US Airways And American And The Elephants In The Room

I want to talk about the elephant in the room.

Actually, it’s a whole herd of elephants in pink tutus with “Seniority Integration” and “Unintended Consequences” emblazoned in neon lettering across their posteriors. Yet, most media seem too distracted by sexy headlines and hoped for revenue synergy calculations an alleged US Airways – American Airlines tie-up might bring to even notice the elephants.

Maybe they’re right. The customer doesn’t care what uniform the pilot flying the plane wears or what that pilot’s career prospects look like. They just want that pilot to safely get them to where they’re going.

US Airways is a perfect example that ignoring the elephant can work with few external (i.e. passenger) repercussions: it hasn’t fully integrated pilots or flight attendants since merging with America West in 2005. After nearly seven years of flying separate-and-not-nearly-equal crews on two coasts, maybe US thinks the elephant is just a mouse. Heck, company president Scott Kirby said taking over American Airlines would actually solve US’s problem:

"It's ironic but the solution to that issue at US Airways I think it's probably because we're able to get this deal done. The area that people focus on the most is USAPA, our pilots' union. In this case there is a huge benefit for our pilots in getting the deal done.”

Kirby’s comments would also seem to hold true for flight attendants. He even pointed out merging work groups would be subject to the McCaskill-Bond legislation… created in part, by American’s 2001 takeover of TWA and the short-end of the deal those employees received.

And that’s where the elephants start trumpeting.

I’ll concede again that seniority integration doesn’t mean anything to the average customer. But it means everything to airline employees and, because of the very McCaskill-Bond law Kirby mentioned, even to those employees who don’t belong to a union. They, too, will be subject to the law and the vagaries of seniority integration.

If the Allied Pilots Association really believes seniority integration is, as its spokesperson Tom Hoban labeled it, a “faux concern,” then it’s ignoring its own recent past.  If I am an APA pilot and my union is calling seniority integration a faux concern, well I would be concerned.

If the Association of Professional Flight Attendants thinks it will join hands with US and its senior members will either cash out or staple US’s two groups to the bottom of the seniority list – like the APFA did to the TWA flight attendants – its remaining members will have plenty of time to regret that decision when they’re flying Richmond, VA to Greenville, SC via Charlotte for the third time that day.

REAPING WHAT THEY SOWED

The very group APFA leaders either think they will harmoniously bond with or take precedence over (and I’m betting it’s the latter more than the former) is the Association of Flight Attendants.  The AFA represents two distinct groups at US – the flight attendants from the “old” US Airways and former America West FAs – which have never worked under a joint contract. Kirby’s mention of McCaskill-Bond is especially pertinent in this potential combination of three different flight attendant groups, each with its own pay rates, work rules and benefits.

Why? Well, this is what the AFA says about McCaskill-Bond:

“In 2001, American Airlines purchased TWA. The TWA flight attendants, represented at the time by the lAM, were stapled to the bottom of the American Airline's flight attendant seniority list. The AA flight attendants are represented by the APFA. This was grossly unfair to the former TWA flight attendants. The TWA flight attendants fought back. They were unable to right the wrong that had been done to them. But they were able to, with the help of Congress, ensure that it will not happen again.”

Doesn’t sound like the AFA is ready to take a jump-seat to anyone, especially not a group that was “grossly unfair” to other flight attendants. No matter what promises US’s Doug Parker and Scott Kirby have made to the APFA and president Laura Glading. US flight attendants are going to have a say about what part of the pie they get. It’s also important to remember neither AFA group has approved a new contract with US – in fact, they overwhelmingly rejected the last tentative agreement two months ago.

Currently, the APFA has, in total, the best pay, benefits and work rules in the industry. (A decision on American’s 1113 motion in U.S. bankruptcy court could change that). US Airways are among the lowest compensated. Doug Parker will probably promise his own flight attendants they’ll move up to APFA pay, and with the reported “early out” incentive offered as part of the US-APFA deal (about 80 percent of APFA’s members would qualify under the union’s stated parameters including President Glading), would quickly dominate the seniority lists.

That’s probably not going to be enough for the US flight attendants. They’ll likely – and, perhaps, justly – demand the same early outs, guaranteed seniority and other incentives. McCaskill-Bond calls for arbitration, though US Airways says it is “hoping” for a negotiated settlement. This is the same group hasn’t been able to negotiate contracts with any of its current flight groups in seven years, yet “hopes” for agreements with three different unions all clamoring for top billing?

That doesn’t even take into consideration the lawsuits that will be generated when the remaining APFA members realize they’ve been sold out or either of the AFA groups feel they’ve been shorted.

Speaking of lawsuits, the APA knows a bit about seniority integration court battles. When American took over bankrupt TWA, the APA argued in the Supreme Court of the United States that its members deserved seniority over all Trans World pilots because TWA crews had limited to no future prospects and no reasonable “healthy carrier” would agree to merge if its employees didn’t take precedence. Some call this the “failed carrier doctrine” and it is still applicable with the McCaskill-Bond legislation. The APA won its case in front of the Supreme Court, so it shouldn’t be surprised if USAPA East & West use it against them.

Of course Kirby thinks merging will solve US’s current integration problems. The USAPA pilots are salivating over new planes, APA’s high pay rates and benefits and the chance at more international routes. They’ll happily staple APA to the bottom of the seniority list to get those perks.

Perhaps APA president David Bates really believes the former America West pilots will just give way to the APA’s claims on seniority. He met with USAPA pilots in Charlotte last month and touted the meeting as a beginning of negotiations to resolve the issue.

I don’t believe any “negotiations” are going to resolve this issue quickly or simply… and I see no way APA members come out of this scenario better in the long-term. Union solidarity only goes so far and US pilots have been waiting years for an opportunity like this.

More telling I thought was a quote in The Charlotte Observer from USAPA president Gary Hummell:

"My job, even though we are looking forward to a cooperative effort, is to protect USAPA pilots (and) to ensure our pilots get the best contract they can."

Even if that means it’s at the expense of the APA.  Even if this means making American out to be a failing carrier.

WHITHER TWU?

The Transport Workers Union International and many of the locals haven’t exactly rushed into the arms of US Airways. Unlike APFA, which has thrown itself at US like .... well I won't say it, or APA, with its “studious business” approach, TWU has seemingly shrugged its collective shoulders about the US “deal.”

That’s probably because the US agreement isn’t much different from the one AA recently offered TWU. The Mechanics and Related and Stores work groups rejected American’s proposal, but I doubt they’re holding their breath waiting for US Airways to save them.

The TWU is being realistic. Besides saving some jobs – which the M&R and Stores groups decided wasn’t enough reason to approve the AA offer – there’s not a lot US can do for TWU members. They’ve heard US’s promises of limited job protection and bringing more maintenance in-house, but a quick look at DOT numbers also shows US currently has one of highest percentages of outsourced maintenance in the industry. Hard to believe it would be more cost efficient for US to give that work to TWU.

Plus, the TWU successfully used the failed carrier doctrine against TWA as well. While its 24,000 members at American dwarf the number of ground workers at US, TWU leaders know their own arguments will be used against them in arbitration. The TWU has seen what has happened to ground workers at other failed airlines and, at this point, can only hope to minimize its losses.

TWU also lost a bitter and expensive battle against IAM to represent workers at US and, as any political junkie knows, unseating an incumbent is neither easy nor cheap.

WHAT’S IT ALL MEAN?

I’ve already admitted seniority battles might mean little to nothing to customers and operations. That’s possibly enough for Wall Street types who are bounding after this potential consolidation like dogs chase cars.

There are, though, real concerns for other financial stakeholders.  One complex integration should give them pause - but three battles should/will make them nauseous.

US has touted the synergies merging with American would immediately bring. What happens to those synergies if integrating pilots, flight attendants and ground workers drags on, or as I expect, become overly contentious and litigious?

US Airways’ own track record – now going on seven years - shows it cannot facilitate integrated contracts and is quick to suggest the reason is because of internal union squabbles. “Old” US flight attendants fly with “old” US pilots, segregated from their former-America West peers. If a similar situation develops with a devoured American workforce, those already questionable synergies become even more degraded. In other words, the risk and return calculation might be worth further consideration by AMR’s creditors.

There are also a couple of other elephants standing off in the corner that bear watching. First is US Airways own unions, specifically the AFA and the IAM. None of those three groups (remember, AFA represents two distinct flight attendant units at US) are very happy with Parker and Co. right now. Contract negotiations have dragged on with US holding the line on costs because of its structural revenue underperformance relative to the industry.

Yet the IAM and AFA saw Parker and Kirby promise the moon, stars and assorted planets to American’s union leaders. They have significant leverage, including asking the National Mediation Board for release. With an election quickly approaching, a Democratic White House might be hard put to ignore the treaties of two very influential labor organizations, both of which wield more power than American’s unions. Keep in mind, the current chairperson of the NMB is former AFA president Linda Puchala.

Then there are American’s non-union employees. The CWA is currently trying to organize American’s 10,000 agents and representatives, even though the CWA has publicly admitted the majority of those employees don’t want a union. Well, guess who represents US Airways passenger service representatives? That’s right, the CWA. (It also is partnered with the AFA). In a merger, American’s PSRs would get a union whether they wanted one or not, most likely without a vote and probably find themselves on the bottom of the seniority scale. Their – and the other non-union AA employees not happy about their new seniority “rank” – only recourse might be the courts.

The last elephant is more of a wooly mammoth: extinct, but vestiges still remain. That would be the group of employees the APA, APFA and TWU all made bones off of… the former TWA workers. This could be their last shot to right some wrongs and adding them into the mix exponentially increases the level of difficulty of integration.

"We have a chance for a fresh start here," Roger Graham, a spokesman for the former TWA flight attendants, told Ted Reed of TheStreet.com earlier this month.  At least there is one group of employees who might benefit from this proposed merger.

It’s hard to fathom why no one has really taken notice of the elephants. Maybe because they obscure Wall Street’s desire for a (very) short-term gain despite the longer-term implications. Maybe it’s because American’s unions are simply using US as leverage with no intent to expose their members to the possible risks of actually going through with the merger. Or maybe it’s because ignoring them makes it easier for Parker and Kirby to believe this deal is really as simple as they pretend.

Maybe the court and AMR’s creditors, blinded by pro forma financial reasoning that is, sadly, often divorced from airline industry reality and the notion of competitive response, will embrace the US proposal as the best value for their dollars.

If they do, they should beware that discounts to the pro forma estimate are called for because of the elephants in the room.

APFA, by not making a deal with the company in 1113, should be questioned by its members about its decision to put all of its eggs in the US basket under the failed leadership doctrine.

Finally, the TWA pilots reared their heads last week by filing suit against American Airlines and the Allied Pilots Association. 

Looks to me like -- game on.

American Airlines, Labor Leverage, US Airways and Chicken Little

Labor Leverage and Other Thoughts

Since American’s filing for bankruptcy protection last week, I’ve received many notes asking why I am not writing about American - about a potential combination with US Airways or what I expect the company to win from the unions.  I haven’t written because, frankly, I already talked about the potential consequences of bankruptcy for the airline, unions and the industry in my most recent piece.

On Monday, I intended to write about leverage and how the Allied Pilots Association was seriously misjudging the leverage it thought it had. Tuesday’s filing kind of made that point moot.   As the Sections 1113 and 1114 negotiating process wends its way through a court supervised restructuring, the pilots and all unionized employees will either reach consensual agreements with the company or the company will look to the court to terminate the existing agreements.  Whichever outcome, the new contracts will look nothing like the potential deals the unions could have negotiated at various times over the past five plus years.

I know, I know… “American could have reached a deal if it wanted.” It does take two to tango, but in this round of negotiations, American and its unions were listening to vastly different music. American’s offers provided cost benefits that would be realized over the long-term while still maintaining what can only be described as an industry-best benefits package. That wasn’t going to sit well with analysts and Wall Street types who fervently believed the airline needed immediate gains to remain viable.

The unions, seemingly, wanted everything to magically return to past patterns and routinely called for restoration of the pay and benefits they conceded in 2003 to stave off bankruptcy. A common refrain has been no union members have seen substantial increases in wages since 2001. Peers at other airlines did get raises, but American’s employees were – and are - still better off.  It’s a simple, provable truth and it meant there was no going back to 2003 or 1993. It’s a different industry and a different world.

That’s key to understanding there is no leverage for either side in this round of negotiations. (Are you listening, United pilots?) It’s also why this negotiations cycle has been so difficult. Few agreements have been struck. American will likely get deals well before we see contracts – or even tentative agreements - at United and US Airways.  As the bankruptcy process plays out, the American pilots and flight attendants will no longer have industry leading contracts among the network legacy carriers – Delta will.

And guess who comes up next for negotiation – the Delta pilots.  Like American’s management over the past five years, Delta’s management will have to negotiate improved terms and conditions on the highest cost labor contract in existence. All the while, the United/Continental pilots will spend more time asking who is on first than they will spend at a negotiation table.  Looks to me like all of that “leverage” being created by the United pilots alleging poor safety policies by management is NOT moving the parties quickly toward a deal.

While I expect the Delta pilot negotiations to be complicated and difficult for the company, at least the pilots enjoyed some benefit following the merger with Northwest and the bankruptcy agreements that preceded it.  Delta’s pilots will have the richest compensation package in the industry after American completes its bankruptcy negotiations. That means they won’t have any leverage over the company even as pilots squawk about the liberal scope clause in the current agreement. 

In this process, there is a different kind of “trickle down” theory. Case in point: The TWU employees at American. Talk about no leverage.  The more removed from the flight deck, the more leverage dwindles. American’s below-the-wing employees currently earn a total compensation package of roughly $25 per hour. That work can be outsourced for 40 cents on the dollar.   Add the fact  American outsources the least amount of maintenance work in the industry, and that it has more ground workers than any other airline, well, you get the feeling things are going to change. If you’re a TWU worker, that’s probably no comfort.  

All This Talk About A Merger With US Airways

I am surprised – no, blown away - by just how much attention the US Airways – American merger possibility is getting.  In the first 36 hours after AA filed for protection it seemed the world was suggesting a merger with US Airways was the only viable exit strategy.  I don’t believe it.  American will have the exclusive right to file a Plan of Reorganization (POR) for 180 days – a right that is typically extended multiple times by the presiding judge.

Keep in mind, all three of American’s unions were appointed to the unsecured creditors committee. Any plan of reorganization by a party other than AA will have to convince the committee their plan is better for all stakeholders.  Given the messy labor situation that remains at US – six years after its merger with America West – I sincerely doubt anyone would find a US bid credible… especially American’s unionized workforce.  

That’s why, at least right now, I simply don’t see a merger happening, despite industry analyst Vaughn Cordle’s contention that, “regardless of the ugly nature of merging two suboptimal business models and different unions, American's best option is to merge with US Airways.”  My first question is, why would you even think of merging two suboptimal business models in the first place?  So that you can compete directly against balance sheet and network rich United and Delta?

There is another option I don’t think many analysts have considered.  I could see a competing plan led by British Airways and other oneworld partners that would have the potential to win if the AA case gets to the point where outside parties are free to submit alternative PORs – even at today’s 25% foreign ownership limit.  If you believe AA will become a smaller entity over the coming months, the one sure thing is AA’s network will be optimized to maximize revenue generation with its new joint venture partners.  That’s precisely what STAR is doing through United and SkyTeam with Delta. 

The Sky Is Not Falling

Over at Terry Maxon’s AirlineBiz blog is a letter from TWU President Jim Little decrying American’s filing with $4.1 billion in cash and thus a near term ability to pay its current obligations.  I urge you to read the letter in full and the lack of reasoning throughout.  What did Little expect the company to do when he refused on numerous occasions to step-up and tell his TWU members the cold truth that something is better than nothing?  He has had a number of opportunities over the past five years to negotiate an agreement with American that the company could afford. 

The bottom line is bankruptcy is not a big deal.  This is not the industry’s first rodeo.  American’s problems are bigger than a check labor could write outside of bankruptcy, but sadly, the employees will pay much more inside of bankruptcy.   As APA President Dave Bates told The Wall Street Journal, "Sometimes in life it's easier to have something imposed upon a person than have them agree to it voluntarily."  Sad commentary indeed.

Time to Rethink the Virtuous Circle

You know how it goes in the U.S. airline industry: improved economic conditions lead to increased demand for air travel which leads airlines to grow and increase employment.  And so the virtuous circle goes – ‘round and ‘round.  At various times in an economic cycle certain stakeholders tend to do better than others – usually at other stakeholders’ expense.  Front and center in the airline industry rent sharing game are labor and management.

Dan Reed, writing in the USA Today this week, reminded us of the numerous labor and management conflicts out there.  That much is true. But it was the subtitle that gave me pause:  “Unions want pay, benefits restored,” it said.  Not improved – restored.  Nice dream, but it’s just that: The restoration of wages and benefits to 2001 levels is a dream.  Reed quotes long-time industry observer Mike Boyd saying labor has to walk away with something.  Boyd says: “Labor has been on hold for the last seven years.”

Boyd is absolutely right.  Labor has to walk away with something – and they will.  However the airline industry is no position to write the check that would restore wages and benefits to pre-restructuring levels.  Furthermore, the shape and size of the industry today requires that certain work provisions contained in collective bargaining agreements need to be changed in return for improved wages, benefits and working conditions.  This necessary trade gets lost in the mainstream discussion.

Industry Eyes on American

This past week, three of the employee groups represented by the Transport Workers Union (TWU) at American voted on tentative agreements reached months ago.  Two of the three groups rejected the terms and conditions bargained for in those tentative agreements.  Initial rumblings cite provisions contained in the tentative agreements deemed “concessionary.”  Yes in “non-crisis” collective bargaining you trade one thing for another.

I, however, can make a case that the agreements reached were too rich in favor of the TWU.  American resides in a most fragile position in this round of negotiations because its labor costs already are the highest in the industry, even as it goes first among the legacy carriers to negotiate new contracts following restructuring..  The TWU members walked away from structural pay increases, leaving money on the table many in the investment community might have argued against offering in American’s financial position. And I’m among those critics. And while the company would have got increased productivity in certain areas of the contract in return, any savings generated from work rule relaxation is only as good as it’s ability to implement change.

One group that rejected the tentative agreement was the Mechanics and Related employees – a group that has worked closely with the company over the past decade to improve operations and attract third-party work. In part because of those efforts, AA outsources less maintenance work than any legacy carrier. 

Now look ahead.  Can American ignore that most of their competition is paying far less similar services? And without better productivity, can American bring in enough work to justify the current headcount within the Mechanics and Related group?

Just as with the pilots union at American, maybe some in Maintenance really believe that the company can pay labor costs that far exceed the company’s ability to pay.  Everyone points to the industry’s single quarter of terrific profits and suggest – somehow – that a secular trend is underway.  Has anybody been paying attention to the stock market this week?  The market which serves as the barometer guaging expectations for tomorrow?   Or maybe the mechanics are just taking an old trick out of the hat that was popular in the late 1990’s and in 2000 and 2001 when everyone rejected the first agreement assuming that a return to mediation would pressure the company to enrich the agreement, too often without any expectation of giveback.

If that is what happens this time around at American or at any airline for that matter, then the management team making those agreements have no one to fault but themselves.  Overpaying rent has been tried in the past and while it may help mollify labor for the short-term, it does nothing to promote the long-term sustainability of the agreement. Labor, too, is complicit in this short-sightedness, primarily because unions are not structured to manage the responsibility they possess. Unions are highly simple political organizations that too often have only have a short-term view, with leaders looking only to the next contract negotiation and the next leadership election.  

In his 2010 State of the Air Transport Industry speech, IATA Director General Giovanni Bisignani said, “Labor, out of touch with reality, is the next risk. We cannot pay salary increases with our $47 billion in losses. Pilots and crew must come down to earth and strikes at this time are shortsighted nonsense. Labor needs to stop picketing and cooperate.”

Concluding Thoughts

I am not naïve enough to suggest cooperation is a possibility everywhere.  It is not.  For both labor and management it will be tough to manage expectations set by those with short-term mindsets.  And those expectations collide with the need to manage for the long term.

Yesterday’s virtuous circle was largely predicated on plentiful and dumb capital willing to chase failing companies, jet fuel that was roughly one-third the cost it is today, and a general view that the only way a commodity industry could increase revenue was to add capacity.

In the U.S., we should be modeling a better path. Today’s virtuous circle in the U.S. is less about growth and more about making the kind of change and creating a model that will maintain and marginally enhance an airline’s ability to compete globally.

Buried Alive: Signed Tentative at American Declared Dead

As Gilda Radner on the old “Saturday Night Live” might say, “It’s always something.”

Less than a month ago, the Transport Workers Union (TWU) representing the Fleet Service Group at American Airlines (baggage handlers, freight service workers, aircraft fuelers/de-icers and aircraft cleaners) said it was “suspending” a tentative agreement (T/A)  reached with the company after more than two years of discussion.  Yesterday, after a meeting between American, TWU and the National Mediation Board (NMB), the union pronounced the agreement dead and asked the NMB to release the 11,000 workers in the group into a 30-day cooling off period.

But it’s been a twisting road to this point. When the TWU first announced the agreement, the union said it was strong armed into signing a T/A by NMB member Harry Hoglander.  In a May 28 press release, the TWU said:  “Although the committee cannot recommend the T/A, we believe the membership should have the final say. The decision to bring the T/A was made based on the NMB's premise that there would not be any other meetings scheduled until the end of year or possibly later.” 

The union then went on to say:  “The committee also took into serious consideration that the NMB would not look favorably upon the negotiating committee not allowing the membership to vote on the Company’s final offer.”

By June 3, 2010 the TWU bargaining team had decided to send the agreement to the membership with a “no” recommendation. President Jim Little then jumped in and said that the union would not send the agreement out for a vote without a recommendation to ratify the agreement.  At this point, the union “suspended” ratification of the agreement citing “unresolved Issues.”  

Yesterday the TWU used the same phrase, claiming that ”unresolved issues” with the agreement have created an “impasse” – a legal term under the Railway Labor Act to signal that the sides can’t reach agreement. The release quoted TWU International Administrative Vice President John Conley: “We are now at an impasse with AMR,” Conley said. “We no longer have a tentative agreement and no ballots will be presented to members for a ratification vote. We urge the NMB to promptly grant us release so that we can begin the self-help process.”

My Simple Question

So what exactly changed in the last month? By my read of it, nothing. It appears to me that the NMB won’t likely schedule any new mediated negotiations until 2011. 

But there is no evidence that the two sides are at an impasse.  Rather they are immersed in a political quagmire in which one side cannot convince its members that there must be some “give” in the agreement to make possible the “gets” the union wants in terms of wage increases and other contract enhancements. An impasse is declared only when the two sides cannot agree after exhausting the mediation process.

In this case the sides agreed to the economics – that was the basis of the tentative agreement that, if ratified by TWU members, would result in a new collective bargaining agreement.

A Conundrum in This Case

Let’s be clear: the company’s proposal would put more money in the pockets of fleet service workers. Now they will be forced to wait until negotiations are scheduled to reconvene yet again.  I do appreciate that there was a perception of layoffs associated with the agreement.  That is simply not the case – rather AA agreed that no TWU employee would be furloughed as a result of the company’s efforts to be more competitive, much the same guarantee AA has made in negotiations with other workgroups.

The conundrum is twofold.  First, the concessionary negotiations concluded during the restructuring round has resulted in a "mark to market" scenario that is no longer uniform among employee groups.  Remember that the bankrupt carriers took multiple "bites at the apple" by first reducing cash compensation; then achieving productivity gains that reduced headcount; and then reducing pension and health and welfare expenses.  American’s 2003 concessions were based mostly on that first bite, which means American’s labor costs remain higher than those airlines that restructured through bankruptcy - and it is different by work group.

Second, current negotiations are complicated by the increased use of outsourcing throughout the airline industry, which serves to fundamentally alter the comparisons of similar work from one airline to another.  This fact is most prevalent in “below the wing” work that most other airlines now outsource at significantly lower wages.

Today’s market for fleet service employees is not the fault of the Transport Workers Union per se.  But the union does have a responsibility to read the marketplace and negotiate an agreement that takes into account the economic realities out there. This is no impasse.  Rather it is a union’s misguided act in taking a live proposal that includes improved economics for its members and burying it alive.  Once again, the line workers see nothing in their pockets while the union lets a business agenda of maximizing headcount win the day. 

This is one tough round. 

What Would Yoda Say to the APFA?

Where I would typically use this space to talk about the fact that the rumor mill has United and Continental in serious merger talks, I am not going there.  My feelings on a US Airways – United hookup are well documented in a number of posts.  I will be most pleased if United and Continental are indeed in talks.  Each carrier has aggressively pursued a path to the least exposure to the US domestic market, and that is a path resisted by US Airways.

I respect many people at US Airways, particularly those managerial types who have done yeoman’s work with a network that, in my opinion, holds little promise long-term. It is, as I say, presence everywhere and a dominant piece of meaningful real estate nowhere.

To me the biggest piece of news this past week was the fact that the National Mediation Board (NMB) did not release either the Association of Professional Flight Attendants (APFA) or the Transport Workers Union (TWU) into a 30-day cooling off period that each union sought in their negotiations with American Airlines.

At least until we see the rule drafted by the NMB on representation elections, all seems right at the Board.  They did not release a case that is nowhere near exhausting the mediation process, even though I had feared that they might given the political winds in Washington.

So, the APFA is, for the time being, reduced to trying to convince the world of the numerous grievances its members carry. The union’s You Tube videos claim that AA flight attendants are oppressed.  They talk of the past like somehow it will reappear,  even when reality knows it is but a faint memory.  And through it all, APFA’s reckless talk of a strike continues – reckless because the circumstances don’t justify the action as I have written before, most recently in Self-Help or Self Sacrifice or Self Fulfilling Prophecy? What Will This Accomplish?

I am reminded of a quote by Yoda in Star Wars: "Fear is the path to the dark side. Fear leads to anger, anger leads to hate, and hate leads to suffering."

American’s Conundrum

Few people, if any, have been as critical of American’s union leaders as I have.  The one union that has been left unscathed by swelblog has been the TWU because, as a leader, John Conley is typically careful in misusing power and rhetoric.  But in this case even Conley has come close to the line.

Is the fear that a union working to address American’s productivity deficiencies in return for improved wages somehow collaborating with the “dark side”?  I think it is.  The fear of reprisals from a vocal minority of members toward a union’s leadership has led to a campaign based on anger toward the employer.  The anger has become hate as unions try to tie everything wrong in the industry to executive compensation, particularly that part of their pay in at-risk company securities.

But without executive pay, what are the unions really protesting? Change? We’ve got plenty of that in the airline industry, which is all the more reason cooler heads should prevail in approaching negotiations in a way that promises the best long-term pay and job security for airline employees.

But that’s not how the flight attendants union is approaching it. The APFA is trying to stir up a lot of anger and hate with a strike vote that, if it eventually led to a strike, runs the risk of doing serious harm to wages and working conditions for their members.

The APFA has been speaking out of both sides its mouth in urging members to support a strike a vote. On one side it encourages flight attendants to send a message to management and channel their anger by threatening a work stoppage that would bring the carrier to its knees. On other other it tries to calm flight attendants with reassurances that they themselves would not be hurt by going out on strike.

And that’s just wrong. APFA President Laura Glading should be careful what she asks for.

What good did the strike do the BA flight attendants and their union Unite?  Zero. Nothing.  Nada.  It did entice a management to put into place a plan to fly through the “three strikes.”  Three strikes and you are out right?  Glading’s plea to her members is pathetic.  All the while she reminisces about 1993 and 2001, she mentions that a “yes vote” does not mean that they will strike.  She talks about the power of yes.  But she does not once mention the potential risks of a strike to her members.

Glading also does not mention that her flight attendants are the highest paid among her network peers according to MIT’s Airline Data Project; the least productive in terms of hours flow per month; generally lagging in terms of in terms of passengers served per flight attendant equivalent; and the beneficiary of a relatively costly benefit package.  It makes the negotiations between American and its flight attendants very complex and difficult to conclude - even for the most skilled negotiator and/or mediator.  American is asking for increased productivity for one simple reason:  whereas American’s salary per flight attendant is comparable to that received by flight attendants at Continental, if American achieved the same flight attendant productivity as Continental the carrier would require 1,254 fewer flight attendants.  And the carrier has offered to grow into the productivity over time rather than lay off even more flight attendants.

If I am an American flight attendant, I would carefully consider these facts.  Negotiations are now data driven – just like a Presidential Emergency Board (PEB) would be.  APFA likes to talk to the world about labor cost per available seat mile (CASM).  But that metric is fraught with potential error as the calculation is influenced by a wide number of items which are not in the control or purview of the flight attendant collective bargaining agreement.

In fact, as CASM is influenced by factors as varied as seat configurations, stage length, aircraft utilization and network design to name a few, even analysts and economists would be hard pressed to make the kind of bold analytical statements and sweeping conclusions that the APFA is making.  Pay and productivity are expressed in hourly rates and hours worked and that is why the MIT Airline Data Project examines pay and productivity against an hourly foundation.  The APFA refers to staffing as the culprit in American’s  high flight attendant unit cost.  The problem is that the 3-class fleet is a very small portion of the fleet.  Can 3-classes really be responsible for the highest flight attendant costs in the industry among the legacy carriers?  Warning to United:  the same argument is coming your way.

American does have a conundrum in that it is the first major case in front of the NMB and it has the highest costs among its peer group, particularly with its flight attendants who, as a group, are highly paid relative to their low productivity.  In a recent Dallas Morning News, I was quoted by author Terry Maxon suggesting that there will be an airline strike.  Inside of my comment was a challenge to management:  Is the airline ready to take a strike?  If American caves in its position, the industry suffers.   The American Airlines flight attendants suffer because American will have agreed to pay more than it can afford.  Even the best heeled US airline cannot afford what American’s employees are asking from their management. 

American’s unions constantly point to management compensation as unfair but, as is typical, they use only the parts that serve their purpose.  Conveniently, forgotten is the fact that there have been years in which management got well below their target pay (and well below their industry peers) because the system of pay linked to performance actually works.  Yes, management pay is higher than pay on the front lines.

That’s pretty much the way it works in every industry. That’s because the market for management labor is different than the market for flight attendant labor.  That’s a reality.  And in a market-based economy, no one is entitled to more for their labor than what the market will pay. The NMB got it right at this point.  Exposing the company to the destructive threat of a strike doesn’t serve anyone’s interest.

Yoda was right to focus on fear as a path to the dark side.   In this case, the dark side is not so much a strike but, rather, the fear, anger and hate churned up by union leaders that could lead to a disastrous outcome for the members they represent