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Jun062012

« US Airways And American And The Elephants In The Room »

I want to talk about the elephant in the room.

Actually, it’s a whole herd of elephants in pink tutus with “Seniority Integration” and “Unintended Consequences” emblazoned in neon lettering across their posteriors. Yet, most media seem too distracted by sexy headlines and hoped for revenue synergy calculations an alleged US Airways – American Airlines tie-up might bring to even notice the elephants.

Maybe they’re right. The customer doesn’t care what uniform the pilot flying the plane wears or what that pilot’s career prospects look like. They just want that pilot to safely get them to where they’re going.

US Airways is a perfect example that ignoring the elephant can work with few external (i.e. passenger) repercussions: it hasn’t fully integrated pilots or flight attendants since merging with America West in 2005. After nearly seven years of flying separate-and-not-nearly-equal crews on two coasts, maybe US thinks the elephant is just a mouse. Heck, company president Scott Kirby said taking over American Airlines would actually solve US’s problem:

"It's ironic but the solution to that issue at US Airways I think it's probably because we're able to get this deal done. The area that people focus on the most is USAPA, our pilots' union. In this case there is a huge benefit for our pilots in getting the deal done.”

Kirby’s comments would also seem to hold true for flight attendants. He even pointed out merging work groups would be subject to the McCaskill-Bond legislation… created in part, by American’s 2001 takeover of TWA and the short-end of the deal those employees received.

And that’s where the elephants start trumpeting.

I’ll concede again that seniority integration doesn’t mean anything to the average customer. But it means everything to airline employees and, because of the very McCaskill-Bond law Kirby mentioned, even to those employees who don’t belong to a union. They, too, will be subject to the law and the vagaries of seniority integration.

If the Allied Pilots Association really believes seniority integration is, as its spokesperson Tom Hoban labeled it, a “faux concern,” then it’s ignoring its own recent past.  If I am an APA pilot and my union is calling seniority integration a faux concern, well I would be concerned.

If the Association of Professional Flight Attendants thinks it will join hands with US and its senior members will either cash out or staple US’s two groups to the bottom of the seniority list – like the APFA did to the TWA flight attendants – its remaining members will have plenty of time to regret that decision when they’re flying Richmond, VA to Greenville, SC via Charlotte for the third time that day.

REAPING WHAT THEY SOWED

The very group APFA leaders either think they will harmoniously bond with or take precedence over (and I’m betting it’s the latter more than the former) is the Association of Flight Attendants.  The AFA represents two distinct groups at US – the flight attendants from the “old” US Airways and former America West FAs – which have never worked under a joint contract. Kirby’s mention of McCaskill-Bond is especially pertinent in this potential combination of three different flight attendant groups, each with its own pay rates, work rules and benefits.

Why? Well, this is what the AFA says about McCaskill-Bond:

“In 2001, American Airlines purchased TWA. The TWA flight attendants, represented at the time by the lAM, were stapled to the bottom of the American Airline's flight attendant seniority list. The AA flight attendants are represented by the APFA. This was grossly unfair to the former TWA flight attendants. The TWA flight attendants fought back. They were unable to right the wrong that had been done to them. But they were able to, with the help of Congress, ensure that it will not happen again.”

Doesn’t sound like the AFA is ready to take a jump-seat to anyone, especially not a group that was “grossly unfair” to other flight attendants. No matter what promises US’s Doug Parker and Scott Kirby have made to the APFA and president Laura Glading. US flight attendants are going to have a say about what part of the pie they get. It’s also important to remember neither AFA group has approved a new contract with US – in fact, they overwhelmingly rejected the last tentative agreement two months ago.

Currently, the APFA has, in total, the best pay, benefits and work rules in the industry. (A decision on American’s 1113 motion in U.S. bankruptcy court could change that). US Airways are among the lowest compensated. Doug Parker will probably promise his own flight attendants they’ll move up to APFA pay, and with the reported “early out” incentive offered as part of the US-APFA deal (about 80 percent of APFA’s members would qualify under the union’s stated parameters including President Glading), would quickly dominate the seniority lists.

That’s probably not going to be enough for the US flight attendants. They’ll likely – and, perhaps, justly – demand the same early outs, guaranteed seniority and other incentives. McCaskill-Bond calls for arbitration, though US Airways says it is “hoping” for a negotiated settlement. This is the same group hasn’t been able to negotiate contracts with any of its current flight groups in seven years, yet “hopes” for agreements with three different unions all clamoring for top billing?

That doesn’t even take into consideration the lawsuits that will be generated when the remaining APFA members realize they’ve been sold out or either of the AFA groups feel they’ve been shorted.

Speaking of lawsuits, the APA knows a bit about seniority integration court battles. When American took over bankrupt TWA, the APA argued in the Supreme Court of the United States that its members deserved seniority over all Trans World pilots because TWA crews had limited to no future prospects and no reasonable “healthy carrier” would agree to merge if its employees didn’t take precedence. Some call this the “failed carrier doctrine” and it is still applicable with the McCaskill-Bond legislation. The APA won its case in front of the Supreme Court, so it shouldn’t be surprised if USAPA East & West use it against them.

Of course Kirby thinks merging will solve US’s current integration problems. The USAPA pilots are salivating over new planes, APA’s high pay rates and benefits and the chance at more international routes. They’ll happily staple APA to the bottom of the seniority list to get those perks.

Perhaps APA president David Bates really believes the former America West pilots will just give way to the APA’s claims on seniority. He met with USAPA pilots in Charlotte last month and touted the meeting as a beginning of negotiations to resolve the issue.

I don’t believe any “negotiations” are going to resolve this issue quickly or simply… and I see no way APA members come out of this scenario better in the long-term. Union solidarity only goes so far and US pilots have been waiting years for an opportunity like this.

More telling I thought was a quote in The Charlotte Observer from USAPA president Gary Hummell:

"My job, even though we are looking forward to a cooperative effort, is to protect USAPA pilots (and) to ensure our pilots get the best contract they can."

Even if that means it’s at the expense of the APA.  Even if this means making American out to be a failing carrier.

WHITHER TWU?

The Transport Workers Union International and many of the locals haven’t exactly rushed into the arms of US Airways. Unlike APFA, which has thrown itself at US like .... well I won't say it, or APA, with its “studious business” approach, TWU has seemingly shrugged its collective shoulders about the US “deal.”

That’s probably because the US agreement isn’t much different from the one AA recently offered TWU. The Mechanics and Related and Stores work groups rejected American’s proposal, but I doubt they’re holding their breath waiting for US Airways to save them.

The TWU is being realistic. Besides saving some jobs – which the M&R and Stores groups decided wasn’t enough reason to approve the AA offer – there’s not a lot US can do for TWU members. They’ve heard US’s promises of limited job protection and bringing more maintenance in-house, but a quick look at DOT numbers also shows US currently has one of highest percentages of outsourced maintenance in the industry. Hard to believe it would be more cost efficient for US to give that work to TWU.

Plus, the TWU successfully used the failed carrier doctrine against TWA as well. While its 24,000 members at American dwarf the number of ground workers at US, TWU leaders know their own arguments will be used against them in arbitration. The TWU has seen what has happened to ground workers at other failed airlines and, at this point, can only hope to minimize its losses.

TWU also lost a bitter and expensive battle against IAM to represent workers at US and, as any political junkie knows, unseating an incumbent is neither easy nor cheap.

WHAT’S IT ALL MEAN?

I’ve already admitted seniority battles might mean little to nothing to customers and operations. That’s possibly enough for Wall Street types who are bounding after this potential consolidation like dogs chase cars.

There are, though, real concerns for other financial stakeholders.  One complex integration should give them pause - but three battles should/will make them nauseous.

US has touted the synergies merging with American would immediately bring. What happens to those synergies if integrating pilots, flight attendants and ground workers drags on, or as I expect, become overly contentious and litigious?

US Airways’ own track record – now going on seven years - shows it cannot facilitate integrated contracts and is quick to suggest the reason is because of internal union squabbles. “Old” US flight attendants fly with “old” US pilots, segregated from their former-America West peers. If a similar situation develops with a devoured American workforce, those already questionable synergies become even more degraded. In other words, the risk and return calculation might be worth further consideration by AMR’s creditors.

There are also a couple of other elephants standing off in the corner that bear watching. First is US Airways own unions, specifically the AFA and the IAM. None of those three groups (remember, AFA represents two distinct flight attendant units at US) are very happy with Parker and Co. right now. Contract negotiations have dragged on with US holding the line on costs because of its structural revenue underperformance relative to the industry.

Yet the IAM and AFA saw Parker and Kirby promise the moon, stars and assorted planets to American’s union leaders. They have significant leverage, including asking the National Mediation Board for release. With an election quickly approaching, a Democratic White House might be hard put to ignore the treaties of two very influential labor organizations, both of which wield more power than American’s unions. Keep in mind, the current chairperson of the NMB is former AFA president Linda Puchala.

Then there are American’s non-union employees. The CWA is currently trying to organize American’s 10,000 agents and representatives, even though the CWA has publicly admitted the majority of those employees don’t want a union. Well, guess who represents US Airways passenger service representatives? That’s right, the CWA. (It also is partnered with the AFA). In a merger, American’s PSRs would get a union whether they wanted one or not, most likely without a vote and probably find themselves on the bottom of the seniority scale. Their – and the other non-union AA employees not happy about their new seniority “rank” – only recourse might be the courts.

The last elephant is more of a wooly mammoth: extinct, but vestiges still remain. That would be the group of employees the APA, APFA and TWU all made bones off of… the former TWA workers. This could be their last shot to right some wrongs and adding them into the mix exponentially increases the level of difficulty of integration.

"We have a chance for a fresh start here," Roger Graham, a spokesman for the former TWA flight attendants, told Ted Reed of TheStreet.com earlier this month.  At least there is one group of employees who might benefit from this proposed merger.

It’s hard to fathom why no one has really taken notice of the elephants. Maybe because they obscure Wall Street’s desire for a (very) short-term gain despite the longer-term implications. Maybe it’s because American’s unions are simply using US as leverage with no intent to expose their members to the possible risks of actually going through with the merger. Or maybe it’s because ignoring them makes it easier for Parker and Kirby to believe this deal is really as simple as they pretend.

Maybe the court and AMR’s creditors, blinded by pro forma financial reasoning that is, sadly, often divorced from airline industry reality and the notion of competitive response, will embrace the US proposal as the best value for their dollars.

If they do, they should beware that discounts to the pro forma estimate are called for because of the elephants in the room.

APFA, by not making a deal with the company in 1113, should be questioned by its members about its decision to put all of its eggs in the US basket under the failed leadership doctrine.

Finally, the TWA pilots reared their heads last week by filing suit against American Airlines and the Allied Pilots Association. 

Looks to me like -- game on.

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Reader Comments (19)

Another group is the current premium level AA passengers. No way will they put up with US Air's concept of first class.

06.6.2012 | Unregistered CommenterCk6

When I read the quote from USAPA President Hummelt several weeks ago it also stuck out like a sore thumb to me. I've said all along the real fights will start when they try to merge seniority lists and decide which unions control the combined workforce. This is far from a done deal, even from the unions' perspective.

I've also been puzzled by how the economics of this deal even make sense given the combined size of the work forces and the relatively fewer job cuts (plus pay increases) that US is promising, but you seem to be suggesting that early outs are a big part of the US plan. Is that the case? Finally, it would seem to me that Boeing wouldn't favor the merger as it would place AMR's recent large order in jeopardy.

06.7.2012 | Unregistered CommenterDoug Stephan

Doesn't the mccaskill bond legislation answer the seniority integration issue?

The problem with the the prior acquisition of US Airways with America West has to do with the original (much older) pilot group. They didn't like how the arbitration ended (which they agreed to). The integration gave the whole group a fairly relative position on the new list as the original lists. This was to be "final and binding"
They want "date of hire" integration which pushed a mority of amweica west pilots to the bottom and the twice bankrupt pilots to the top .
I'm still trying to figure out how a twice bankrupt carrier bought the thriving and hiring carrier.

06.7.2012 | Unregistered Commenterjeff h

...... and I should mention that the original pilots at US Airways are going to get a dose of their own medicine where the AA pilots have double their numbers ....
.
You see, US Airways was twice the size of America West and was able to vote out the union (ALPA) thinking they could dispatch the Aribitraded seniority list and start over with an integration of their choosing.

Not to mention, their method of using their numbers to force upon the smaller group what they choose .... has gone through the courts and deemed "not yet ripe", meaning if they move forward, they will be slapped with a DFR suit (Duty of Fair Representation).
which could be very costly to USAPA and US Airways.

The members of USAPA that I have talked to, do not seemed to be concerned, They should understand that most if not all the America West pilots are going to be sitting on the sidelines eating popcorn and watching the fireworks fly.
who will win the 1700 votes that could mean the difference?

06.7.2012 | Unregistered Commenterjeff h

This commentary hits the nail on the head! He not only points out the future failings of a US Airways merger with American but of an entire failing by the members of American's union members to understand why they are even in chapter eleven bankruptcy. An airline that has operating costs well above their competitors for the last decade has less to do with their pay scale, but more to do with their work rules. An airline where the average use of its workers is 60% of their ability because of their contract rules, doesn't cut it these days. The days of glamorous careers in flying are over. If the unions at American think they are going to walk in and set the rules as the failing carrier....they have another thing coming! The unions at US Airways have been at war with the company for the last seven years and battle hardened as the gaining carrier. If anyone thinks these unions are going to just sit back and take it, they're badly mistaken. US Airways has a lot of problems internally and I guarantee they all know what American did to TWA's work group. They won't take it sitting down. Lets just just say this merger gets approved. Who does anybody think is going to win from this merger? Parker and Kirby and anybody else who gets a parachute to get out of this merger from US Airways as well some executives at American. The stock will be worth half its value within a year and they'll all be gone to let them squabble amongst themselves. Doesn't anybody else see this?

06.8.2012 | Unregistered Commenteremratesaviator

Mr. Swelbar,

You are quite correct in your opinion that those of us in the traveling public could care less about union seniority and integration issues. I read a fair amount about the industry from various sources, and it seems that airline employees are a bunch of babies. They have it pretty good compared to the rest of us in the real world, but like most people, get so caught up in the mundane that they have no appreciation for anyone or anything.

Maybe, the best thing for both US Airways, American and their employee's sense of entitlement is a complete liquidation of both carriers. Where will they be then? Liquidated carriers have no seniority issues. Liquidated carriers employ no one. Liquidated carriers carry no one either.

Maybe it's time for both airline people and pundits to get out of their ivory towers and into the real world.

The airline industry is working itself out of its own foolishness post deregulation. It grew too much. Now the economy and the real world is forcing it into the discipline it couldn't bring on itself. It's not unlike what happened to the railroads. I see it as parallel.

If past is prologue, consolidation is inevitable. Get over it.

By the way, sir, with all due respect, it would be nice of you to disclose your previous involvement with the parties involved. Financial analysts are required to do so. In the interests of full disclosure, you should, too. You may be completely correct about what you've written, but you really should be candid about where you're coming from. It would help everyone to more correctly assess your opinion.

06.8.2012 | Unregistered CommenterDesertGhost

Bill, very nice to see this perspective on the potential merger of American Airlines and US Airways. The media has not been very balanced in presenting this side of the story. Beyond what you have noted, it is my understanding that the US Airways pilots contract contains a snap-back provision to previous wage rates and work rules should the company be involved in a merger. If true, I could certainly see US Airways management using the operation of that provision to have US Airways file for reorganization under the U.S. Bankruptcy Code. How is that for an elephant? Hope you are well.

LEADERSHIP What make you think that a present management group that not only takes advantage of in house fighting among their employees, but uses that to their advantage for labor costs and productivity, would change for the better? A disorganized group of employees is much less a threat than one that is organized! Did you ever hear the saying, " History Repeats Itself". I can see the memo on the wall now at USAirways Headquarters in Tempe! Let's get this done and don't be concerned with the outcome down the road? We will have ours! Team Tempe!

06.8.2012 | Unregistered CommenterJohn B

You're still on AA's payroll, I see!
Does Horton write this stuff for you, or just some lackey in PR? LOL!!!

06.9.2012 | Unregistered CommenterDavid

You guys do realize that Airlines for America also sponsors the MIT Airline Data Project...a trade group funded by most US based airlines (including US Airways).

By the way, if you are going to accuse someone of being biased, at least state where they are incorrect in their statements.

06.9.2012 | Unregistered CommenterBA

APFA has been silent on how they will handle the seniority issue. They have a bad habit of stapling the incoming f/a's to the bottom of the list. Now is the time to change that bad habit, and correct the horrible wrong they have inflicted on their so called brothers and sisters. Date of hire for all on the combined lists, including those that have been stapled.

06.9.2012 | Unregistered CommenterNY'er

This entirely sums up exactly the thoughts I have had over this merger since the APFA board -- not its membership -- has shoved this down our throats. Kudos to the writer for knowing exactly why this would be a DISASTER.

06.10.2012 | Unregistered CommenterHkm

Airline employees can whine and cry all they want about seniority. But in the end, they're going to have to suck it up and go to work. It seems that "work" is a foreign concept to most of them. They'd rather cry like a bunch of babies.

06.18.2012 | Unregistered CommenterDesertGhost

Hey seems like you lost out on the UAL/SWA Hobby debate. So guess your not all that smart after all you filth. How much did UAL pay you for your worthlessness?
Go back under the rock you came from.

06.18.2012 | Unregistered CommenterJeff

McCaskill-Bond has no teeth and won't have any effect on the proceedure or outcome. Look what happened to the "integration" of the SWA and AirTran pilots lists. The AirTran pilots were stapled to the bottom (a current AirTran Captain will never see the left seat of a SWA airplane). Kelly threatened to part-out AirTran if the crews didn't agree to what was shoved at them. Arbitration? McCaskill? Obviously ineffective tools.

07.2.2012 | Unregistered CommenterDave

Fyi, for KC and Sunshine Band: US Airways cannot file bankruptcy again to restructure according to the bankruptcy laws. They've already used their "free passes" to screw creditors, labor and taxpayers. They filed bankruptcy I in 2002, and didn't get the lowest labor costs they had anticipated, as United Airlines wanted their "free pass" and flew right into bankruptcy in 2002,specifically when they got to see how easy it was for US Airways to shred the labor contracts and terminate pensions across the board.
US Aiways merged too quickly from bankruptyc I, and insisted on being the lowest cost carrier (thus their new stock symbol LCC) and filed bankruptcy, yet again, in 2004. They once again threatened labor with liquidation if they didn't give up everyting this time including the kitchen sink. The U mangement was finally satisfied when they could improverish their workers and put them all at the bottom of the Industry wage list, all the while motioning to the bk judge for millions and millions of dollars in retention bonses and promoting within the management ranks to circumvent any paycuts for themselves. A disqusting group, indeed. After all, when is a deal really a deal; never final, according to US Airways mangement.

Today, US Aiways has THE lowest labor cost of all the legacy carriers. After 7 years of emerging from bankruptcy and trying to merge America West and US Airways, they still can't get the job done! US Airways has such audacity that they now have their sight on bankrupt American Airline, touting to the AA labor groups how a merger would save them!!????

US Airways mangement needs to focus on their own labor groups and repair the animosity, and mistrust between mangement and labor. It's high time they negotiate contracts and take some of that money they have for acquisitions and give it to their own labor groups, and try to reward them for all their sacrifice and hard work which helped the company survive those post 9/11 tomultuous years.

Shame on US Airways mangement for ignoring their own employees, and leap-frogging over American Airline mangement, running around half crazed, handing term sheets to AA labor groups, and interfering and undermining American Airline's due process.

07.16.2012 | Unregistered CommenterTeddy

Great comment on USAirways management. As a 27 year pilot for USAirways, I could not have said it any better! Amazing how management never has the money to pay the people that can, and does make a difference, but always has the money to make deals that will only enrich their corporate coffers! All you have to do is look at all the unresolved grievances that the labor/pilots have with the company, see what kind of hotels we stay at, and look at how the employees are treated to know what kind of company they are! No wonder no one wants any part of USAirways! What goes around, comes around!

07.16.2012 | Unregistered CommenterJohn B

What I have said to US Airways management repeatedly when we were at the negotiating table during US Airways bankruptcies and beyond (which fell on deaf ears at senior managment levels and still exists today):

EMPLOYEE MORALE; EFFECTS CUSTOMER'S PERCEPTION = BOTTOM LINE RESULTS!

HELP ME; HELP YOU, HELP US WITH THIS EQUATION!

"I'm still trying to figure out how a twice bankrupt carrier bought the thriving and hiring carrier."

The answer to the above statement within jeff h post dated 06/7/12 is this, US Airways labor, specifically the (older) pilots that you mention sacrificed over a $billion yes...I mean overe $1 billion just from their labor groups to save, and I mean save US Airways. By 2006 US Airways was bidding on DL who was in BK for $11 billion, and was unsuccessful, then they went after UA and was not successful. This money US Airways has is obviously earmarked to merge with one of the legacies, as they have no business plan creative enough to go solo. The management is what needs replaced from Doug on down. Then you will have peace on the property.

I am a former f/a of 25 years and a former AFA union President and had a front row seat to all this mess, as far as I'm concerned...the U pilots should own the damn airline!

Teddy

08.28.2012 | Unregistered CommenterTeddy

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