone out of every cent they can without ever sharing any sacrifice and lying about it all the while. They wouldn't be a CEO if they acted differently. Where we have gone astray as a country is in allowing all of this to happen without reasonable regulations that limit greed. Greed has killed our economy, our culture, and the middle class (the bulk of the country) while we have all stood idley by and allowed it to happen. Don't believe the propaganda the few spin to subjugate the masses. Think for yourself and stand up and do something in your community, city or neighborhood. Rally people to become vocal in opposition to greed while we still have the right to speak at all.

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