Topic of the Week: Judge Won’t Let American Reject Pilot Contract … This Week


I couldn’t believe that the judge in American’s bankruptcy case wouldn’t actually let the airline reject its pilot contract. But this isn’t some massive victory for pilots – really it’s just a small one. The judge had issues with the furlough provisions and the unlimited codesharing request. That was pretty much it. So American will revise, resubmit, and then the pilots will have their contract broken. Anyone think this is significant? What’s your take?

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24 comments on “Topic of the Week: Judge Won’t Let American Reject Pilot Contract … This Week

  1. I like the judge. Seems like he is making American work for it instead of just rubber stamping everything. This ruling might embolden the Flight attendants to reject their contract. All in all a small victory for the union but American will get its way sooner or later. In the long run, this might only be significant because it made this bankruptcy last even longer….

    1. Actually it might have just the opposite effect because the judge has already ruled against them since all the FA points were also part of the pilots filing, but you never know when dealing with labor groups. Laura Glading (APFA President) recommended to her members that they accept the LBFO as you can see by reading this:

      And this won’t delay it for long as AMR has already submitted the revised filing this morning and the judge plans to rule by Sep. 3rd.

  2. Just another example of how Chapter 11 screws the creditors. I have no doubt that executive compensation and pension payments to AA senior management will remain intact. The unfortunately reality is it takes two to tango, AA may want a new Pilot’s contract, but AA also need an all new management team as well if the reorganization is going to succeed. This is the same team that successfully ran AA into the ground.We can always hope for a merger….

    Unfortunately the latter is unlikely to happen.

    1. Matt, you don’t seem to acknowledge any responsibility on the part of union management for the horrible labor relations at virtually all legacy airlines. Labor controls all the leverage pre-bankruptcy because a strike or “work action” threat is a gun to the temple for an airline, and the APA/APFA have been intransigent for a decade now.

      Union “leadership” continually uses it’s greater access to its members to undermine the company that pays their salaries, while holding themselves out at the savior. Then at the last minute they urge their members to vote in favor of the contract they’ve been bashing (see the link to APFA’s Gladings message below); no wonder the members are frustrated and fired the APA President.

      Union leaders have convinced their members that a merger is going to be their salvation not because it will be, but because, as the larger organization, APA/APFA will control the new combined labor force and get fatter paychecks and bonuses for themselves. So greed is present on all sides.

      Whether or not this is the same or a different management team is inconsequential as labor would (and does) blame management no matter who they are or from whence they came. Management has been blamed by labor for every airline bankruptcy in the US; what are the odds that the airline industry just happened to attract all the worst business managers in the World? Think about that for a second. Furthermore, AA has been in a slow, controlled flight to ground since Crandall was in charge, a guy the unions called “Darth Vader” but someone whom they now wish was still in charge.

      So you see indeed it takes two to tango, but you seem to only be presenting one side of the story.

        1. Really, I worked at AA during the FA strike circa 1995 which cost the company millions before Clinton intervened. What leverage does corporate management have with labor unions? Can they fire union members for anything other than seriously egregious behavior? Labor unions have plenty of leverage.

      1. In the rest of the world, the equivalent of Chapter 11 (voluntary administration) tosses out the management as an integral part of the process. The problem today is management usually loses absolutely nothing in the Chapter 11 process. By contrast the creditors and labor invariably takes a huge hit.
        I firmly believe that management should also pay a price for Chapter 11. Today they don’t, and I find that unacceptable.

    2. Matt, before you bash AMR for its executive compensation payments, remember that the bulk of those payments are in the form of stock and options which became essentially worthless the day AMR filed for bankruptcy. Of Horton’s $3.3M compensation last year, $2.7M or 80% was in stock & options. Considering that Horton has been an executive for six years, his finances took a pretty big hit.

  3. Thursday was bash United day and it looks like today will be bash American day…lol.

    Airline/union relationships have always amazed me. Workers in the union always seem to forget who they work for and who pays their salary, and it’s not the union. They always seem to fight everything the company trys to do and each side always blames the other for everything. Sounds like the American Congress doesn’t it.

    No matter what they must all work together if their is hope to still be an American Airlines.

  4. Will just lead to further outsourcing to the regionals further denigrating the industry
    even more. Buy a ticket on United/USair/Delta/American and its anyones guess whos pilot’s are actually flying the plane you bought a ticket on. No thanks, Ill stick
    to Southwest where I know who’s pilots are flying the plane.

  5. Chapter 11 pretty much “screws” everybody. If it didn’t, no one would avoid it.

    I do feel the court’s decision is a small victory for the pilots. But that’s about it. From what I’ve read, the length of the contract was an issue. Both sides are still going to have to work out a consensual agreement at some point.

    One thing most commentators fail to point out is that the US Airways term sheets and the rejected contract are still concessionary relative to American’s current labor agreements. Whatever is agreed to will still be worse for pilots and better for the company.

    As for a possible merger, I don’t see this as affecting the ultimate outcome one way or another. If what I read is accurate, much of the hesitancy on AMR’s part hinges on a big bonus Horton stands to get if the company emerges as a stand alone. To me, those kinds of bonuses work to the detriment of the company. Managements should do what’s best for all of their constituents not only what lines their pockets. Boards also have a duty to see that executives do what’s in the best interests of the shareholders, consumers, employees and creditors, not only to protecting their positions. Entering into contracts that reward executives for being self serving to the exclusion of responsibility to other stakeholders is a violation of the board’s fiduciary duties.

    Off the soapbox (the observations contained in the last paragraph could be wrong, of course).

    No matter what happens with a merger, Horton will get his money. That’s just how it works. If US Airways wants a merger that much, it will pay Horton’s bonus to buy his acquiescence. One way or another, he’ll come out just fine.

    Labor will get competitive contracts in the long run. It may take a while, but it will happen. I keep drawing on the railroad analogy. The situation the airlines have been facing in the last few years is very similar to what happened to the freight railroads (Amtrak is a whole different story) in the 1970s and ’80s. Mergers and bankruptcies abounded, capacity was cut, employment shrunk. But the freight railroads are now boringly profitable. The same will be the case with the airlines.

    1. A nitpick: Since AMR is now in Chapter 11 the shareholders are at the bottom of the barrel. The Board’s and Management’s responsibility is to the creditors, employees, and customers. Its not impossible that the shareholders will get some return from a bankruptcy, but given this is an airline bankruptcy I’ll eat these words on video if the shareholders stock isn’t flat out canceled.

      I do like your analogy to the railroads. However aren’t the deregulation time frames pretty much the same? An important question would be to ask why are the airlines taking so much longer to shake out..

      1. A good question about the difference between railroad and airline restructuring timeline. Here’s my shot at the answer.

        After railroad deregulation, the already mature rail industry was competing against the newly deregulated trucking industry, not new entrants to the rail industry (due to high entry barriers). Railroads quickly lost a lot of freight to the faster and more service oriented trucking companies, and the only way they could compete was to lower costs and improve service. Since all the railroads had basically the same costs and service characteristics, they all began to restructure relatively quickly in order to compete. It took a while but they are now pretty efficient organizations.

        On the other hand, the airline market had been stifled by regulation and deregulation spawned a whole host of new low cost entrants (due to relatively low entrance barriers) which grew the entire market. The legacies were able to hang on for a while due to the revenue premiums they enjoyed but eventually the LCCs grabbed market share and forced them to restructure. For the first 15 years or so the legacy carriers didn’t really consider the LCCs as their competition. In short; it took a while for the market to find an equilibrium and for the legacy carriers to respond the new entrants in the market.

      2. Nick, I was speaking of a board and management’s responsibilities in general terms.

        The railroads took just as much time to consolidate themselves and get their acts together as the airlines. The collapse of the railroads began after WWI. It was slow at first, mostly affecting rural areas, but the decline was inexorable. Many of the bad railroad experiences found on WWII troop trains and freight haulage (that led to Eisenhower’s insistence on Interstate highways along with seeing the German Autobahns) was because of the lack of equipment from cutting back service. Anything that could roll (and some equipment that couldn’t) was pressed into service.

        To give the end game a time frame, the Penn Central merger (the worst transportation merger in history, in my opinion) took place in 1969. Union Pacific bought out Southern Pacific in 1996. The Conrail joint ownership by CSX and Norfolk Southern (in many ways undoing the Penn Central merger from an operating perspective) was consumated in 1998 – 1999. So the end game, if you will, played out over 30 years or more.

        1. Thank you for expounding on the comparison — its quite insightful.. By that metric we should start seeing the airlines settle down. Which I think we are seeing the endgame of it play out.

  6. I don’t think this is a big setback for AMR management although the initial flurry of news articles tended to tout this as an outright rejection by the judge. The judge had reservations about two specific clauses – furloughs and codesharing- and for the most part agreed with rest of AMR’s contention. The judge will most likely approve the revised 1113 termsheet and pilots are going to have a new contract imposed on them.

    1. Any bankruptcy judge is super loath to make 1113 rulings. So this delay is possibly a final nudge to APA for achieving a consensual agreement. There’s still time.

  7. Here’s my take… All the employees who said “we’ll take our chances with the Judge” rather than negotiate just got a huge wake-up call.

    I suspect the ruling is a lot more significant than some are seeing.

    Let’s face it — labor relations at AMR have been in the crapper for the past 10 years, even before the debacle of April 2003, and both sides share the blame for this.

    Starting with management, I clearly fault Arpey and the board for not having the foresight and backbone to halt the feeding at the trough when it came to the stock price incentive payouts. They didn’t, and it created the environment that persists at AA today.

    Sure, it was the unions fault for not insisting that management’s compensation be tied to their compensation, but hey, we were all sort of mezmerized by the “Pull Together, Win Together” and “Shared Sacrifice” messages pouring out of CP5.

    But it takes both sides to really screw things up. The unions dug in deep, and have refused to look outside the “we hate management” lens.

    We saw six years of negotiations leading up to the bankruptcy filing. The unions repeatedly banged the drum that AA wasn’t negotiating in good faith, and that what management was asking for was unreasonable.

    When the NMB put negotiations on ice a few years ago, many unionists blamed the company for negotiations going nowhere. How could they not move off their negotiating positions?

    What the union leaders and negotiators didn’t see or act on was that perhaps management really wasn’t kidding about what their position was, what was sustainable, and what wasn’t.

    How does the ruling fit into that?

    Simple… It reinforces (in my mind, at least) the real reason that the NMB put AMR’s unions on ice and didn’t rule on an impasse — they saw the same economic realities that Judge Lane expressed in his ruling, and that the unions were the ones perhaps not negotiating in good faith.

    Now that the company is in bankruptcy, it looks like the message may have started to get thru to the leadership.

    It’s pretty clear that Laura Glading and the APFA leadership see it for what it is. So does Jim Little and the TWU.

    I suspect that former APA president David Bates read it and wondered if he should have perhaps held onto his position for a week or two longer, rather than resign… And his replacement is now going to be in the difficult position of having to perhaps take up his predecessor’s position.

    But I’m not so sure that the rank and file get it. And that’s disturbing. The TWU vote won by about 25 votes, and the APA vote failed by a huge margin. We have yet to see how the APFA votes.

    Both management and the union leadership have a long way to go at educating the rank and file on what’s realistic. And that’s going to take a long time. Maybe having an independent ruling like this will help. Or maybe the hard-liners will simply write it off as another crooked judge in the company’s pocket. I hope not.

    One last observation, and I promise that will be the end…

    Let’s assume the APA and/or APFA vote no, and go thru abrogation, and at some point in the immediate future, an impasse is declared in their ongoing Section 6 negotiations, a cooling off period expires, and a PEB is called.

    If I’m right that the NMB saw management’s arguments as sound, and we know the bankruptcy court saw management’s arguments as sound, how can any sane individual still believe that a PEB decision is going to turn out any differently?

  8. My take? In the end, the AA pilots will get screwed. I think they already know that. The only open variables are when and how bad it will be. Voiding their labor agreements was one of AMR’s principal objectives when they chose the bankruptsy course and those objectives have not changed. As has been reported elsewhere and multiple times, AA pilots eligible to retire are bailing in huge numbers and no t counting on much of a (or any) pension. It is sad, but the pilots from all the other legacy carriers have been through the process. While nearly criminal in my view, the senior executives of the legacy carriers continue to be well rewarded for screweing their flying colleagues. At least so far, none has been charged with criminal fraud, so there is plenty of precedent. Roll over, AA pilots; you’ve going to get it (or simply not get it) sooner or later. From a personal perspective, I feel much safer on a large jet whose crew is led by a well-compensated captain who i s happy in his work environment. Typically, that means a captain aged 50 or over with >15,000 hours and probably >2,000 hours in type. Big jet captains of about 30-35 years, with 4,000 total hours and ~250 in type, bother me. A lot. Having very experienced, senior men and women in those left seats, especially when responsible for 300-500 souls is not trivial. Those experienced flyers are literally worth their weight in gold.

  9. The revised filing has been submitted — AA removed the furlough provisions, and updated the codesharing provisions to match almost verbatim with what APA had agreed to in the failed TA. If it was good enough to put forward in the TA, it’s going to be hard to push as being unreasonable a month later.

    Ironically, the hearing and possible ruling is set for the day *after* Labor Day….

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