American/USAir-why not now?

[mistified]

American Airlines Management Can Get A Huge Payday If It Avoids Merging With US Airways
By Matthew Yglesias Posted Monday, Oct. 1, 2012, at 3:35 PM ET


I mentioned Monday morning that part of what's so frustrating about the self-immolation of American Airlines is that there is a better way out. US Airways wants to buy American. Many of American's creditors want a merger with US Airways. Federal anti-trust regulators seem OK with the idea of a merger with US Airways. And American's labor unions, including the pilots, have said they favor a merger and think it's the best way to keep the airline viable. But to a much greater extent than you might think, American's management doesn't seem interested in seriously exploring this resolution to their company's bankruptcy.


So thanks to Josh Koehn on Twitter for showing me this great Andrew Ross Sorkin item from July on why American's CEO is so opposed to the merger:


Mr. Horton and his management team stand to receive somewhere between $300 million and $600 million if he can make it through bankruptcy court without merging first with a rival like US Airways.


In an odd twist of the bankruptcy process, airline management teams have typically managed to extract 5 percent to 10 percent of the companys shares for themselves upon exiting Chapter 11, with the C.E.O. often getting 1 percent.


This happens, oddly enough, despite some of the same management wiping out shareholders (including themselves) by filing for Chapter 11 in the first place. AMR is expected to be valued at as much as $6 billion if it exits bankruptcy independently, analysts estimate.


Over the last several decades in the airline business, this is where C.E.O.s have gotten rich.


That CEOs can get rich this way is especially important, because in the aviation industry the old-fashioned way of getting rich by running a profitable company has rarely been on the table. Southwest consistently makes money (and not coincidentally has a good relationship with the unions representing its workers), but the rest of the industry's aggregate profits over the decades are a large negative number. In an industry like that, there are substantial incentives to spend your time trying to work the angles rather than just focusing on basic business, and that's perhaps part of what's going on here

 

[FWAAA]

So thanks to Josh Koehn on Twitter for showing me this great Andrew Ross Sorkin item from July on why American's CEO is so opposed to the merger:

The Slate article you pasted is a re-tread of July's news, discussed in these various threads in the AA forum in July (and probably some others):

http://www.airlineforums.com/topic/53816-does-american-airlines-survive/page__st__10#entry915060

http://www.airlineforums.com/topic/53803-1114-retiree-benefits-filing/

http://www.airlineforums.com/topic/53824-pay-no-attention-to-the-man-behind-the-curtain/

 

[Art at ISP]

There are any number of reasons why US and AA should not merge, but I do admit the likelihood is slightly greater than 50/50 right now. Giving Doug Parker another airline to ruin is just wrong. He is over his head with US, which over 7 years later is still not fully merged, due to....are you listening AA unions?....LABOR discord......

I sincerely believe that Parker sold you a bill of goods with regard to what you would get in a merger. Remember....he's a bean counter, nothing more. He has proven again and again a disdain for both customers and employees over the years. If you guys and gals think you hate Horton and company, just wait until you're working for Parker. He has become a management darling by leading the way to the bottom with excessive fees and paying industry worst wages.

I'd strongly suggest that union leaders at AA talk privately with their counterparts at US and get a more accurate picture of how things might look post merger. If you do, I think you might reconsider your support for Parker.

At the end of the day, AA might in fact be best served by a merger, but it may not be better with US, and I think it will take a management team not currently in command of either carrier to make it work. Honestly you need someone like Gordon Bethune, but he's a rare bird, as are managers who think like him.

I wish you ALL the best. Stay safe out there....

 

[PITbull]

There are any number of reasons why US and AA should not merge, but I do admit the likelihood is slightly greater than 50/50 right now. Giving Doug Parker another airline to ruin is just wrong. He is over his head with US, which over 7 years later is still not fully merged, due to....are you listening AA unions?....LABOR discord......

I sincerely believe that Parker sold you a bill of goods with regard to what you would get in a merger. Remember....he's a bean counter, nothing more. He has proven again and again a disdain for both customers and employees over the years. If you guys and gals think you hate Horton and company, just wait until you're working for Parker. He has become a management darling by leading the way to the bottom with excessive fees and paying industry worst wages.

I'd strongly suggest that union leaders at AA talk privately with their counterparts at US and get a more accurate picture of how things might look post merger. If you do, I think you might reconsider your support for Parker.

At the end of the day, AA might in fact be best served by a merger, but it may not be better with US, and I think it will take a management team not currently in command of either carrier to make it work. Honestly you need someone like Gordon Bethune, but he's a rare bird, as are managers who think like him.

I wish you ALL the best. Stay safe out there....

Art,

Another consolidation just is not good for the flying public.

How much do you guys want to pay for a ticket to fly anywhere?

Consolidation with the third largest carrier and the fifth, will take out capacity.

http://www.oig.dot.gov/sites/dot/files/Aviation%20Industry%20Performance%5e9-24-12.pdf

 

[silverbird007]

Maybe the airlines can become profitable for once? Something is wrong when its cheaper to fly in a 100 million dollar plane, then to take a bus, or drive a $5000 car.(not to mention the time saved). Maybe our jobs will not be constantly under pressure for more pay cuts or layoffs. Its about time ticket prices should be enough to pay the bills and maybe a profit? Isnt that what a business is for? To make money. Its about time.

 

[texflyer]

Maybe the airlines can become profitable for once? Something is wrong when its cheaper to fly in a 100 million dollar plane, then to take a bus, or drive a $5000 car.(not to mention the time saved). Maybe our jobs will not be constantly under pressure for more pay cuts or layoffs. Its about time ticket prices should be enough to pay the bills and maybe a profit? Isnt that what a business is for? To make money. Its about time.

Simple isn't it, just raise prices. Problem is the customer will just find another way to travel. To get to where you are talking about, expect AA to shrink some more and pray that a startup airilne doesn't come along and bring in more capacity.

 

[PITbull]

Maybe the airlines can become profitable for once? Something is wrong when its cheaper to fly in a 100 million dollar plane, then to take a bus, or drive a $5000 car.(not to mention the time saved). Maybe our jobs will not be constantly under pressure for more pay cuts or layoffs. Its about time ticket prices should be enough to pay the bills and maybe a profit? Isnt that what a business is for? To make money. Its about time.

There is never a good time where labor will be able to reap any benefit from airline profits. As you can attest with US Airways, they had two really good quarters profiting hundreds of millions, and Labor struggles to get a fair contract for their past sacrifice for the past decade. Two t/as failed in 6 months with the f/a group.

Managment's mentality is that Labor is not accustomed to getting; just giving. And that is just the way they like it.

Total control of mind and spirit.

 

[PITbull]

Simple isn't it, just raise prices. Problem is the customer will just find another way to travel. To get to where you are talking about, expect AA to shrink some more and pray that a startup airilne doesn't come along and bring in more capacity.

You would think...but AA will just come in a goble them up. They eat their competition and spit out the bad part that get stuck between their teeth.

Reregulating is the only answer for labor and the public. And major and total reform of the corporat bk laws.

 

[WorldTraveler]

There is never a good time where labor will be able to reap any benefit from airline profits. As you can attest with US Airways, they had two really good quarters profiting hundreds of millions, and Labor struggles to get a fair contract for their past sacrifice for the past decade. Two t/as failed in 6 months with the f/a group.

Managment's mentality is that Labor is not accustomed to getting; just giving. And that is just the way they like it.

Total control of mind and spirit.

We understand your disillusion but there are US airlines whose employees make more than US and who do in fact reward their employees with significant profit sharing that amounts to thousands of dollars per year.

And it is precisely because there are airlines that are profitable which says that the US airline model does work for some companies and thus there will not be reregulated.

Believing that the US airline industry model is broken limits your ability to see the true root of the problem which is the mgmt of those companies whose their employees have made no progress since BK.

 

[signals]

It's one thing to blame labor woes on management, it's another when labor is at odds with itself. The employees can make no progress when they are so at odds that their ultimate goal becomes to go at each other rather than management.

And the bottom line is as long as the airline is profitable, management couldn't care less, and I don't blame them. At this point it would be interesting to see what exactly would happen if the merger made in heaven does go through.

 

[Glenn Quagmire]

<snip>And it is precisely because there are airlines that are profitable which says that the US airline model does work for some companies and thus there will not be reregulated...

So the working US airline model is one that takes the company through bankruptcy, then merges with another that did the same, only after raping its employees. Cheering for the Delta model is great now WT, not so much when they were on the courthouse steps standing next to NWA.

Of course now you will argue that AA could never succeed by using that same model, because...well...they are not Delta.

 

[WorldTraveler]

except that WN, B6, and AS have never been in BK - and they are all profitable and a viable force in the airline industry with those three alone carrying about 30% of US passengers.

The reality is that ALL of the existing network/legacy airlines have been in BK and survived.

Obviously those that have survived have managed to restructure their businesses and SOME of their employees have not stayed at their BK wages.

Every employee group will argue how their peers fare relative to others - UA mechanics are supposedly better off than other legacy airline mechanics, US gate agents say they do better than DL's, and DL's pilots are far above other network airline pilots.... so the notion that the entire airline industry is taking it out on their employees who all suffer is simply not supported by reality.

I have never said that deregulation was good for airline employees but have said that it has been a terrible experience - AA employees will be no different.

I have never said that BK was a good thing for airline employees - but I have said that some carriers have navigated BK better than others - and some airline employees have fared better than others.

BK isn't pretty but it is the law....and it still comes down to the fact that some airlines obtained far more of their restructuring out of their employees than others.
And let's also not forget that this is round 2 of restructuring for AA even if the first didn't occur in BK. AA's employee cost cuts IN TOTAL were less than those at other carriers but when round two is added in, the total "give" by AA employees will put them alot closer to the size of TOTAL employee cuts at UA and US.

Other carriers have moved past BK while AA is stuck in the middle of it since AA chose not to restructure in court when other carriers did.

If NW had not eliminated its inhouse maintenance, its BK would have gone down as one of the more tame in the industry... but it is impossible to know whether NW would have asked for more from other groups if maintenance had survived.

More importantly, some formerly BK airlines have returned to profitability and have shared some of those profits with their employees while others have not.

Not all airlines that are profitable and have decent paid employees have been in BK and not even every airline that has been in BK has kept their employees at the same BK wages.

Saying that the industry model is broken and that no legacy airline employee can begin to recover from BK is simply not accurate.

There is no reason that AA can't be just like the other 4 major network airlines that preceded AA in BK in the last 10 years and all came out successfully.

 

[Glenn Quagmire]

I have never said that deregulation was good for airline employees but have said that it has been a terrible experience - AA employees will be no different.

No, you said that the US airline model works for some companies. I does not work for rank and file employees or middle and lower management. It is a terrible business where any employee gains in the past 30 years are simply wiped out, the slate cleaned, and restart button pushed.

The business model sucks and you know it. There is no airline business model that has passed the time test other than Southwest.

 

[WorldTraveler]

Successful companies ARE DEFINED by their employees.... even if that has not been the operative means by which the US airline industry has historically related to its employees.

So, yes, airline employees that have succeeded are attached to companies that have succeeded.

It is also more than a misnomer to say that only WN employees have succeeded.... last I checked, several employee groups at B6 and AS make more than their peers at legacy airlines.

Not all work group salaries in the airline industry are published but airline pilot salaries are... see airlinepilotcentral.com
In both cases, AS and B6 pilots make more than most other legacy airline pilots.
Lest you think all network carrier pilots make the same amount and since YOU brought up Delta, you would do well to note from the above website that US east's topped out 320 captains make only $1 per hour more than DL's 320 FOs. DL captains on the same aircraft/TOS make 33% more than UA's on the same aircraft.

And you also might have missed that WN's CEO has said that WN employees cannot expect to continue to ride the salary scales straight up like they have and WN is asking its employees for the ability to outsource just like every other airline has done.
And let's not forget that WN has never done anywhere near as much in-house maintenance as any of the network carriers did even at one time... and AA, DL, and UA ALL do more in-house maintenance than WN does.

All of the network carriers HAVE restructured in BK.
Some have managed to do so successfully and their employees are regaining some of what they have lost while some of the LCCs that enjoyed a long hey day are not quite as successful as they once were.

The airline industry is no longer a regulated utility where companies can pass their costs along to their customers... no major country in the world has the same model for airlines that existed in the US pre-deregulation.

Today, DAL and UAL are both worth more than LUV; it wasn't that long ago that LUV was worth more than the rest of the US airline industry COMBINED.

You can argue that the entire airline industry business model is broken if you want and you can even try to limit your argument to legacy airlines but the evidence overwhelmingly says there are successful network and low fare carriers whose employees also share in their company's success.

The US airline industry is not broken and won't be reregulated. It is just now beginning to find stability after 35 years of incredible pain for employees AND the investors in the airline industry.

 

[PITbull]

except that WN, B6, and AS have never been in BK - and they are all profitable and a viable force in the airline industry with those three alone carrying about 30% of US passengers.

The reality is that ALL of the existing network/legacy airlines have been in BK and survived.

Obviously those that have survived have managed to restructure their businesses and SOME of their employees have not stayed at their BK wages.

Every employee group will argue how their peers fare relative to others - UA mechanics are supposedly better off than other legacy airline mechanics, US gate agents say they do better than DL's, and DL's pilots are far above other network airline pilots.... so the notion that the entire airline industry is taking it out on their employees who all suffer is simply not supported by reality.

I have never said that deregulation was good for airline employees but have said that it has been a terrible experience - AA employees will be no different.

I have never said that BK was a good thing for airline employees - but I have said that some carriers have navigated BK better than others - and some airline employees have fared better than others.

BK isn't pretty but it is the law....and it still comes down to the fact that some airlines obtained far more of their restructuring out of their employees than others.
And let's also not forget that this is round 2 of restructuring for AA even if the first didn't occur in BK. AA's employee cost cuts IN TOTAL were less than those at other carriers but when round two is added in, the total "give" by AA employees will put them alot closer to the size of TOTAL employee cuts at UA and US.

Other carriers have moved past BK while AA is stuck in the middle of it since AA chose not to restructure in court when other carriers did.

If NW had not eliminated its inhouse maintenance, its BK would have gone down as one of the more tame in the industry... but it is impossible to know whether NW would have asked for more from other groups if maintenance had survived.

More importantly, some formerly BK airlines have returned to profitability and have shared some of those profits with their employees while others have not.

Not all airlines that are profitable and have decent paid employees have been in BK and not even every airline that has been in BK has kept their employees at the same BK wages.

Saying that the industry model is broken and that no legacy airline employee can begin to recover from BK is simply not accurate.

There is no reason that AA can't be just like the other 4 major network airlines that preceded AA in BK in the last 10 years and all came out successfully.

WT,


You say: "More importantly, some formerly BK airlines have returned to profitability and have shared some of those profits with their employees while others have not."

What does that mean? They get a bone thrown to them if the company reaches a certain threshold, and 3% kicks in? That still keeps them below what it cost an employee to stay employed. Wages are still concessionary The wages don't keep up with the demands of working out on the road, living in a suitcase, where you have to buy your food on the road, dry clean expenses, health care increases, no LTD unless you pay for it throug payroll deduction, less sick and get penalized for being sick by less pay per sick day, less vac. pay and days, only a small stipen to park your car at the airport or afford a commuter pad because you've been displaced because of base closures.
When these concessionary contracts come due, you'll see alot of clamoring for increases, just like US Airways employees are doing now. Enough is enough, they have had it.

I don't think that anyone on here is saying that no employee can ever recover from a BK airline. It just hasn't happened yet with any of these BK airlines the past decade. How this can be?....well, they are in concessionary agreements for 5-7 years, and often times it takes 1-2 years after that to get a deal, espcially negotiating for improvements.

What is "simply accurate" is that none of those Concessionary contracts are amendable yet with these BK airlines, excpet US Airways. And it just became amendable in 2012. So no one knows how these groups will fair once they start real negotiations outside of a BK arena and laws that wipe out contracts and leave taxpayers on the hook by companies not honoring their debts. I don't see how any profit sharing can compare even remotelly to a defined pension plan which got dumped.
So, time will tell the tale, if employees can get a little ahead and counter balance the huge slant downward., not just in profit sharing but in cost of benefits, and imporved wages and some imporvements in work rules that allow for a more flexible life style. It's one thing to get some profit sharing; its quite another issue when employee health care goes up and wages don't keep up to acutally say you are making improvements and fairing better, that doesn't leave the employee still in the red and struggling year after year.

I intimately know these issues, WT. And I lived it, was in the arena with these characters, in the front fow seat. And I know the pain of thousands of not just f/as, but other labor employees as well. Phone rang all the time, folks came in the office and sat for hours. When you open yourself up, you share alot between employees in the ranks whose financial issues, created personal issues, and relationship isses, is very real. And most often times during these tulmutuous years, employees were suffering major depressive disorders and anxiety, mostly work related from the frustration of juggling the job and new work rules that have you up in the air longer with less pay and less time off.

No airlines operate like WN. They are truly an anomaly in the industry. They have good relations with their employees, and their business model does not follow and legacy business plan. They operate in a unique pattern and their customer service promotes pride in their employees, and repeat business by customers who just love them.

When you speak of certain groups who faired better than others in BK, only means that some didn't get hammered as much, and only went through one restructuring event, some inside BK and again outside BK like AA.

US Airways who danced into BK only one month after the fst restructuring all their labor agreements by Aug. 2002 outside of BK, went in again for the 2 time in 2004. Total (3 restructurings all within 3 years.

Now, thats brutal. There is nothing left of the contracts but some wages, and medical benefits that the employee must contribute to at approx 30%. that's still on a concessionary wage dates back to 1989.

I still don't see how all this consolidation, while it may make the legacy carriers stronger and more viable companies, can benefit the flying public on choice, service, and ticket price....not when you take out capacity. The employees won't win better wages, flexible work rules or benefits from it that's for sure. Hasn't happened yet.

No one wants to see the gov. get involved in reregulating, but when the fares go to the moon during this great recession period which may last 8 to 10 years, I can't see how folks can't see a "run a way train" here with the only ones benefiting with the flood of cash are the execs.

Sorry for the length of BS.