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May272008

« American Airlines and the Allied Pilots Association: A $3 Billion Question »

On October 26, 2007, I wrote Just Put It On Ice: American’s Ability to Pay ≠ APA’s Expectations. I followed on in December of 2007 when I wrote Maybe the Allied Pilots Association Is Really Onto Something where I attempted a cynical response to address the union’s scope proposal. Today, May, 27, 2008, American management put a number to the cost of the APA’s numerous proposals and discussed it on their negotiations website.

When I made a back of the envelope attempt to price out the opener based on the proposals on the table in October (no new scope or new pension proposals had been made by APA at that time), I made the comment that this was one rich deal. And that the cost would be a three-comma number. And for making that educated guess, I received many comments from certain APA members (and I encourage you to (re)read them). Well, American estimates that the “all-in” number including wage increases, productivity improvements, scope standing in the way of revenue earned today that would be prohibited tomorrow and further improvements in the network carrier’s best pension program is: a cool $3 billion.

Yes, $3 billion annually as the number excludes the one-time payment of a signing bonus proposed by the APA . Whereas there may be some issue with the company’s costing, the number dwarfs even the “unaffordable” $700-800 million estimated by the Allied Pilots Association of its proposal. Based on a career spent around labor negotiations, the $3 billion zip code sounds about right.

A Failure In Leadership

And please do not write that a company gets the union it deserves.

I too listened to the APA podcast referenced by American in its statement today. I smiled as I listened to the enlightened Lloyd Hill suggest to Jason Goldberg in the canned interview that significant contractual improvements can be made during difficult economic periods. In fact, Hill referenced the contract won in the early 90’s. I guess he was suggesting that today’s issues are easier to navigate than the slowdown in the economy and the outbreak of the Gulf War at that time. NOT.

If I am a 50 year old American Airlines’ pilot today, I would be starting to get a little nervous. Erecting billboards; picketing the Board of Directors, Wall Street, and the airline's best customers; spreading misinformation across every available medium; may seem to have an effect and help to generate leverage. These reckless actions haven’t increased the union’s leverage and they won’t. All they are doing is cleaning the lens for everyone to better evaluate the APA’s asks and truly question their motives. This time, APA and all airline labor will learn that the leverage they are seeking to gain is held by capital and oil.

It has been said on this blog’s comments that I have a disdain for airline employees. My response is that I have nothing against airline employees, but I do have a disdain for reckless union leadership. And while reckless leadership can be found at many airlines today, there is none more reckless than the Allied Pilots Association. And every day that there is a new public action undertaken or announced by them, I am reminded of Eastern Airlines and the actions of one Charlie Bryan.

There Is Nothing to Mediate

When I wrote Just Put It On Ice last October, my back of the envelope calculations suggested that American management is faced with a pilot contract that should be cut by $500 million. Therefore based on the APA ask, my best guess is that the company and the union were $1.5 – 2 billion apart. But the company was not, and has not been, asking for reductions. So let’s call it $1.0 – 1.5 billion apart at the time. I certainly appreciate that my estimates have no weight. But if the company’s estimates discussed today are remotely close, what is there to mediate?

With differences of this magnitude, there is little to discuss and nothing to mediate. Even with the best one-sided economic analysis that the union can make, the gulf between APA’s ask and AA’s ability to pay cannot be closed sufficiently to even consider a meaningful mediation process. Other than mediating our way to a Presidential Emergency Board in 2 years or so I see little to be gained. And we still have not even discussed how we might improve the earnings of the vast majority of American’s employees.

As I wrote earlier, I am beginning to think that there is a silver lining in the high cost of fuel in that it will force a changed industry structure. Maybe there is the same silver lining in reckless union leadership at certain carriers during this fragile period in that the collateral damage would be limited. And the opportunities for the remainder of the industry to pick up the pieces will be greater – and in an American-less US industry, much greater.

References (3)

References allow you to track sources for this article, as well as articles that were written in response to this article.
  • Response
    American Airlines and the Allied Pilots Association: A $3 Billion Question - Aviation Articles and Commentary - Swelblog / Swelbar on Airlines
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    Response: semiprecious
    American Airlines and the Allied Pilots Association: A $3 Billion Question - Aviation Articles and Commentary - Swelblog / Swelbar on Airlines
  • Response
    American Airlines and the Allied Pilots Association: A $3 Billion Question - Aviation Articles and Commentary - Swelblog / Swelbar on Airlines

Reader Comments (8)

The union boys are DREAMING if they think their proposal will be anything close to what actually comes to pass. Labor leadership cannot continue to ignore economic and industry realities while selling their members on ideas like "snap back" (to 2001 pay levels).

05.27.2008 | Unregistered CommenterJim

And Jim, you certainly said it in many fewer words than I did. I fundamentally struggle with the overpromise by labor leadership when everyone else knows that they will grossly underdeliver. Suggesting to members that snap back, restoration, or anything like it is even remotely possible in this industry is just not realistic. But many will follow the rhetoric all the way to destruction.

05.27.2008 | Unregistered CommenterSwelbar

I find it interesting you invoke the name “Charlie Bryan” and then couple him to Lloyd Hill without mentioning Gerard Arpey’s leadership at AMR to Frank Borman’s tenure at Eastern.

I guess you missed the part about the AMR BoD “awarding” Arpey more stock, eh?

Here is the link:

http://www.dallasnews.com/sharedcontent/dws/bus/industries/airlines/stories/DN-amrplan_23bus.ART.State.Edition1.45e93cc.html


Let’s ignore the other four stooges and just focus on the Número Uno at AMR. No Swelbar gobbledy goop about paying top dollar for MBAs. No sir let us just talk about the guy out on the pointy end of the spear who is pocketing millions while the rest of the 70,000 employees of AMR (minus the 900 +/- Level 8 pay or above) are struggling to keep their heads above the water.

At least Borman had the leadership to reduce his pay to one dollar a month when he was asking his employees to take pay cuts. Thank God we don’t have that kind of leadership at the wheel of AMR because it would have never put Lloyd Hill in the position he is in today.

Yea, yea, yea it’s those malcontent employees once again! Now let us all face toward IAH and pray to our Patron Saint of Airline CEOs, Francisco A. Lorenzo.

Who do you write this stuff for anyways?

05.30.2008 | Unregistered CommenterChitragupta

C

Welcome back and I assumed this piece would bring your commentary back. The last time you were here, you were asked a very pointed question as to whether APA had softened their opening proposal -- and lo and behold you did not respond.

Well that is precisely what this piece is about. An untenable opening position that could not be afforded by Southwest, let alone American.

Yep, I did couple Hill and Bryan. For APA to suggest that economics do not play into negotiations is naive. As for the BOD renewing the plan, I would have liked to see some changes too but as I wrote before, plan changes cannot take place immediately.

As for turning to IAH and paying homage to the "Dark Lord", this era is somewhat reminiscent of that time. Arpey is simply saying no to a proposal that he knows will destroy the company. I think the United pilots taught everyone a very valuable lesson in 2000.

In fact, every industry CEO is faced with tough situations as they pertain to labor. Do you really think that even Southwest will agree to increases that mirror historical contracts there? No, and if they do the Street will punish even them.

You know C, alot of people read my gobbledy goop. I made it very clear to all when I started this blog that I was not going to be popular with everyone. At this stage of my career, I do not care.

You and APA will at some point appreciate that the industry is not returning to past pattern bargaining. CEOs in this industry will continue to say no and that is why the volume is so loud.

A sensible proposal that acknowledges the current economic climate just might be the catalyst to get things started and at least give the mediator something to work with. And I have not heard that the company is asking for wage cuts.

No mediator is "splitting the baby" with what is/was on the table. Your corporate campaign begun $60 per barrel ago is an excercise to watch from my perspective. And as I have said many times -- I really do not care about individual companies as much as I care about seeing a healthy US industry.

05.30.2008 | Unregistered CommenterSwelbar

Not all pilots are rallying behind the current APA leadership and endorsing the unattainable demands it seeks. There are many of us who understand the realities of the industry and the changes that were thrust upon it after 9-11. As Arpey said recently, airlines cannot be sustained with $130/barrel fuel. While we all feel the pain that resonates from this new reality in our individual daily lives, it cannot fully compare to the magnitude higher fuel is having on the airline industry. I fear that this is not the only "bump in the road" airlines will face. We employees must accept this and find common ground during negoatiations within the parameters that are being set not by the airline, but by the current market. The energies being devoted to hurting the airline with negative press do not only give us a poor public image, but also do not offer us any leverage at the bargaining table. Our leaders would be better served to review the follies of past airline labor woes and strive to not repeat them. Unfortunately, I don't envision Captain Hill's unyielding shortsightedness disappearing anytime soon.

05.30.2008 | Unregistered CommenterAnonymous

Over the past year I have found most of your writings are so pro management is it really worth the time to reply or would my time be better spent organizing my sock drawer? Don’t ask me why but I do drop by here every so often to see how far off in the weeds the wheels are for the week. I guess it is like slowing down to look at a car wreck on the other side of the highway. You know you shouldn’t but you tap the brakes anyways. Most of the time I don’t even get a third into the manifesto before I get the gist of it, employees bad, management good.

Your last missive got those writing juices flowing when you linked Charlie Bryan to Lloyd Hill (damn the sock drawer) and I had to dust off a few books for a skip down memory lane. Another Swelbar classic on how those rotten employees were burning down the house but no mention of how management keeps pouring gasoline on the fire. No mention of Frank Borman’s leadership by driving a Chevy to work and getting paid only a dollar a month while he battled with Charlie Bryan.

Also don’t forget Borman had two out of three unions eating out of his hands vs. Gerard Arpey has all three of his unions ready to bite his hand off.

You must have been in Hawaii and missed the newspaper articles two weeks ago about AMR and LUV having their annual stockholders meeting with in two hours of each other on the same day. On the East side of town the workers held a “LUV Fest” and sung praise about their dearly departing leader. Mean while a mere eight miles away and only two hours earlier on the West side of town the workers picketed outside the AMR stockholders meeting with venom in their voices.

Oh please how stupid do you think we are out here, “As for the BOD renewing the plan, I would have liked to see some changes too but as I wrote before, plan changes cannot take place immediately.” This comes from a guy who got tossed around in the back of a Convair 580 in the middle of the winter over Michigan and that is all you have to say! If you are not truly writing this stuff for someone else (or a future consulting contract) you could have written for days on this alone. Talk about the AMR BoD rubbing the employees noses in the poo as they gave the thieves even more for a job well done in mediocrity.

If the company can rewrite all three major union’s contracts in thirty days then this piece of bovine excrement could be rewritten in hours. You know that as well as I do and you aren’t getting what you are paying for in the first place. Bob Reding road Air Florida, Midway and Reno into the ground. Jeff “The Chef” Brundage, no MBA here, not even a college degree.

You want to know the truly sad part of all this is not the screaming over the PUP payouts or how APA wants a 50% “raise” but what could have been. The employees of AMR after surviving both Crandall and Carty truly wanted to believe in Gerard Arpey. They were looking at for a shinning knight to lead them forward from the dark days of 9/11 and the dismal balance sheets of past. What is sad is where AMR could be today vs. where it is today. No matter what unfolds tomorrow, next week or next month the employees of AMR will not follow Arpey down that path again, he can’t be trusted.

Always remember it is the same ol malcontent employees here at the all new AAeroflot that were here during the glamorous days of the “On Time Machine.” We hark back on the dark days of Bob Crandall and refer to them as the “good old days.” The only thing that has change is upper management.

So to answer the “very pointed question as to whether APA had softened their opening proposal.” As long as Ourpay & Co. keep gorging themselves at the trough I don’t see APA backing off one iota. I know they don’t teach this stuff at MBA school but you can’t keep treating your employees this way as your wife tootles around Colleyville in her Bentley, “dripping in diamonds” with two nannies at home taking care of the kids.

It is an all new different crowd running APA vs. the APA under rAAlph Hunter. I have yet to meet one employee that is happy under the contracts and there is no light at the end of the tunnel. The stockholders meeting the other day would have been a good chance to extend an olive branch to the workers but oh no let’s line our pockets even more was the chant. Marie Antoinette would have been proud!

As we say around here, “See ya on the picket line.”

Now back to my sock drawer.

05.30.2008 | Unregistered CommenterChitragupta

I am always amazed by the APA and wonder if they have ANY view of the outside world in their office? I understand labor unions try to negotiate the best possible contract for their members, but when the industry is crumbling beneath you then its time to take a hard look at what you are asking for. In the past year easily a half dozen airlines have gone out of business, a half dozen more have canceled aircraft deliveries or sold aircraft, and a half dozen more have announced huge schedule reductions. Crude oil prices have doubled as well in the past year. Isn't it time to get real and try to put your differences aside for just a moment so that you may have a company to work for in the future? End rant. Great blog Bill, should be required reading for those in the industry.

05.31.2008 | Unregistered CommenterAnonymous

I guess you can sum up our sad friend's response says two things:

1) I'm not smart enough to come up with a coherent response
2) AA's employees are so blinded by their own hatred that they are willing to risk their own jobs and the jobs of thousands of other employees in the hope that it will hurt those that have hurt me.

What's truly astonishing is that they believe that anything they do is going to hurt Arpey and any other management type. I guess you don't have to be particularly bright to come up with this theory.

I guess they'll figure it out after the first or second time they cash their unemployment checks and Arpey is still making hundreds of thousands of dollars a year at another company.

They aren't all of a sudden going to figure it out until then, so unfortunately, I think it's time for AA to go the way of Eastern and PanAM and everyone else. Anything that is done to save the company now is just going to move the posts five yards and in 5 years we'll be discussing how AA's employees hate their new management. AA just has too many employees like Chit who aren't able (or don't want) to grasp the changing nature of the industry.

06.2.2008 | Unregistered CommenterAnonymous

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