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Latest News - April 2012

April 20, 2012
Behind the Worker Revolt at American Airlines
Source: Bloomberg Business Week
By: Justin Bachman

Mary Oswald, an American Eagle flight attendant, demonstrates with others outside American Airlines Terminal 3 at O'Hare International Airport in Chicago, Illinois

American Airlines employees on Friday staged what could be called a workers’ revolt, announcing proposed labor contracts with US Airways Group (LCC), the airline that would like to buy American out of bankruptcy.

Three unions representing a total of 48,000 pilots, flight attendants, and mechanics at American parent AMR “have agreed to terms that would govern collective bargaining agreements for their members at the merged airline,” US Airways Chief Executive Officer Doug Parker said in a letter to his employees. (A US Airways spokeswoman said Parker was not available Friday for comment.)

US Airways has been huddling with bankers for months, mapping out how to acquire its larger Texas-based rival, enhancing its own challenged route network, and furthering industry consolidation in one stroke. In essence, Parker’s team has offered American’s work force a sweeter deal than anything they will see in the bankruptcy reorganization. American had previously announced 13,000 job cuts and wants other changes that would depress pay; on April 18 it said it will dismiss 1,200 more non-union workers. In his letter, Parker said the merged airline would need to lay off only 6,800 unionized workers.

Beyond the pressure the unions have exerted on AMR’s management, the US Airways talks serve as a forceful notice that American employees are fed up and actively seeking new management. Years of concessions, negotiations, and public sniping—all while the airline lost money and shrunk its network—have boiled over into full rebellion, with American workers seeking to replace their bosses.

The president of American’s pilots’ union, the Allied Pilots Association, alluded to this in his Friday letter to pilots. “Working with US Airways, APA was able to achieve in just over a week far more than we had been able to achieve in more than five years of trying to bargain with AMR management,” APA President Dave Bates wrote. “Our interaction with US Airways was in stark contrast to what we have been experiencing with AMR. We dealt directly with the people whose jobs are to run an airline.” In a video to her members, Laura Glading, president of the Association of Professional Flight Attendants (APFA) said the agreement “puts flight attendants in a far better position than any proposal American Airlines management has ever made.”

In a statement, American said its effort to reject union contracts begins in court on April 23 and that it considers the timing of the unions’ statements “no coincidence.” The company noted that the court has given it exclusivity until Sept. 28 to pursue its own reorganization independently. “These statements do not in any way alter the company’s commitment to pursue our business plan or our focus on moving steadily through the court supervised restructuring process to create a profitable, growing industry leader,” American said.

Bates also wrote that a merged airline would be called American and retain its headquarters near Dallas/Fort Worth International Airport, both of which are likely to be critical issues if any merger goes forward. “The offer to keep the American Airlines brand with HQ in Dallas, likely a key growth market for the combined company, should also go a long way to appease concerned regulators like Senator Hutchison (R-TX), for one,” Wolfe Trahan analyst Hunter Keay wrote in a note to clients Friday. “An AMR/LCC merger makes too much sense not to happen, in our view.” Analysts generally like the idea because of American’s weak position on the East Coast, where US Airways has two hubs, and because of American’s international network and alliances, both areas where US Airways falls short of rivals.

Despite the unions’ support, however, US Airways does not enter this mergers-and-acquisitions fray with a strong record. In January 2007, Parker’s team dropped a failed bid for Delta Air Lines (DAL) during that airline’s bankruptcy because it did not have support from Delta employees. In its prior bankruptcy shopping spree, in mid-2005, the current airline was created when the former America West purchased the larger US Airways after that airline filed for Chapter 11 in both 2003 and 2004. US Airways workers have litigated for much of the past seven years, unable to reach contract terms.

So while American’s workers may be livid, Parker will confront a key question from American’s creditors and the court: Just how generous does he expect he can be while still running a competitive airline? Is it a realistic offer, or one shaped to win over a key ally in American’s bankruptcy? After all, the two biggest airlines in the world—United (UAL) and Delta—now financially perform, in part, because they made deep cuts during their own bankruptcy cases. A few cuts here and there, a skeptic could say, will not make a healthy airline.

For its part, that may be American executives’ best argument in holding off Parker—and their own employees.




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