AMR Faces Union Stalemate in Bid for $800 Million Labor Savings

[Jacobin777]

No – that’s not at all what I’m claiming.

AA’s own presentation (see slide 17) stated that each of the firm aircraft (I believe that’s referring to the first 260) have a positive NPV of $3.3M. That means that the present value of the aircraft’s cash fuel savings, enhanced cash-generating revenue opportunities, lower cash maintenance cost, etc. outweighs the present value of its lifetime of cash lease payments, cash maintenance expenses, upfront cash cost for new GSE/training, etc. by $3.3M. That’s great news for AA and every single AA employee.

In addition, several analyses (see here) – and I believe also Horton’s own comments – stated that these aircraft will be cash-flow positive pretty much from day one. AA will be taking on new cash outlays for new GSE and training (although reports two months ago were that Airbus was helping allay some of those costs), and also immediately begin paying monthly cash lease payments, but on the flip side these planes will have far lower cash maintenance costs, higher dispatch reliability (which also drives lower cash outlay), etc. This, too, is good news for everyone.



“Fine the way it was?” Are you kidding me? The old T8/T9 was horrid – not quite as bad as Delta’s T3 is today, but it was absolutely embarrassing. Ceiling tiles missing or leaking, walls dirty, carpets pulling up. It looked like sh*t. My great friend who was a gate agent at JFK for 20 years was over-the-moon thrilled when they announced they were getting rid of that old POS terminal. Yeah – they spent a lot of money on a smaller terminal, but a far, far better one. And, let’s not forget that the reason that terminal is smaller, and also part of the reason why it was more expensive, was because of 9/11 – had that not have happened, the construction probably wouldn’t have been downsized or slowed down.



Huh? AA is putting pajamas on the 763s and 777s – none of which, as far as I know, are going to the desert in the near-future. The “investment” AA is making is to keep its product competitive so that high-value premium customers will continue to buy tickets with AA instead of the competition.



Again, huh? AA isn’t providing pajamas and seat-back entertainment systems on the 2pm DFW-AUS. We’re talking about high-premium, business-intensive international markets where AA’s competition isn’t Southwest or Frontier. It’s British Airways, JAL, United, Air France, Delta (have you seen what Delta has started doing to their 763s – impressive). But, while we’re on the subject, even in the U.S. AA is now competing increasingly against airlines that have far, far better inflight products – like JetBlue and Virgin America.




You can’t have it both ways. Pick which way you want it – either you include outsourced labor (maintenance and/or otherwise) in airline-to-airline comparisons, or you don’t.

By your own stated best metric of airline labor productivity – revenue generated per FTE – AA’s labor force is basically the least productive in the United States, in general by a wide margin. So you want to now say that this isn’t a fair comparison, so we need to add in all of the FTEs that are performing overhauls at third parties doing outsourced overhaul work for AA’s competitors. Fine.

But then when it comes to average pay per mechanic, you want to compare only the mechanics employed in-house at U.S. carriers, and not include the outsourced mechanics doing much of the work. So sure, AA mechanics – on average – may make less than mechanics that are employed directly by Southwest, Delta, etc., but I’m willing to guess that if we applied your same revenue-per-FTE logic and compared the average AA mechanic wage against the average aggregated wage of a mechanic performing work – whether in-house or at a third party – for other carriers, AA’s average probably stacks up fairly well. Just out of curiosity: what do you expect the average wage of a mechanic doing work on JetBlue planes is when you include the mechanics in El Salvador performing their overhauls? What is the average wage of a mechanic performing work on Delta’s widebodies when you include the mechanics in Hong Kong performing work for them?

Again – pick which way you want it, but you can’t have it both ways to suit whichever argument you’re trying to make at that particular time.

According to some (or many) here, there is the "General Motors" mentality. "Keep paying us above industry rates while our productiveness goes down (comparatively speaking) and our product quality goes down the tube against competitors". We saw what happened with GM.

A company must spend money on updating its products against its competitors. There is a reason why carriers such as EK, SQ, CX, etc.-all the top carriers/airports in the world spend hundreds of millions of dollars in aircraft/airport improvements.

I guess this very simple concept is beyond the comprehension of a few here..

 

[IORFA]

Only partially true. Those carriers are not going to take you from LAX-JFK or TUS-MKE. I see your point, but your justification is wrong.

 

[PhatSappy]

The overhaul spinoff rumor is swirling along like a Texas dust - devil. As logical as it sounds to spin off overhaul while controlling the new company as AAMRO, one has to believe AMR and AA management are capable of planning and executing a successful strategy to get it done.

"Nah" - ain't gonna happen. The Lawyers will dazzle the managers and get them to file bankruptcy.


That's my prediction for the day.

 

[Jacobin777]

Only partially true. Those carriers are not going to take you from LAX-JFK or TUS-MKE. I see your point, but your justification is wrong.

AA doesn't take pax CDG-FRA nor SIN-CDG either..

Regarding justification: I'm in the financial services industry. I always have to spend money on new equipment, supplies, advertising, etc. Otherwise how will I be able to not only compete against the "big boys", but also the "small boutique" financial firms? Also, I don't get the "benefits" companies such as Goldman Sachs gets (such as 100% payoff as a counter-party-thanks to govt. bailout of AIG), etc.

 

[FWAAA]

The compliant is that AA is claiming they cant restore what they took away, in the meantime they have money for every, and any, thing else. JFK was fine the way it was, in fact they had only done a major refurbishing a few years prior to tearing it down, more wasted money, in the end we had less gates than we had before. So they spent billions and ended up with fewer gates.

The JFK terminal project began in 1999 in the era of $0.55/gal fuel, record profits and decent profit-sharing to all employees. What, exactly, should AA have done in September, 2001 about the partially-demolished T-8 and the partially-built mid-field replacement terminal? Should AA have just ceased construction? Nobody at the time foresaw an entire lost decade like what happened.

In any event, you continually paint the terminal projects as somehow preventing restore and more, when that's simply not the case. Terminal rent is small potatoes compared to the aggregate wage raises for all represented employees.

I have no problem with how a business spends their money as long as they take care of their workers first. I have a problem when they say we cant afford to give you anything because we want a new fleet of aircraft, new terminals and countless other expenditures that they can do without. I'm tired of doing without so AA doesnt have to.

Then you should fire the worthless union and hire competent representation and negotiators instead of the failed DIY method the worthless union uses. From the paragraph above, it sounds like you have Peter Griffin on retainer as a consultant instead of someone who understands the financial issues.

 

[Hopeful]

The overhaul spinoff rumor is swirling along like a Texas dust - devil. As logical as it sounds to spin off overhaul while controlling the new company as AAMRO, one has to believe AMR and AA management are capable of planning and executing a successful strategy to get it done.

"Nah" - ain't gonna happen. The Lawyers will dazzle the managers and get them to file bankruptcy.


That's my prediction for the day.

This is the issue i have with AA....it seems that they are not totally forthcoming with the employees. If they wish to spin off overhaul, them just come out and say it. Don't write language that secretly allows for this to happen down the road and that only a lawyer can understand. If they wish to spin us all off, then go ahead and file bankruptcy.
What AA is doing is offering a contract just barely equal to a bankruptcy endorsed contract with the hopes of having the membership voting it in so they can always say ..."YOU VOTED ON THIS CONTRACT...THE LANGUAGE IS THERE!"
This is the only explanation I see..If AA needs $800,000,000.00 more in labor savings, THEN JUST FILE BANKRUPTCY......End all the BS negotiations and JUST FILE.!

 

[WorldTraveler]

All the justification in the world for AA expenditures won't do any good if someone like Bob has the mindset that AA should spend NO money at all unless it goes first to "repay the debt" which AA incurred in 2003. It is fruitless to try and argue the point if there is no chance of changing the underlying assumption - which is, at its root, flawed.
.
Whether AA actually promised that they would return the cuts employees suffered in 2003, I don't know, but it is unrealistic to think that money will ever be recouped.
.
When that assumption is used as the basis, then it no longer becomes unreasonable to think that AA will invest in the business - because all companies must invest in the business or they fail.
.
TWA and Pan Am both were classic examples of what happens when you don't invest in the business - terminals and planes were well below industry standards.
.
However, the issue that industry analysts have with AA's mega jet order is not that AA is investing in its fleet but the size of those investments.
Wall Street's concerns are over the total amount of indebtedness AA is assuming as part of these deals. When AA's debt levels are already well above average - if not some of the worst in the industry - Wall Street understandably is concerned when a company takes on huge levels of debt.
Every airline - just like every consumer - could make the argument that new property, plant, and equipment is cash positive but if the total amount of debt that is on the books is unsustainably high, then there are justifiable reasons for concern.
There is a balance for individual consuemrs and companies between managing short-term expenses and long-term financial commitments. AA is essentially saying that in the absence of being able to control short-term expenses, they will load up the balance sheet with new property to offset the inability to control costs using present resources. THAT strategy has not been shown to be successful in most businesses, but esp. in the airline industry. No other airline has successfully done what AA is proposing to do.
.
You need only look at what other carriers are doing with their fleet replacement plans to see why there are concerns with AA's plans. We haven't seen all of the orders but no one else is even close to proposing a replacement of 3/4 of their fleet over a 5 year period. DL is taking the "cheapest approach" with 100 new 739s and 50-60 used M90s and a refurbishment of their int'l fleet - but w/ no replacements. UA has new widebodies on order that they will likely use to retire 762s and 744s and will likely order up to a couple hundred narrowbody aircraft essentially for replacement. WN has current and future orders to replace its oldest aircraft - but with a domestic fleet as large and comparably aged as AA's is not proposing replacing most of it.
.
Thus, Wall Street's concern - and those of most reasonable people is not THAT AA is investing in its fleet but that the size of AA's order is much larger than its peers. There is also concern as to why AA's efforts to control costs with its existing fleet have failed and how loading up the balance sheet with so much debt will ultimately help or hurt.
.
Finally, Bob, in your railing against AA's terminal expenditures you somehow manage to forget - or don't mention - that AA/AMR has $8B of unfunded pension liabilities on its books - a very real expenditure to the company and one that far exceeds all the money they have or will spend on terminals in your lifetime as a pensioner. Even if AA defaults on those obligations, you will receive the vast majority of what you were promised; if AA fails to pay the leases on its terminals or planes, they will be repossessed.
You might want to consider both sides of the coin before making a judgment about what AA has done with its spending.

 

[IORFA]

8 Billion? Where did you make that up? If it was really that bad, I think the PBGC would be waiting in the lobby at CetrePork after the invitation from AA to come take over and freeze the company pensions.

 

[WorldTraveler]

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cGU9MQ==&t=1
page 27.
The number was actually $7,877,000,000 as of the end of 2010 - rounded to the nearest million.

and page 37
current expected 2011 pension funding: $520,000,000 again, well you know, rounded to the nearest million.
.

 

[FWAAA]

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDIyOTIzfENoaWxkSUQ9NDM3MDEwfFR5cGU9MQ==&t=1
page 27.
The number was actually $7,877,000,000 as of the end of 2010 - rounded to the nearest million.

Correct, and for some perspective, the equivalent number from Delta's 10-K at 12/31/10 was $11.493 billion.

 

[chris perry]

All the justification in the world for AA expenditures won't do any good if someone like Bob has the mindset that AA should spend NO money at all unless it goes first to "repay the debt" which AA incurred in 2003. It is fruitless to try and argue the point if there is no chance of changing the underlying assumption - which is, at its root, flawed.
.
Whether AA actually promised that they would return the cuts employees suffered in 2003, I don't know, but it is unrealistic to think that money will ever be recouped.
.
When that assumption is used as the basis, then it no longer becomes unreasonable to think that AA will invest in the business - because all companies must invest in the business or they fail.
.
TWA and Pan Am both were classic examples of what happens when you don't invest in the business - terminals and planes were well below industry standards.
.
However, the issue that industry analysts have with AA's mega jet order is not that AA is investing in its fleet but the size of those investments.
Wall Street's concerns are over the total amount of indebtedness AA is assuming as part of these deals. When AA's debt levels are already well above average - if not some of the worst in the industry - Wall Street understandably is concerned when a company takes on huge levels of debt.
Every airline - just like every consumer - could make the argument that new property, plant, and equipment is cash positive but if the total amount of debt that is on the books is unsustainably high, then there are justifiable reasons for concern.
There is a balance for individual consuemrs and companies between managing short-term expenses and long-term financial commitments. AA is essentially saying that in the absence of being able to control short-term expenses, they will load up the balance sheet with new property to offset the inability to control costs using present resources. THAT strategy has not been shown to be successful in most businesses, but esp. in the airline industry. No other airline has successfully done what AA is proposing to do.
.
You need only look at what other carriers are doing with their fleet replacement plans to see why there are concerns with AA's plans. We haven't seen all of the orders but no one else is even close to proposing a replacement of 3/4 of their fleet over a 5 year period. DL is taking the "cheapest approach" with 100 new 739s and 50-60 used M90s and a refurbishment of their int'l fleet - but w/ no replacements. UA has new widebodies on order that they will likely use to retire 762s and 744s and will likely order up to a couple hundred narrowbody aircraft essentially for replacement. WN has current and future orders to replace its oldest aircraft - but with a domestic fleet as large and comparably aged as AA's is not proposing replacing most of it.
.
Thus, Wall Street's concern - and those of most reasonable people is not THAT AA is investing in its fleet but that the size of AA's order is much larger than its peers. There is also concern as to why AA's efforts to control costs with its existing fleet have failed and how loading up the balance sheet with so much debt will ultimately help or hurt.
.
Finally, Bob, in your railing against AA's terminal expenditures you somehow manage to forget - or don't mention - that AA/AMR has $8B of unfunded pension liabilities on its books - a very real expenditure to the company and one that far exceeds all the money they have or will spend on terminals in your lifetime as a pensioner. Even if AA defaults on those obligations, you will receive the vast majority of what you were promised; if AA fails to pay the leases on its terminals or planes, they will be repossessed.
You might want to consider both sides of the coin before making a judgment about what AA has done with its spending.

The debt leads us right back to Carty's arrogance......Most employee's here at American opposed the TWA purchase... We ended up with a bunch of outdated non modified ever expensive junk....On any given day 50% of ots aircraft are TWA,the rest we sold off. Hindsight is 20//20 but we all knew this was a bad idea from the get go. Show me one merger or purchase that's went well none....

 

[WorldTraveler]

Correct, and for some perspective, the equivalent number from Delta's 10-K at 12/31/10 was $11.493 billion.

exactly, and DL is not defaulting on its pension obligations and is also paying defined contribution pension benefits. (401K type) since that is what DL and PMNW employees receive post-BK.
Perhaps it is DL's pension requirements that have driven it in part to reduce its overall indebtedness, including spending $2B to refurb the int'l fleet vs. at least $15B just to replace the 744 and 763ER fleet.... and they settled for 100 new 739ERs and 50 or 60 used M90s (which cost about 1/10th) of a new 739ER on the domestic side. ... and DL has no plans of eliminating its 120 M80s.
.
It is entirely possible to fund large amounts of pension obligations.... remember most of DL and NW's pension obligations were FROZEN, not terminated, which means they remain DL's obligations under DL's pension rules - not the PBGC's.

Chris,
one merger in the industry or one merger w/ AA?
The DL/Western and DL/NW mergers both went quite well... the UA/CO merger looks to be progressing well.. it may cost UA more money to integrate the employee groups but there are no real signs of labor discord. Recent news from WN/FL is that they might decide to get along to the benefit of all.
.
It is also noteworthy that DL and UA both got rid of the aircraft assets they acquired from PA fairly quickly. The difference is they managed to keep the revenue generating parts, save UA's MIA-Latin America franchise.

 

[damajagua]

Correct, and for some perspective, the equivalent number from Delta's 10-K at 12/31/10 was $11.493 billion.

I don't care what Delta's obligation is

 

[FWAAA]

I don't care what Delta's obligation is

Neither does anyone else, after all, it is the AA forum, but given that nearly every thread contains some lengthy flattering discussons of DL, seemed appropriate to mention a not-so-flattering stat in an effort to be "fair and balanced." Sorry to have offended you! Have a nice and safe weekend!

 

[Bob Owens]

Chris,
one merger in the industry or one merger w/ AA?
The DL/Western and DL/NW mergers both went quite well... the UA/CO merger looks to be progressing well.. it may cost UA more money to integrate the employee groups but there are no real signs of labor discord. Recent news from WN/FL is that they might decide to get along to the benefit of all.

It only went well because the Employees are not allowed to say anything to the contrary, arent the NW people still operating under their old contracts?