10.11.2012 « Is The Union Leadership at American Really Representing the Membership’s Best Interests? »
Delta is cutting international capacity by 3-4 percent in the face of economic weakness. In an effort to improve profitability, United has announced capacity cuts for 2013. Federal Express just announced a 3-year plan to cut $1.7 billion in costs mainly in its Express unit as revenue suffers from high oil prices and the fact that customers have found cheaper alternatives. The cost cuts will largely be accomplished through headcount reductions which work to eliminate fixed costs.
If FedEx is seriously evaluating headcount at a perpetually profitable business unit, then so should those who believe that American and US Airways together would not need to trim costs any more than has been done at each airline in restructuring.
This is why it is so puzzling to me that Laura Glading, president of the Association of Professional Flight Attendants at American, continues to beat the drum for a merger between American and US Airways.
My guess is that Glading negotiated some concessions for flight attendants in talks with American because she is convinced, or has been promised, that a deal with US Airways will come with some sort of snapbacks or other icing that benefit her members and, perhaps, her position in what would be a larger, more powerful union.
That theory, however, ignores the economic reality of consolidation in today’s domestic market which has proven time and again that airlines with the highest costs have a distinct competitve disadvantage. So Glading continues to view her world through rose-colored glasses, preaching the purported labor benefits of a merger that can’t hope to succeed without the strict cost discipline neither she nor Parker are willing to acknowledge.
Recently, Glading asked flight attendants at both airlines to petition AMR’s Board of Directors to pursue a merger. The petition reads:
Dear AMR Board of Directors,
American Airlines is no longer the brand it used to be. Instead, this once great airline is now at the mercy of a dwindling network and an inferior product.
Fortunately, not all hope is lost. There is a way to right this ship. If American Airlines could merge with US Airways before this bankruptcy has run its course and the AA brand completely destroyed, we can all work together to get American Airlines back on top.
The US Airways merger plan is the best option to correct the problems AA faces. I encourage you to pursue the only path available that will lead American Airlines out of bankruptcy stronger than the day it entered: a merger with US Airways.
American Airlines + US Airways: Our Future Depends On It
One has to wonder exactly what Glading was promised to press so hard for a plan with such limited economic foundation. If US Airways brings so much to the table, then why did the Delta employees band together to block Parker’s ardent overtures? Why did United leave US Airways at the altar at the eleventh hour when a better partner emerged? Yet at American, the unions’ leadership seems to believe that a marriage with US Airways is some sort of panacea that represents no pain/all gain for employees.
Do investors see the proposed merger as American’s path to better labor relations? Not if they’re looking at what’s going down at US Airways, where the union representing flight attendants called for a strike vote after flight attendants failed to ratify the second tentative agreement in six months. Clearly the expectations of the US flight attendants exceed the company’s ability to pay. And this comes after years of acrimonious relations between the airline and its two rival pilot groups which, 77 months after the fact, still prevent a smoothly merged operation between US Airways and first spouse American West. If Parker’s team needs to promise more and more just to get ratified agreements with his own employees, imagine how expensive those labor deals become when you need a fast path toward a joint collective bargaining agreement and a single seniority list?
What might the creditors at American think of the high price tag on labor peace likely necessary to get joint contracts between the two carriers? And what toll will that price take on the combined company going forward? Parker and Glading talk synergies, but both conveniently overlook the expensive path they’d need to travel to get there if, as I suspect is true, labor groups are being told they’ll be made whole – or better – as the reward for their support of a merger.
Flight attendants should think twice before they buy the line that synergies alone obviate the need for real-world cost reductions, particularly with one partner still operating in bankruptcy. A merger for the sake of a merger inside of bankruptcy is not going to make the creditors want less.
Union leaders must accept responsibility for helping to position the company to succeed before they can promise payoffs to employees, particularly in this competitive market. It is not up to management alone to promote fiscal discipline and constructive labor relations when success demands genuine efforts on both sides.
Ignoring the fact that creditors will want to maximize their claim in bankruptcy is a sure-fire way to ensure that the best interests of employees are not represented because there is nothing that can be negotiated that will improve the well-being of members. Ignoring the reality of deteriorating revenue trends and the fact that other carriers are cutting capacity is to knowingly accept an overpromise on the synergies.
Reader Comments (11)
There's a difference between a possible US / AMR merger and the aborted US / Delta hookup to which you keep alluding. The US / Delta merger would have been a completely parallel one, a la Penn Central. And most who study transportation history (or just dabble in it) know what happened with the Penn Central.
While there is some overlap between US Airways and American, the amount is far less that what it would have been between US and Delta. On balance, US and American are complimentary. Each fills holes in the other's network. The conclusion that the US / AMR overlap is remotely close what US / Delta's would have been is flawed, in my opinion.
I do agree that the 800 pound gorilla in the room is the relatively high number of employees in the potentially combined entity. But without access to internal company data, and the exact terms of the tentative MOUs, none of us knows what the real world situation is or could be. We don't know what will be implemented regarding buyouts, early retirement packages, work rules changes, etc.
It seems to me that most of the labor issues at both US and AMR, whether merged or not, will be solved within ten years - by retirement. Then the current group of senior pilots and flight attendants who feel they're entitled to bankruptcy inducing pay and benefits will be history.
All of this is why potential merger partners and other interested parties go through the process of due diligence. In the end, the UCC will look at and analyze data from the real world, not speculation or limited public information. Ultimately, any plan of reorganization will have to pass muster with them and other potential investors.
There is no way that Ms. Glading or AA's other union leaders
did their homework when it comes to the way US Airways handles mergers. Mr. Parker is only interested in heading the largest airline in the country. If he really believed in the merits of a merger beyond the size, then he would have: a) unified his East and West employees; b) paid his employees a standard contract, and; c) would have sealed the deal with DL or UA if the "synergies" they brought to the table were so great.
It is too bad that AA union leaders sold out to Mr. Parker and his bill of goods. The rank and file employees of both airlines are going to be the losers in any merger situation.
Spot on! All flight attendants should also be tenaciously questioning Laura Glading's motives. Why is she so adamant that a merger with US Airways is the only way to go? Why did Laura not take AA negotiations more seriously and press for more, especially in regards to equity? What has Parker promised Ms. Glading if she lends her full support to the merger effort?
The agreements that Parker and AA labor signed reek of quid pro quo. Laura Glading's over the top push towards immediate consolidation with US is pretty telling. Her desperation is highly suspicious.
A merger makes no sense, Charlotte is too close to MIA, Phoenix is too close to DFW, and Pittsburg is too close to NYC. US Airways sold off LGA slots to Delta, the only thing left with any value are their DCA slots. I had Bob Crandall on my flight and he said a merger with US Airways would have negative tax consequences for write offs, etc. He also said Arpey thought BK was immoral ("a nutty idea") and that the airline should have been restructured sooner.
These are the last two left on the dance floor.
If they don't go home toghether, its all over and they will slowly fade away, leaving United/Delta/SWA to rule the skies.
All,
This is really simple:
1) Swelbar is on AMR management's payroll and is being paid to put this out, and;
2) The employees want to be RID OF the entire staff on the 6th floor, and most of the staff on the 5th floor, at AMR.
You can paint the situation any way you wish, but in the end the employees are doing what the shareholders and THEIR supposed representatives on the AMR board should have done long ago - firing management.
When a baseball team is playing badly and the manager can't get them to play up to their potential the entire team is not fired, the manager is. At AMR the board should resign en masse for their abysmal failure to lead and the employees will take care of the rest. Too bad the shareholders had to take the hit for the management compensating themselves as entrepreneurs without taking entrepreneurial risk.
This is easy analysis.
Phil
Since when is it the union's job to pick management or to promote a ridiculous merger with a near dead airline that brings nothing to the table?
US Airways is a bloated dinosaur and most of the necessary staff cuts would fall on AMR employees if a merger were to take place.
There wasn't a single industry analysts, newspaper reporter, or paid advisor to the APA that recommended the pilots reject their TA. The pilots foolishly voted it down because of this US Airways side show and people who had no clue about the basics of the bankruptcy process.
Gary,
Thanks for the softball and sorry to have not noticed the reply. I will address your three pieces individually.
"Since when is it the union's job to pick management or to promote a ridiculous merger with a near dead airline that brings nothing to the table?" - Since the shareholder's representatives, supposedly the AMR board of directors, allowed either management malfeasance or incompetence to destroy 100% of their value. Your first sentence is posed as two questions, but in this instance it is one and the same - replacement of management. All of them. And near dead? They announced record profits last week...
"US Airways is a bloated dinosaur and most of the necessary staff cuts would fall on AMR employees if a merger were to take place." - There is near universal disagreement with your position opposing a merge by every objective analyst. The only people I know of who hold your view are management, particularly middle management, at AMR. Oh, and perhaps not coincidentally the AMR "staff" most likely to be cut in the event of a merge. Are you in AMR management? Because if you are not I am curious why you disagree with everyone else.
"There wasn't a single industry analysts, newspaper reporter, or paid advisor to the APA that recommended the pilots reject their TA. The pilots foolishly voted it down because of this US Airways side show and people who had no clue about the basics of the bankruptcy process." - This was perhaps the most interesting piece you wrote. You are correct that the APA membership went against the recommendations of most, but whether it was foolish or not (your words) will be determined by the final outcome. As of today (10/27/2012) my understanding is the two sides are near a deal. That deal will include fixes to EVERY major negative reason the pilots rejected the TA. It will also have EVERY major positive aspect of the rejected TA. And APA's advisors continue to say getting a contract during the BK process is the fastest means to replace management. So, if my points are correct, it looks like the pilots 100% made the correct decision in rejecting the TA. That would make you 100% wrong in characterizing them as foolish. So, here is my pitch - Why don't we wait until 11/05/2012 and see if my predictions are right. If they are not, I will state you were right. If my predictions bear out, how about you say I was right? Seems fair to me. ;-)
It is not the role of the unions to pick management, didn't the UAL ESOP show you the idiocy of that? The BOD can't even run the APA properly.
There is not universal agreement that a merger with US Airways would benefit AMR, but there was universal agreement with everyone outside the APA that the TA should not have been rejected. Using your logic - why did you oppose the TA?
Will the pilots get a do over (LBFO II) and not the "hope and change" BS that was sold last time by the NO crowd? Both offers will be essentially the same; fortunately they fixed the A319 pay. We can only hope LBFO II will have enough face saving provisions (for the benefit of the NO voters) to swing the outcome. If management was half as ruthless as you think, they would have taken advantage of the fact that the APA no longer has a contract. Let that sink in and look up what happen to the Northwest FAs in identical circumstances.
Rejection of the TA was a huge blunder. Rejection of LBFO II would be a disaster, regardless of your delusions about Parker. Let us both hope that the pilots will get the opportunity to vote on LBFO II.
Gary,
The vote outcome proved just how out of touch you are. Your reference to unions not picking management and pointing to United just screamed that you are at CP and in some mid-level management position. That you will not confirm or deny it is pretty funny. <smirk>
Let's see what else you were wrong about - Lots of mention of BS, blunders, inept APA leadership; so far you're batting a goose egg. Want to try again? Why not give us your prediction for the inside versus outside of bankruptcy merge outcome?
Shortly we will know if the sixth floor gets shown the exit and the fifth floor gets a colossal scrubbing. Meanwhile the pilots got lots, showing just how good a decision to reject the original TA was. LOL
Phil
Gary,
Is your Xanax prescription current? I am figuring about now you are ready to die from the anxiety of wondering if you will survive the coming tsunami, the one that will flush all the self-important do nothings at AMR HQ down the toilet. Are you ready? I am. And lots of others too. Hang on. Here it comes...
Phil