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Dec042008

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The "Drive on Washington"

Those that say that there are few similarities between the cultures and structures of the US airline and auto industries either have their head in the sand or refuse to accept the reflection in the mirror. The Big 3’s “Drive on Washington” resumes today as the US auto industry seeks $34 billion in aid from the US government. When I refer to culture and structure, I am referring to decades of negotiations between management and labor that refused to face a commercial reality screaming that things needed to change.

So on the eve of the bailout hearings, the UAW agrees to give up its JOBS bank provision that pays workers, who have been replaced by improved manufacturing practices, as much as 95 percent of their former pay for staying at home. As the Business Week article I link to above notes: “For most of the past 10 years, the car companies preferred to discount models with big rebates rather than cut production, because they had to pay workers no matter what.”

Why does it take an economic apocalypse to finally cause the UAW to make a change that is so obvious?

And, for that matter, why did it take a bloodletting bankruptcy process for the US airline industry to rid itself of so outdated pay structures and protectionist measures that, like with the legacy automobile makers, have made it so difficult for the legacy airlines to compete?

The economics of entitlement may have worked in the 1940’s, but they have not worked for 20 years, and they don’t work today. Not in a global economy.

A Functioning and Profitable Auto Industry in the US

On December 1, the Wall Street Journal in its Review and Outlook wrote a piece entitled: America's Other Auto Industry.

The piece points out the contrast between the two competing auto industries right here in the US – noting in particular that ills of Detroit automakers have not spread to the 113,000 workers at plants with names like Toyota, BMW and Kia that are creating jobs and churning out cars across the US South and Midwest.

These transplants are profitable in part because they are efficient. And they are efficient in part because of progressive labor contracts that give these auto manufacturers flexibility and productivity that is rare if not impossible at their competitors up North. It’s not about wages. According to the article, wages are comparable between the Detroit contingent and the transplants. The real difference is in the benefits – the very legacy costs that so many US airlines shed through bankruptcy. Detroit pays, on average, $29 more per hour for its workers than do the global transplant automakers in America’s other car industry.

The piece talks about desperation and the simple fact that drastic actions should have been taken by the auto industry long ago – well before we had the spectacle of the Big Three auto executives coming hat in hand to Congress seeking a taxpayer bailout for problems the industry could have foreseen long before.

UAW’s leader said it straight when he warned his members that after this “Drive on Washington”, tomorrow’s members should not expect the same benefits that UAW members once enjoyed.

Airline industry: take note. The restructuring began in 2002, but no one should argue that the job is done. Like the UAW’s belated concession to changes to legacy contract language that embraced entitlement, the airline industry also requires a healthy recognition of reality.

Many labor leaders in the airline industry continue to overpromise in an economic environment that virtually ensures under-delivering. And that’s not good for their members, or the overall good of the labor movement in America.

As The Wall Street Journal piece concludes: “There's no natural law that America must have a Detroit automotive industry, any more than steel had to be made for all time in Bethlehem, Pennsylvania or textiles in New England. Britain sold off all its car plants to foreigners and was no less an advanced economy as a result, though it was a healthier one. Detroit may yet adjust to avoid destruction in the best spirit of American capitalism. The other American car industry is a model for how to do it”.

Bankruptcy remains the right approach for the auto makers. Bankruptcy was the right decision for some in the US airline industry as well. Why? Because the industry’s stakeholders do not have the guts to make the necessary changes they know need to be made without a gun (gavel) to their head.

But, bankruptcy does not have to be the answer to position a company to be a stronger competitor in a global environment – unless the stakeholders just cannot find the will to do what they know needs to be done.

More to come.

Reader Comments (7)

"Airline industry: take note. The restructuring began in 2002, but no one should argue that the job is done."

Oh God! How much more do you want us to take?

12.4.2008 | Unregistered CommenterChitragupta

You know C, I actually consider you a very bright guy as evidenced by your writing and your wit. But with comments like this I am beginning to wonder.

Obviously you can read and you write quite well. But you do not hear very well. I have not said - and do not say - anything about concessions from current pay. Nor does management.

What I do say is that there are processes dictated by the collective bargaining agreement that need to change. In return those changed processes (read increased productivity)produce currency to pay higher wages.

Any company with an eye on building a sustainable platform is looking for any way to reduce fixed costs in their operations. Fixed costs do not bode well in down cycles. (and please do not make the case as your brothers and sisters have here that labor is a variable expense) In return, my guess is companies are prepared to pay higher wages in return for those gains won.

C, you guys have your own JOBS bank at AA just like the UAW. It is called scope. Did you see those traffic numbers last month. But AA probably would choose to pay APA pilots rather than furlough below some magic number negotiated at some point in the past.

Just like the JOBS banks is employment entitlement for the UAW, scope is employment entitlement for the APA.

Yesterday I spoke to a very learned aviation crowd who had alot of questions about what is going on at AA. And I responded to a question about the probability of a strike just the way APA would like me to: Yes I think there will be one.

Now it may only last two minutes before a PEB is named. But a strike nonetheless.

So C, start hearing me and stop interpreting my words to be something they are not. I am actually tiring of yours and the APA's whiny diatribes embedded inside a failing corporate campaign.

I hope the money in your pocket increases just as I do for all airline employees; I hope all airline labor recognizes that collective bargaining has to change and that an entire rewrite of an agreement can be done in far fewer pages and yet still accomplish the same protections.

There are lots of "JOBS banks" inside your CBA other than scope; the challenge is to find them and monetize them.

Going forward, unless you have something constructive to say about APA's misguided approach, there probably is not much more for you to say to me or for me to you.

Swelbar

12.5.2008 | Unregistered CommenterSwelbar

Yea and I tire of your constant “management can do no wrong.” Your preaching sound wonderful to those who think this airline business is a Ferrari and can turn on a dime. Most of it is academic egghead thinking that is easy to print but almost impossible to implement. It is easy to stand in front of a bunch of neophytes and spout about those malcontent employees and how if you got rid of the employees then Air Nirvana would take flight. Ops guess you need people to move people because it is hard to put a robot on the assembly line when it comes to the people service industry, eh?

I hope you gave a fair and balanced report of the situation at AA to your “very learned aviation crowd” but something tells me it was once again those poor good people in the ivory tower and having to put up with those unwashed peons down below.

You think Barack Obama is going to implement a PEB after the President of AFL-CIO was standing on the platform as the he gave his acceptance speech in Chicago? Then to top it off standing next to the President of AFL-CIO was the President of ALPA? Har, har, har, you’re funny! ALPA wants APA to settle their contract before UAL opens so they know where the bar stands. You can holster that PEB talk from now on. It ain’t gona happen. If there is a strike it is going to be long and hard or maybe it might be a CHAOS strike to keep AMR on life support. Something about them golden goose eggs. I’m not on the inter circle or even the outer circle but either way Arpey has laid the ground work for a Jihad (see below.)

The month of December has rolled around once again and guess what time it is? No it’s not presents under the tree and mistletoe but it is PUP Bucks payout determination month! Hoist a cup of eggnog in your honor if you guessed right. All the good little 900+ thieves over at CentrePort are licking their chops right now at how many millions of dollars they will get to stuff in their pockets come spring at the expense of their fellow employees who get nothing. Ahhhhh yes once again we pull and they win. Seeing as how Gerard Ourpay seems to think there is plenty of money in the till for him and the rest of the gang at Fort Fumble what seems to be the problem spreading it around to the minions on the lower decks who are actually pulling on the oars?

See yesterdays on time arrival stats for November? AA is batting .500 amongst everyone else and that is just because we padded the block times artificially adding more time from Out to In. Our new motto is, “If you can’t get over the bar then lower the bar.” I’ll say again it is the same disgruntled employees flying in the same weather in the same planes to the same hubs that brought you the grand days of “The On Time Machine.” All that has changed is upper management. Ourpay & Co. have done a wonderful job of navigating AMR though these troubled waters and there probably isn’t to many guys who could have pulled it off except his team but when it comes to his people skills he gets a F.

Yea we have a JOBS bank and that is under attack too. Seems the company has already busted though the Native AA 7,300+ floor long ago and now they want to count furloughed, long term sick (if they haven’t been fired yet) and any other dead cat they can drag in to keep themselves above the magic number. Currently it is out for the arbitrator’s decision with a resolution expected around the first of the year. No big deal, all they have to do is bring back a pristine list of 300 (or is it 200) TWA boys before they move the list by one Native AA guy.

There is a lot of bad blood flowing over here if you haven’t figured that out yet, why? Is there a class offered in your MBA school called, “Bad Blood Management and How To Make Relations Worst?” And you wonder why we don’t trust them on the BA/Iberia deal?

I’m not an expert on the fun times the UAL boys are having with Tilton & Co. but from what I’ve read they are as disgusted with him as we are with Ourpay. You wrote the other day about the wonderful job the Delta crew is doing at moving forward with their merger (jury still out in my opinion) but where are the writings comparing the airlines that have their employees all pulling on the same rope at the same time vs. the animosity between the employees of AMR and UAL with their management? And you wonder why I think you write this stuff for someone else?

If you want to redeem yourself then the next blog post write about the PUP Bucks debacle and what could have been if Ourpay had the vision to alter it because it was hatched under Don Carty and he inherited it. Okayyyyy, I’ll let you pay your top ten guys the big bucks but 900+ underlings, come on! Did you see the Ford CEO said he would take a buck a year until they recovered; now that is leadership! No fair waiting until after December to see how much if any Ourpay takes out of my wallet and stick in his. AMR stock might not do so good this year but not to worry the PUP Bucks program stretches out for many more years for the gang of thieves to make up what might be lost this year.

Many years ago just for fun I took a night course in welding at a local Votech school and in the class was a WN Captain. At the time there was a flaw in their contract (can’t remember what it was) where the First Officers were getting a raw deal. I yanked his chain about them still having years to go on their ten year contract before this disparity could be fixed and the First Officers would be out a lot of money by the time contract time rolled around. I told him our saying we learned from Bob Crandall is, “You inked it so you eat it.” He said that Herb would make it right and not six months later I read in the paper how WN and SWAPA had come to an agreement fixing this problem. YOU WOULD NEVER SEE THIS HAPPEN AT AMERICAN AIRLINES!!!

Over the years each and every time we have explored any new venues with the company we wind up taking it in the shorts from a lack of planning or foresight on where the camel will go once he gets his head under the tent. It is a constant battle of them vs. us. Oh yea now here comes Swellbar’s well why don’t you guys fix it then. Sorry but you can’t push a rope. Over the years I’ve watched this industry I’ve learned it takes leadership from the top. I know they don’t teach this stuff in MBA school but leadership comes from the top down not from the bottom up. It has been done before with Continental Airlines and Gordon Bethune. As a leader of a company you have to take the role of a benevolent father figure where the children can do no wrong and then you lead them to where you want to go. It might take years to change the behavior of the children but it can be done.

Ever read “Airline Without a Pilot” by Harry L. Nolan? It is a short read but a fascinating read about Delta Airlines. You have to at least read the first part about the founder, C.E. Woolman. Today he would be stoned in the hallways of MIT for his horse and buggy way of dealing with employees. He would never pass Business Management 101 in this grab as much as you can as fast as you can Enron thinking world we live in. Why is that? Why is it you consider it ok for Gerard Arpey to make 700% more today then he did in 2003 and the rest of the employees at AMR are making what they did back in 1992? Then you spout about how the employees are outdated in their way of thinking and need to change with the times.

Sorry but without leadership from the top it will never happen. But that is ok because a few will walk away with millions while the 60,000 employees of AMR get left holding an empty bag and get to stand in the unemployment line. And you wonder why the sun is setting on the American way of life? I just can’t wait until APFA takes center stage and what you have to say about them. Now that will be interesting!

Yea your right we should retreat into separate corners because your very last paragraph says it all, “unless you have something constructive to say about APA’s misguided approach, there probably is not much more for you to say to me or for me to you.” I’m suppose to find something “misguided” about APA when all I see is management looting the bank. It was our pay cuts that saved the ship and you expect us workers to put up with this charade? I notice there is no mention of the “misguided approach” of AMR’s relationship with it’s most valuable asset, their employees. Once again in the Swelbar world management is good and the workers are bad.

Your animosity towards the employees down in the trenches shows in your lack of a balanced perspective where at least Hegeman, Banstetter, Maxon and Boyd will give both sides of the issue for the reader to decide.

Have a Merry Christmas.

12.5.2008 | Unregistered CommenterChitragupta

C

On this I cannot refuse. Relative to others, you (APA) gave nowhere near as much as your peers. Relative to others, labor savings at AA were outweighed by non-labor savings. Those are the facts on a run-rate basis.

There is a new bar and it is the Delta/Northwest pilot agreement. Not 50% plus in APA fantasyland. That is what I am talking about but somehow you find it reasonable. A reasonable position to have a negotiation is sorely missing in Ft. Worth.

In the meantime, you might want to read the paper and follow closely what the policymakers are saying to the Big 3 management and the UAW and whether we need an auto industry or not. An industry sans American will benefit your brothers and sisters at the other carriers for sure. If that were to happen, they may actually find opportunities to grow.

I am tired and you are tired. You enjoy your Holiday Season as well.

Swelbar

12.5.2008 | Unregistered CommenterSwelbar

Ignorance is bliss over at the APA and Chitragupta is their poster child. He's still yet to describe how he thinks AMR will pay for the APA's fantasyland contract proposal.

You give him more credit than he's worth. I don't think he's that bright. He doesn't have the capability to foresee the consequences of his actions.

I think most AA pilots are brighter than that, but Chitragupta, Lloyd Hill, and Jason Goldberg are their defacto spokespersons giving all AA pilots a bad name.

12.5.2008 | Unregistered CommenterAnonymous

Mr. Swelbar,

I always enjoy your commentary and find you are incredibly fair to both parties. You have lent a critical eye to airline management as well as labor and the antiquated business models they follow and must change.

It is apparent, however, that airline executives are seeing the writing on the wall and are finding ways to rethink the way they run their operations. Auto executives are beginning to take note as well, and are slowly figuring out that they too must adapt to the ever-changing business climate.

I find, however, one of the main obstacles of this change is the labor unions and their unwillingness to break from their outdated mold of Hoffa style bargaining. Ironically, unions' inflexibility is causing them greater harm than gain in the long term as companies are going to have to resort to further cuts rather than growth to cater to the work rules and contracts unions demand.

Thanks again for offering refreshing insight into an industry that will forever be intriguing.

12.6.2008 | Unregistered CommenterAnonymous

Ahhhhhh another Swellbar printed it so it must be true, “Relative to others, you (APA) gave nowhere near as much as your peers. Relative to others, labor savings at AA were outweighed by non-labor savings. Those are the facts on a run-rate basis.”

You forgot to add our “peers” were drug through the bankruptcy courts to achieve those savings. Is that the new metrics in America? Compare healthy companies to miss managed companies and then expect the healthy companies to ratchet down their product to the lesser quality?

Heard our new slogan, “60,000 employees doing more for less so 900 executives can do less for more.”

Yes once again you fall back on the mantra of if American Airlines goes away the world will be a better place. Well as one who has had only US manufactured cars ever sitting in my garage that is grand thinking on your behalf. Just wait until you have Air India flying between PIT and SYR or Rwabika Bushi Express servicing the MSP - OMH market. Just can’t wait to see Swazi Express Airways enter the LAX – SFO corridor! WN & AS watch your back’s Swellbar has you in his sights!

Before you pop the cork on turning off the lights in Detroit you might want to look up what the Big Three Automakers did during WWII. Google “Arsenal of Democracy” and report back. What would the world look like today through Swellbar’s vision if Detroit had never existed?

How about tomorrow? You want Toyota building our tanks? Nissan building our fighters? Fiat building our ships? Do you think Bubba and Skeeter’s welding shop in Lubbock, Texas can ramp up fast enough to meet the US War Machine needs when the Barbarians are leaning on the gates?

It is easy to spew this stuff without looking at the long-term implications eh?

12.11.2008 | Unregistered CommenterChitragupta

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