As I mentioned a few days ago when I came on board USa.. There is a grass roots effort to have an **ALTERNATIVE** option available for the AA employees IN CASE and after AA files BK.
Captain Bill Haug (SFO) has been very involved with the ESOP/EO (employee ownership) concept for several years.
The following is a recount from Bill regarding a presentation made to the LAX pilots a week ago.
It is rather long but I hope you find it informative and worth the time. I have edited out non-applicable comments.
I hope that I can encourage each of you to seriously consider this as an ALTERNATIVE and AFTER the (potential) AA BK.
If you believe there can be additional interest, please share this info with your fellow employees and let your union leadership know you want this ESOP/EO concept explored so that it CAN be ready to present to the (potential) creditor''s committee, BK judge and AMR BOD.
I remind you that the ESOP/EO we are looking at is NOTHING like the UAL ESOP was.
I will continue to post additional information under this or other similar Information Threads.
Thanks you very much for your time.
Bob H
Captain Bill Haug''s comments follow;
==============
Here is my version of the LAX presentation by Chris Mackin, founder of Ownership Asscociates (www.ownershipassociates.com), and Dick May, President and founder of Valuemetrics, Chicago. (www.valuemetrics.com).
Our guests were on a tight schedule. They arrived at 10:30 a.m. and went on at 11:00 a.m.
Chris and Dick were accompanied by another of Chris Mackin’s associates, Doug Waterman, and another guest arrived later, Joel Fadem of Potomac Consulting LLC (www.potomacconsulting.com), who is doing some teaching at UCLA in labor relations and has for the past several years helped negotiate union agreements with California public works employees.
One reason our guests were on a tight schedule is that they had a firm appointment early in the afternoon to conduct an informal, preliminary meeting with a financing source interested in an employee buyout of American Airlines. In order to make this appointment on time, they had to leave the LAX union meeting no later than 12:30 p.m. … which they did, literally answering questions as they gathered their stuff and headed out the door. Presentation ran from 11 am to 12 pm, with a half hour of questions and “floor speechesâ€.
I started out by quickly introducing Chris and Dick. Their resumes are available at the respective websites, but I will say here that Chris has 25 years of experience in the employee ownership field… which takes him almost all the way back to the original ESOP legislation fathered by Louis Kelso in 1974. Chris was educated at Georgetown and Harvard Universities, with a PhD in 1984 from Harvard. Ownership Associates has been in business for over 15 years, and for 2 years was a consultant to the UAL ESOP.
Dick May founded Valuemetrics in 1981. He has an undergraduate management degree from Purdue University, and a Masters from MIT’s Sloan School of Management. Valuemetrics has done over a hundred deals like the one they propose to do for American Airlines and its employees. A recent one involved the research arm of the Illinois Institute of Technology, which was bought out by its employees and managers with the help of Valuemetrics. This is an enterprise with operations scattered around the world (35 world wide offices
) and $135 Million in revenues. The new company is named Alion. You can read about it at www.alionscience.com. This deal was just recently completed in December 2002.
American Airlines will be reorganized and recapitalized either inside or outside of bankruptcy. The “negotiations†or “collaborative process†that labor is undergoing presently with AMR is a first step in that.
Although it is possible that an employee buyout as proposed by Dick May and Chris Mackin could take place prior to bankruptcy, it is much more likely that it would occur after Chapter 11 is declared. This is because AMR management is unlikely to entertain such pre-BK negotiations, and the AMR BOD, though they have a fiduciary responsibility to listen to such offers as part of their duty to maximize shareholder value, would likely be a “tough sellâ€
. We would also face time constraints that would not be as severe under the BK process.
So, it is most likely that this proposal of an ESOP at American Airlines represents a “Plan B†… a plan for action when BK occurs that gives the employees of AMR something else to look forward to besides the process that UAL and U employees are enduring.
At the conclusion of my introducing Chris Mackin, I offered this observation
: the entire equity of AMR at this point is only worth about $400 million dollars. (The UAL employees spent $5 Billion for their partial stake, and the currency was givebacks from future wages and benefits … something that poisoned the well).
If AA employees were to purchase all of the equity of AMR today for $10 per share, the total price tag would be $1.5 Billion. Given a total of 94,000 AA and Eagle employees, this represents an “average†investment of $16,000 per employee.
As Chris Mackin said a few moments later, for an investment about the same size as the price of a “bad Chevroletâ€, you can own the company and have some influence over your destiny and a return on your investment. That is, if AMR is turned around and becomes profitable again, you will receive a “snapback†… your portion of the 100% employee-allocated net profits of American Airlines.
I introduced Chris Mackin as a great friend of labor, because he is just that. It was obvious from the time we of the ESOP Committee first met Chris at the NCEO Conference (www.nceo.org) in Chicago in April 2000 that he is clearly dedicating his life to the idea that employees in enterprises … the people who actually produce the wealth with their labors … deserve to have a say in how the business is operated. The best and most congruent way to achieve this within our capitalistic system is for those workers to be owners or part owners.
(To get a feel for Chris’ dedication to this ideal, visit http://www.sweatx.coop/stand/index.html.
Chris is currently CEO of this L.A.-based unionized textile company, but continues his Ownership Associates consulting work while serving in this capacity.)
Chris led off with a short discussion of the history of the labor movement in the United States to provide a philosophical underpinning to the presentation. His contention is that the very first labor movements in the 19th century focused on providing ways to make the workers part owners in their enterprises. William Sylvis, a 19th century labor leader who served as President of the pre-AFL-CIO National Labor Union called employee ownership the most practical and desirable alternative to “the wages system.†The later 20th century movement arose from the first waves of rural people … farmers, craftsmen, artisans … who were offered the first “wage†arrangements in the factories of people such as Rockefeller, Ford, and Carnegie.
I will post a published article by Chris, “Employee Ownership in America: A Primer for Industrial Relationsâ€, from the December, 2001 issue of Perspectives on Work, a journal of the Industrial Relations Research Association, as the next post in this thread. This will give you a flavor of what Chris talked about before introducing Dick May, plus more background.
Chris spoke in some detail about how the UAL ESOP went bad. His comments here are best summarized in “United it was Notâ€.
Chris and Dick both made it very clear from the outset that their entire approach and philosophy stems from the following central idea:
The pilots and other unionized and non-unionized labor groups have the ability to construct and conduct their affairs in a reasonable and rational fashion. They do, indeed, have the ability to sit down around the table as owners and come to reasonable compromises, and to mutually determine the best ways to run the business and their own affairs.
This is the starting point, and nothing can progress any further without believing this and making it work.
Dick May …
Dick presented a PPT which he used selectively (time being somewhat limited)
, and hit the high points of his proposal of the entire employee group (all unions, all non-union employees) purchasing AMR using an ESOP + Subchapter S Corporation structure.
Here, in bullet format, are Dick’s most important points:
1. We CAN do this. He has done it over 100 times already with smaller companies. It will not be without risks, it will not necessarily be easy, but it CAN be done, and the biggest hurdle we face is bringing ourselves to believe this. As with many things in life, the primary obstacle is a mental one.
2. An ESOP + Subchapter S deal is THE best financing that is available to anyone, anywhere … bar none. Since this option is only available to the employees of a company, we the employees of American Airlines have at our disposal something that existing management and shareholders of AMR do NOT have … the cheapest and best financing possible, without question. We can make a much better financing deal coming out of BK than anyone else can possibly offer us. This gives us an indisputable edge.
3. The reasons ESOP + Subchapter S offer the best financing are simple, and have their basis in federal law and federal tax code.
First, ESOP debt is the only debt that, when paid back, allows for deductibility of principal as well as interest.
Second, federal law says that Sub S companies that are 100% owned by their employees pay no income tax. The benefits of not having to pay any federal income tax at all during profitable years is immense, and cannot be matched by any other more conventional financing.
4. Because of these financing advantages, an employee-owned ESOP + Sub S American Airlines can support much more debt than a conventionally financed one. Or, to put it another way, for a given level of debt and a given assumed return on investment, fewer pay & benefit cuts and furloughs might be required. Or, for a given level of debt, and a given level of cuts, a higher rate of after-tax return is achievable.
This is NOT to say that pain and sacrifice will not be required in the initial years of an ESOP + Sub S buyout. Sacrifices and pain will be necessary, but the eventual returns and profits will accrue to the 100% owner-employees.
5. Did I mention that under an ESOP + Sub S structure, 100% of future American Airlines profits accrue to the employees’ ESOP retirement accounts? This is the “ultimate snapbackâ€.
6. The ultimate result of having a corporation that is financed very efficiently through an ESOP and which generates much higher after-tax return on investment than a conventional corporation is a company that in the long run is WORTH MORE. Did I mention that this ultimate value would accrue 100% to the employee owners of American Airlines?
7. It is envisioned that AMR employees would NOT finance the purchase of AMR out of future wages and benefits, as UAL employees did. Instead, an actual securities offering would be conducted, and each individual AMR employee would choose how much of his or her 401k funds or B Plan Funds they would like to invest in “New AA†ESOP Stock. Each individual employee would decide how much he or she would like to invest. Dick May pointed out that the 401k and B-Plan assets of AMR employees and pilots dwarfs the total equity value of AMR currently.
AMR’s current stock market equity value is only $400 million, and the B Fund assets alone are over $3 Billion.
8. A minimum total dollar amount of equity investment would be required for the deal to go through. That is, a minimum total equity investment from the employees would be necessary to enable the deal, and would be a precondition for other debt or mezzanine financing sources.
9. Upon completion of the offering and successful accomplishment of the deal, a new Board of Directors of AMR would be constituted, and new management selected. Work would begin on a refined business plan. [Side note: Chris Mackin has already spoken with a former airline top manager who would be interested as a potential CEO of an employee-owned AMR. Some pilots have emailed me privately suggesting Bill Compton, formerly of TWA, as a potential member of “New AA†top management.]
10. Governance: 100% employee ownership does not mean that the employees manage the company. It does not mean that employees have a majority vote on the Board of Directors. There are still separate entities of management, labor, and outside director representatives on the BOD. Chris Mackin said governance is a complex issue that is his bailiwick, and he has an entire separate PPT presentation on that issue alone that we did not have time to get into.
11. Dick May stated that if AMR (all or part) is purchased by an outside entity before or during BK, the purchaser will be a “financial†one and not a “strategic†one. That is, a strategic purchase would involve another airline buying AMR. This is highly unlikely; since AMR is the world’s largest airline a strategic purchase would trigger anti-trust problems. Therefore the purchaser will be a financial entity. Dick’s implication: since The Employees of American Airlines can offer the best financing, why shouldn’t The Employees be the financial purchasers? To this I would add
: since the road to recovery, solvency, and survival BY PRESENT MANAGEMENT
’S ADMISSION goes through the employees of AA, why shouldn’t we just do the deal ourselves? After all, we can obtain better financial terms on our own than Don Carty can. We will be much more amenable, I believe, to the idea of COOPERATING WITH OURSELVES than with the current management team.
There were many questions and comments from the floor. There was one speech from the floor and several private comments to me later, that pilots did not realize that we could do a deal “different from United†and that they had not understood exactly how UAL went wrong. They were very positive toward the ideas that Dick May and Chris Mackin presented.
There were one or two negative comments.
One pilot astutely observed that UPS created many many multi-millionaires in the ranks of its employees when it went public, and the same might be possible with a private ESOP-owned AMR if it were to go public again later on.
One question from the floor asked, “Isn’t it too late for us to go down this path? How long does the process take?†Dick May’s response was that the most time-consuming part of the process is the securities offering to the employees, which takes 60 or 70 days. I queried him if this process could take place DURING bankruptcy, and he said yes.
My take is that it is NOT too late to go down this path.
A few questions I would characterize as a form of “throwing railroad ties in front of the trainâ€â€¦ “This can’t be done with a company this size.†“This can’t be done … you’ve never worked with pilots before
.†“What if ? ….â€
I don’t remember the exact words Dick May used to answer these concerns, other than the fact that he said “You CAN do this.†My own thought is one of my favorite John Wooden maxims: “The more concerned we become over the things we CAN’T control, the less we will do with the things we CAN control.â€
I believe this is the crucial realization that we must have as AA pilots … we cannot worry about the things we can’t control. We can’t control the fact that Don Carty is not interested in changing the AA culture. We can’t control the fact that he is not interested in making employees partners and part owners in the enterprise. We can’t control the fact that his attitude seems to be “take it, or I’ll take it from you in bankruptcy.â€
American Airlines employees have the ability to control their own destiny in bankruptcy. We can obtain by ourselves, from ourselves (with the aid of advantageous federal law governing employee ownership), the BEST possible financing available for our ailing enterprise. In the process, we can make up for some of the egregious financial and capital allocation errors that Don Carty has made over the past several years, and in the process turn the consequences back on him and on his management team and Board of Directors. Should we desire, should we be willing to dream and try, we can own this company, install our own governance, our own BOD, and a new management team … NOT under our control, but most definitely more amenable to our desires as 100% employee owners.
The time to do this is now. The time to stop worrying about things we cannot control is also now.
I am the “clearing house†for any questions any of you might have for Chris Mackin, Dick May, or Corey Rosen (head of the NCEO, who is helping me with some governance questions).
I welcome all of your questions and comments, either public on this forum, or private via email or telephone 775-827-9144 (home) or 775-250-5970 (cell).
Any misstatements or errors in this post are most certainly mine, and not Dick May’s or Chris Mackin’s.
I will leave you with a couple of thoughts …
1. One Airline is a goal we all desire, if it can be attained in a form acceptable to all parties. Do you think such a goal is more attainable under the structure proposed above, or in negotiations with Don Carty?
2. Draconian cuts will be required to achieve survival and solvency for our company. Would you rather “give†to yourself as a 100% owner of the enterprise, with the prospect of a payback down the road (the “ultimate snapbackâ€), or hope for whatever Don Carty will give you at the bargaining table, or the BK court will give to you after imposition of Section 1113?
3. Financing this bloated and debt-laden enterprise will be expensive. Shouldn’t we use the absolutely most efficient form of financing possible, so that cuts ELSEWHERE in the enterprise (labor, wages & benefits, etc.) can be minimized, and/or rate of return maximized?
Final comment …
Cervantes said, “The journey is better than the inn.†There are very few AA pilots who would admit today that they have been striving for American Airlines for all these years because they enjoy the “journeyâ€. I believe all of us know fellow pilots who are “gutting it out†just to make it to the “inn†…
It is time for us to do something about the quality of the journey AND the solvency of the inn. Don Carty compressed a lot of air 5 years ago when he took over American Airlines, talking about “Building a Better Place to Workâ€. Instead, American has continued to decline as a place to work, and his disastrous decisions now leave our once-proud company in a terribly imperiled state.
It is time for us to take hold of our destinies, to fix the quality of life and culture problems at American, and to ensure the soundness and integrity of the “inn†that we hope to inhabit both during and at the ends of our careers.
Regards,
Bill
Captain Bill Haug (SFO) has been very involved with the ESOP/EO (employee ownership) concept for several years.
The following is a recount from Bill regarding a presentation made to the LAX pilots a week ago.
It is rather long but I hope you find it informative and worth the time. I have edited out non-applicable comments.
I hope that I can encourage each of you to seriously consider this as an ALTERNATIVE and AFTER the (potential) AA BK.
If you believe there can be additional interest, please share this info with your fellow employees and let your union leadership know you want this ESOP/EO concept explored so that it CAN be ready to present to the (potential) creditor''s committee, BK judge and AMR BOD.
I remind you that the ESOP/EO we are looking at is NOTHING like the UAL ESOP was.
I will continue to post additional information under this or other similar Information Threads.
Thanks you very much for your time.
Bob H
Captain Bill Haug''s comments follow;
==============
Here is my version of the LAX presentation by Chris Mackin, founder of Ownership Asscociates (www.ownershipassociates.com), and Dick May, President and founder of Valuemetrics, Chicago. (www.valuemetrics.com).
Our guests were on a tight schedule. They arrived at 10:30 a.m. and went on at 11:00 a.m.
Chris and Dick were accompanied by another of Chris Mackin’s associates, Doug Waterman, and another guest arrived later, Joel Fadem of Potomac Consulting LLC (www.potomacconsulting.com), who is doing some teaching at UCLA in labor relations and has for the past several years helped negotiate union agreements with California public works employees.
One reason our guests were on a tight schedule is that they had a firm appointment early in the afternoon to conduct an informal, preliminary meeting with a financing source interested in an employee buyout of American Airlines. In order to make this appointment on time, they had to leave the LAX union meeting no later than 12:30 p.m. … which they did, literally answering questions as they gathered their stuff and headed out the door. Presentation ran from 11 am to 12 pm, with a half hour of questions and “floor speechesâ€.
I started out by quickly introducing Chris and Dick. Their resumes are available at the respective websites, but I will say here that Chris has 25 years of experience in the employee ownership field… which takes him almost all the way back to the original ESOP legislation fathered by Louis Kelso in 1974. Chris was educated at Georgetown and Harvard Universities, with a PhD in 1984 from Harvard. Ownership Associates has been in business for over 15 years, and for 2 years was a consultant to the UAL ESOP.
Dick May founded Valuemetrics in 1981. He has an undergraduate management degree from Purdue University, and a Masters from MIT’s Sloan School of Management. Valuemetrics has done over a hundred deals like the one they propose to do for American Airlines and its employees. A recent one involved the research arm of the Illinois Institute of Technology, which was bought out by its employees and managers with the help of Valuemetrics. This is an enterprise with operations scattered around the world (35 world wide offices
) and $135 Million in revenues. The new company is named Alion. You can read about it at www.alionscience.com. This deal was just recently completed in December 2002.
American Airlines will be reorganized and recapitalized either inside or outside of bankruptcy. The “negotiations†or “collaborative process†that labor is undergoing presently with AMR is a first step in that.
Although it is possible that an employee buyout as proposed by Dick May and Chris Mackin could take place prior to bankruptcy, it is much more likely that it would occur after Chapter 11 is declared. This is because AMR management is unlikely to entertain such pre-BK negotiations, and the AMR BOD, though they have a fiduciary responsibility to listen to such offers as part of their duty to maximize shareholder value, would likely be a “tough sellâ€
. We would also face time constraints that would not be as severe under the BK process.
So, it is most likely that this proposal of an ESOP at American Airlines represents a “Plan B†… a plan for action when BK occurs that gives the employees of AMR something else to look forward to besides the process that UAL and U employees are enduring.
At the conclusion of my introducing Chris Mackin, I offered this observation
: the entire equity of AMR at this point is only worth about $400 million dollars. (The UAL employees spent $5 Billion for their partial stake, and the currency was givebacks from future wages and benefits … something that poisoned the well).
If AA employees were to purchase all of the equity of AMR today for $10 per share, the total price tag would be $1.5 Billion. Given a total of 94,000 AA and Eagle employees, this represents an “average†investment of $16,000 per employee.
As Chris Mackin said a few moments later, for an investment about the same size as the price of a “bad Chevroletâ€, you can own the company and have some influence over your destiny and a return on your investment. That is, if AMR is turned around and becomes profitable again, you will receive a “snapback†… your portion of the 100% employee-allocated net profits of American Airlines.
I introduced Chris Mackin as a great friend of labor, because he is just that. It was obvious from the time we of the ESOP Committee first met Chris at the NCEO Conference (www.nceo.org) in Chicago in April 2000 that he is clearly dedicating his life to the idea that employees in enterprises … the people who actually produce the wealth with their labors … deserve to have a say in how the business is operated. The best and most congruent way to achieve this within our capitalistic system is for those workers to be owners or part owners.
(To get a feel for Chris’ dedication to this ideal, visit http://www.sweatx.coop/stand/index.html.
Chris is currently CEO of this L.A.-based unionized textile company, but continues his Ownership Associates consulting work while serving in this capacity.)
Chris led off with a short discussion of the history of the labor movement in the United States to provide a philosophical underpinning to the presentation. His contention is that the very first labor movements in the 19th century focused on providing ways to make the workers part owners in their enterprises. William Sylvis, a 19th century labor leader who served as President of the pre-AFL-CIO National Labor Union called employee ownership the most practical and desirable alternative to “the wages system.†The later 20th century movement arose from the first waves of rural people … farmers, craftsmen, artisans … who were offered the first “wage†arrangements in the factories of people such as Rockefeller, Ford, and Carnegie.
I will post a published article by Chris, “Employee Ownership in America: A Primer for Industrial Relationsâ€, from the December, 2001 issue of Perspectives on Work, a journal of the Industrial Relations Research Association, as the next post in this thread. This will give you a flavor of what Chris talked about before introducing Dick May, plus more background.
Chris spoke in some detail about how the UAL ESOP went bad. His comments here are best summarized in “United it was Notâ€.
Chris and Dick both made it very clear from the outset that their entire approach and philosophy stems from the following central idea:
The pilots and other unionized and non-unionized labor groups have the ability to construct and conduct their affairs in a reasonable and rational fashion. They do, indeed, have the ability to sit down around the table as owners and come to reasonable compromises, and to mutually determine the best ways to run the business and their own affairs.
This is the starting point, and nothing can progress any further without believing this and making it work.
Dick May …
Dick presented a PPT which he used selectively (time being somewhat limited)
, and hit the high points of his proposal of the entire employee group (all unions, all non-union employees) purchasing AMR using an ESOP + Subchapter S Corporation structure.
Here, in bullet format, are Dick’s most important points:
1. We CAN do this. He has done it over 100 times already with smaller companies. It will not be without risks, it will not necessarily be easy, but it CAN be done, and the biggest hurdle we face is bringing ourselves to believe this. As with many things in life, the primary obstacle is a mental one.
2. An ESOP + Subchapter S deal is THE best financing that is available to anyone, anywhere … bar none. Since this option is only available to the employees of a company, we the employees of American Airlines have at our disposal something that existing management and shareholders of AMR do NOT have … the cheapest and best financing possible, without question. We can make a much better financing deal coming out of BK than anyone else can possibly offer us. This gives us an indisputable edge.
3. The reasons ESOP + Subchapter S offer the best financing are simple, and have their basis in federal law and federal tax code.
First, ESOP debt is the only debt that, when paid back, allows for deductibility of principal as well as interest.
Second, federal law says that Sub S companies that are 100% owned by their employees pay no income tax. The benefits of not having to pay any federal income tax at all during profitable years is immense, and cannot be matched by any other more conventional financing.
4. Because of these financing advantages, an employee-owned ESOP + Sub S American Airlines can support much more debt than a conventionally financed one. Or, to put it another way, for a given level of debt and a given assumed return on investment, fewer pay & benefit cuts and furloughs might be required. Or, for a given level of debt, and a given level of cuts, a higher rate of after-tax return is achievable.
This is NOT to say that pain and sacrifice will not be required in the initial years of an ESOP + Sub S buyout. Sacrifices and pain will be necessary, but the eventual returns and profits will accrue to the 100% owner-employees.
5. Did I mention that under an ESOP + Sub S structure, 100% of future American Airlines profits accrue to the employees’ ESOP retirement accounts? This is the “ultimate snapbackâ€.
6. The ultimate result of having a corporation that is financed very efficiently through an ESOP and which generates much higher after-tax return on investment than a conventional corporation is a company that in the long run is WORTH MORE. Did I mention that this ultimate value would accrue 100% to the employee owners of American Airlines?
7. It is envisioned that AMR employees would NOT finance the purchase of AMR out of future wages and benefits, as UAL employees did. Instead, an actual securities offering would be conducted, and each individual AMR employee would choose how much of his or her 401k funds or B Plan Funds they would like to invest in “New AA†ESOP Stock. Each individual employee would decide how much he or she would like to invest. Dick May pointed out that the 401k and B-Plan assets of AMR employees and pilots dwarfs the total equity value of AMR currently.
AMR’s current stock market equity value is only $400 million, and the B Fund assets alone are over $3 Billion.
8. A minimum total dollar amount of equity investment would be required for the deal to go through. That is, a minimum total equity investment from the employees would be necessary to enable the deal, and would be a precondition for other debt or mezzanine financing sources.
9. Upon completion of the offering and successful accomplishment of the deal, a new Board of Directors of AMR would be constituted, and new management selected. Work would begin on a refined business plan. [Side note: Chris Mackin has already spoken with a former airline top manager who would be interested as a potential CEO of an employee-owned AMR. Some pilots have emailed me privately suggesting Bill Compton, formerly of TWA, as a potential member of “New AA†top management.]
10. Governance: 100% employee ownership does not mean that the employees manage the company. It does not mean that employees have a majority vote on the Board of Directors. There are still separate entities of management, labor, and outside director representatives on the BOD. Chris Mackin said governance is a complex issue that is his bailiwick, and he has an entire separate PPT presentation on that issue alone that we did not have time to get into.
11. Dick May stated that if AMR (all or part) is purchased by an outside entity before or during BK, the purchaser will be a “financial†one and not a “strategic†one. That is, a strategic purchase would involve another airline buying AMR. This is highly unlikely; since AMR is the world’s largest airline a strategic purchase would trigger anti-trust problems. Therefore the purchaser will be a financial entity. Dick’s implication: since The Employees of American Airlines can offer the best financing, why shouldn’t The Employees be the financial purchasers? To this I would add
: since the road to recovery, solvency, and survival BY PRESENT MANAGEMENT
’S ADMISSION goes through the employees of AA, why shouldn’t we just do the deal ourselves? After all, we can obtain better financial terms on our own than Don Carty can. We will be much more amenable, I believe, to the idea of COOPERATING WITH OURSELVES than with the current management team.
There were many questions and comments from the floor. There was one speech from the floor and several private comments to me later, that pilots did not realize that we could do a deal “different from United†and that they had not understood exactly how UAL went wrong. They were very positive toward the ideas that Dick May and Chris Mackin presented.
There were one or two negative comments.
One pilot astutely observed that UPS created many many multi-millionaires in the ranks of its employees when it went public, and the same might be possible with a private ESOP-owned AMR if it were to go public again later on.
One question from the floor asked, “Isn’t it too late for us to go down this path? How long does the process take?†Dick May’s response was that the most time-consuming part of the process is the securities offering to the employees, which takes 60 or 70 days. I queried him if this process could take place DURING bankruptcy, and he said yes.
My take is that it is NOT too late to go down this path.
A few questions I would characterize as a form of “throwing railroad ties in front of the trainâ€â€¦ “This can’t be done with a company this size.†“This can’t be done … you’ve never worked with pilots before
.†“What if ? ….â€
I don’t remember the exact words Dick May used to answer these concerns, other than the fact that he said “You CAN do this.†My own thought is one of my favorite John Wooden maxims: “The more concerned we become over the things we CAN’T control, the less we will do with the things we CAN control.â€
I believe this is the crucial realization that we must have as AA pilots … we cannot worry about the things we can’t control. We can’t control the fact that Don Carty is not interested in changing the AA culture. We can’t control the fact that he is not interested in making employees partners and part owners in the enterprise. We can’t control the fact that his attitude seems to be “take it, or I’ll take it from you in bankruptcy.â€
American Airlines employees have the ability to control their own destiny in bankruptcy. We can obtain by ourselves, from ourselves (with the aid of advantageous federal law governing employee ownership), the BEST possible financing available for our ailing enterprise. In the process, we can make up for some of the egregious financial and capital allocation errors that Don Carty has made over the past several years, and in the process turn the consequences back on him and on his management team and Board of Directors. Should we desire, should we be willing to dream and try, we can own this company, install our own governance, our own BOD, and a new management team … NOT under our control, but most definitely more amenable to our desires as 100% employee owners.
The time to do this is now. The time to stop worrying about things we cannot control is also now.
I am the “clearing house†for any questions any of you might have for Chris Mackin, Dick May, or Corey Rosen (head of the NCEO, who is helping me with some governance questions).
I welcome all of your questions and comments, either public on this forum, or private via email or telephone 775-827-9144 (home) or 775-250-5970 (cell).
Any misstatements or errors in this post are most certainly mine, and not Dick May’s or Chris Mackin’s.
I will leave you with a couple of thoughts …
1. One Airline is a goal we all desire, if it can be attained in a form acceptable to all parties. Do you think such a goal is more attainable under the structure proposed above, or in negotiations with Don Carty?
2. Draconian cuts will be required to achieve survival and solvency for our company. Would you rather “give†to yourself as a 100% owner of the enterprise, with the prospect of a payback down the road (the “ultimate snapbackâ€), or hope for whatever Don Carty will give you at the bargaining table, or the BK court will give to you after imposition of Section 1113?
3. Financing this bloated and debt-laden enterprise will be expensive. Shouldn’t we use the absolutely most efficient form of financing possible, so that cuts ELSEWHERE in the enterprise (labor, wages & benefits, etc.) can be minimized, and/or rate of return maximized?
Final comment …
Cervantes said, “The journey is better than the inn.†There are very few AA pilots who would admit today that they have been striving for American Airlines for all these years because they enjoy the “journeyâ€. I believe all of us know fellow pilots who are “gutting it out†just to make it to the “inn†…
It is time for us to do something about the quality of the journey AND the solvency of the inn. Don Carty compressed a lot of air 5 years ago when he took over American Airlines, talking about “Building a Better Place to Workâ€. Instead, American has continued to decline as a place to work, and his disastrous decisions now leave our once-proud company in a terribly imperiled state.
It is time for us to take hold of our destinies, to fix the quality of life and culture problems at American, and to ensure the soundness and integrity of the “inn†that we hope to inhabit both during and at the ends of our careers.
Regards,
Bill
