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© 2007-11, William Swelbar.

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« Capital, Labor and Seniority in the News  »

We awake this morning to reports that Chrysler will file for Chapter 11 bankruptcy . Despite efforts by the Obama administration to force Chrysler stakeholders to find an out-of-court solution, certain debt holders would not agree to the haircut they would have to take in forgiving debt to the auto giant. What they seem to be saying is that, under the terms of the proposed solution, labor would receive a disproportionate share of equity in the restructured company.

Where seniority for airline workers is earned through longevity, capital structure seniority is a bit different. In a bankruptcy, there are different classes of capital. Debt secured by company assets is the most senior on the list of creditors who will be paid. Unsecured debt capital is next in the pecking order, followed by preferred stock and, lastly, common equity.

Nowhere is “sweat equity” reported on a company’s balance sheet. However, worker concessions have been recognized as capital in a restructuring scenario and have been currency accorded a stake in a reorganized enterprise. Moreover, it is the sweat equity at Chrysler held by current and retired workers that might appear to some as being unduly enriched through the deal that gave them a 55 percent ownership stake in a restructured Chrysler.

A very different scenario played out in the airline industry. There, in bankruptcy cases that resulted in either a termination or freezing of pension plans and/or alterations to retiree benefit plans, creditors made it clear that they would not pay the bills from the past by forgoing profits in the future. For airline companies to emerge from Chapter 11, they needed public capital to fund their exit from bankruptcy. For car companies, the government is the source of exit capital.

This morning’s New York Times, quotes a statement from GM’s bondholders that applies to Chrysler’s issue as well: “We believe the offer to be a blatant disregard of fairness for the bondholders who have funded this company and amounts to using taxpayer money to show political favoritism of one creditor over another.”

As the article notes: “The U.A.W. members at both automakers stand to lose some of their pay and benefits, but the cuts are not as deep as those faced by airline and steel workers when their companies went bankrupt. Under proposed deals devised by the Treasury Department, U.A.W. pensions and retiree health care benefits would largely be protected”.


Airline Seniority In The News

On Tuesday, Terry Maxon of the Dallas Morning News wrote about the former TWA flight attendants and their dissatisfaction over their treatment from the flight attendant union when American purchased the assets of the troubled and iconic carrier in 2001. Also Tuesday, the four-year seniority battle between the merged group of pilots at US Airways got underway in US District Court in Phoenix, Arizona. Read Dawn Gilbertson’s reporting in the Arizona Republic and on the paper’s US Airways blog.

Whether it is in the airline industry or in the automobile industry, there clearly is something wrong with the seniority system. My question: should seniority really be sacred? The current seniority system does not work for shrinking industries like airlines and autos.

I am in stark agreement with the actions taken by the Association of Professional Flight Attendants, the union that represents AA flight service crews, which in protecting the seniority rights of its members decided that former TWA flight attendants would be put at the end of the seniority list when they joined AA ranks. The fact is this wasn’t a merger of equals. At the time of the purchase, TWA had sold most strategic assets and had reached its tipping point. There was nothing left to borrow and no hope except American’s offer to buy its assets.

I am in stark agreement with the America West pilots in their disagreement with the former US Airways [East] pilots who had little hope of a career absent the reorganization plan that involved a merger with America West.

Given that the economy will continue to call into question the future viability of any number of US airlines, this seniority issue is far from over. Plain and simple, it is about economics and the viability of individual carriers. US Airways [East] was not going to survive in its 2004 form for long. TWA would likely have died of natural causes as the effects of 9/11 ravaged the industry.


Concluding Thoughts

Given that the airline industry will likely get smaller before and if it gets bigger, it is high time that organized labor puts down its swords and constructs a national seniority list. Employees should have the right to move within the industry should their carrier cease to exist. Seniority should not be a shield for some to hide behind. Rather it should promote stability for those experienced workers that choose to offer their services for hire in an open market

The economic crisis and its impact on corporate America highlight the need for thoughtful analysis of labor issues. Seniority is only the first of the “third-rail” topics we shouldn’t be afraid to discuss. Another is the “legacy costs” like pension and retiree benefits and whether they should be the sole responsibility of the employer in today’s world. Best that I can tell, this growing financial burden on employers may serve only to stand in the way of active employees working to maximize their earnings.

Time will tell what ultimately will emerge from Chrysler’s bankruptcy; GM’s prospects for the future and whether the deal at Ford positions that company to compete for the long term. The same day might be coming for airlines which would be wise to learn lessons from the industries that come before them.

I make that final statement after reading through Obama’s statements. The US government is constructing a safety net for Chrysler and its workers. Some will fall through and others will be saved. Airline labor should be thinking about the same.

Reader Comments (8)

I don't know what to say. I read your blog time to time and mostly disagree. You talk about the issues that are relevent, but miss the subtle arguments to your topic. Being in the industry for 15 years flying the line I have worked both sides of the fence. Management and ALPA.

With that said you have hit a bulls eye with a national senority list. Along with that we can also form 1 payrate for each type of aircraft. This concept would save millions on both sides. I can list the many reason why this would not happen though. Most of it is on the pilots side of looking out for number one.

Josh Bloom
Delta Connection

05.6.2009 | Unregistered CommenterJosh Bloom


Thanks for the note. The intention of this blog is to talk about things that few want to mention. I too have worked both sides. When I was an airline employee, I went through two seniority integrations.

As to your point of missing subtle issues, please write and correct me or correct the record. That too is an intention of the blog.

Thanks for writing.

05.6.2009 | Unregistered Commenterswelbar

I am just a one man opinion. I like reading opposing views quite frequently. I think it gives me a stronger argument for my side. The more you understand how the other side thinks the more you can use that information.

I would write more right now, but my wife is yelling at me to paint the dining room.


05.6.2009 | Unregistered CommenterJosh Bloom

I am in complete agreement that a national seniority list for flight attendants is an absolute must. Many of us on the labor side (I was an activist in AFA while I was a UAL flight attendant in the 1990s and 2000s) long advocated a national list, but believed the political landscape would make it impossible to accomplish.

But here is my question. How would you prevent seniority-based hiring discrimination once the national list was in place? So say I spend 20 years at UA, and decide that I want to move to MIA. Obviously, AA would be the carrier to work for. But if I interviewed at AA and they looked at my resume, they would know that I would come on board at max pay. If the person next to me had never flown, their wages would be 50% lower. Why would AA hire me in that case? How could public policy ultimately force them to hire me, thereby protecting my seniority?

The compromise, of course, has been the McCaskill-Bond amendment to protect seniority in mergers, which is basically a re-establishment of the old Allegheny-Mohawk provisions, and which I wholeheartedly support. But you propose a much broader solution, where seniority follows the individual, rather than continuing employment at a single entity. I would love to know your thoughts on what a policy would look like.

05.7.2009 | Unregistered CommenterRyan Murphy


Just noted your message and question. I will get back to it, but not today. It is my brithday and I hear a golf course calling.


05.8.2009 | Unregistered Commenterswelbar

Well happy birthday! I will check over the next couple of days for a reply.

Thanks so much,

Ryan Murphy

05.8.2009 | Unregistered CommenterRyan Murphy


Other unions (ie pipe fitters, electricians, plumbers and the sort) have somewhat of a national senority list. Although their pay is not nessicarily based on longevity. I think if both the AFA and ALPA could agree on DOH on merger protection would be a start.


05.10.2009 | Unregistered CommenterJosh Bloom

What I think the unions at AA have done is now created their own demise--unity in the collective bargaining process has been compromised as long as there is a repressed group of fellow employees. APFA will have little leverage with the ability for AA to recall former TWA flight attendants who feel that they should have never left the property.

The same could be said with the number of former TWA pilots on furlough (or stripped of their previous rank) because of similar placement on the seniority list.

Consider it the "law of unintended consequences."

09.6.2009 | Unregistered CommenterJohn

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