AMR MRO

[Hopeful]

American's MRO spin-off does not appear imminent
By Lori Ranson

Management at American Airlines parent AMR Corp. has not listed its maintenance, repair and overhaul arm in a group of its businesses currently under strategic review.
Late last year during the much-publicized plan by AMR to spin-off its wholly-owned regional subsidiary American Eagle Airlines, AMR executives hinted that its MRO business could join Eagle and its AAdvantage loyalty program in being divested.
At that time company CFO Thomas Horton noted the US marketplace does not "really have a big MRO provider as exists in Europe today and other parts of the world".
But in its annual report recently filed with US regulators that adheres to Sarbanes-Oxley financial and disclosure information, AMR noted that only American Eagle, AAdvantage and its investment advisory subsidiary American Beacon Advisors were under review. Sarbanes-Oxley was enacted in 2002 to improve accuracy and reliability of corporate disclosures of publicly traded companies.
In addition to handling American's maintenance, the company's maintenance and engineering arm also has third-party contracts with carriers that include American Eagle, Air Canada and Allegiant Air.
Two MD-80 heavy C check lines at the company's Tulsa maintenance facility are dedicated to handling maintenance of Allegiant's all MD-80 fleet. The carrier expects to fly up to 40 aircraft by year end.
"While we may not be able to compete with other MROs on the wage rate, we can compete by lower material costs – due to the experience of our mechanics and our engineering capabilities allowing us to repair expensive parts instead of having to replace them," American says. It also points out delivery of aircraft back to the vendor on dates promised or earlier.
A significant project AMR's maintenance and engineering department is undertaking this year is a midlife avionics upgrade for American's Boeing 757s/767s designed to allow the carrier to operate in any next-generation air traffic control system across the globe.

 

[jj]

They gotta throw in "wage rate "dont they? :down:

 

[WingNaPrayer]

Of course, it's much easier than saying the european counter-parts are paid toxic wages while their US counter-parts are barely paid a living wage in the screwed up mis-managed US economy.

But I'm getting off track.

 

[Bob Owens]

One of the things to consider as mechanics is the opportunities that may be made available to us over the next few years.

MROs will likely be facing staffing shortages in the coming months as the airlines recall or attempt to replace those lost through attrition.

Over the last few years thousands of mechanics left the industry for good, others went to the MROs (that took over work from some of the airlines) as a way of staying in the industry.

A&P School attendance is way down(many have shut down) and the military will be holding on to what they have.

As attrition eats away at the aircraft mechanic labor pool, at an accellerated rate because only the most senior mechanics remained after the post 9-11 downsizing, the MROs will lose those with the skills required to serve their customers. Their "product" will become less timely and of lower quality.

As the MROs lose their bargain rate mechanics the resulting crap that the MRO'S will be pumping out will eat up any savings their airline customers expected from outsourcing.

This puts AMR in a very enviable position. Their in house maintenance OH costs are lower because of better material costs and the posession of better skills. They will enjoy a huge competative edge over their rivals.

Typically aircraft mechanics are produced in large numbers during "war years". When I came into this industry you could see the strata's. WWII vets (very few by the time I arrived), Korean War Vets (Al Blackman is the last of those) and the NAM Vets. There hasnt been a surge in the supply of aircraft mechanics since Vietnam and that generation is rapidly approaching retirement eligability.

Over the last 40 year the demand for mechanics diminished as the equipement became more durable and the industry consolidated. Turbine engines being the biggest cause of declining demand.

Over the next five years or so the majority of the NAM era mechanics will be retiring. These mechanics are spread throughout the seniority list due to industry turmoil so average number of years with the company is not a good indicator of future retirement attrition rates. Average age is a better indicator.

The industry is headed for a mechanics staffing shortage and we should prepare ourselves to exploit it.

We must not make the same mistake we made in 1995. We must not settle for a long term contract that will lock us into a concessionary deal that would prevent us from being able to exploit this opportunity. It has to be two years or less, no matter what is offered. We cannot exploit a staffing shortage if we are locked into a contract.

We know that Jim Little and his cohorts on the International have no love for mechanics and we must take measures to prevent them from screwing us yet again. Jim and the TWU have been preparing, along with AMR, to completely revamp our profession for years. It started with the creation of the Tech Crew Chief program.

The Tech Crew Chief program was initiated to create a set of mechanics that would handle most of the troubleshooting while delegating the majority of the mechanic workforce to the status of parts changers. This is to facilitate the move to FAR66, where the company will issue non-portable specialized certificates that are the equivelent of our FAA issued certificates. The company would then be able to offer upgrades as needed to any worker they find, send them to their school and issue them a non-portable liscence to sign for the work they accomplish. These company certificate holders could accomplish all the regular or routine maintenance that is currently accomplished by A&Ps. Tech Crew Chiefs would handle all the troubleshooting and direct the certificate holders as to which parts they should replace.

The airlines will have created a shortage of mechanics and FAR 66 will be the airlines answer to the crisis they created.

If we give the AA a long term contract (anything more than 2 years) it will provide AA the time frame and conditions needed to get FAR66 put in place. Once thats in place our FAA tickets become worthless and our lack of portabilty becomes even more extreme.

The coming shortage can present opportunity or peril. It of the utmost importance that we position ourselves to be sure that its opportunity, not peril. We must not allow Little to get us locked into a long term contract.

 

[Boomer]

One of the things to consider as mechanics is the opportunities that may be made available to us over the next few years.

MROs will likely be facing staffing shortages in the coming months as the airlines recall or attempt to replace those lost through attrition.

Over the last few years thousands of mechanics left the industry for good, others went to the MROs (that took over work from some of the airlines) as a way of staying in the industry.

A&P School attendance is way down(many have shut down) and the military will be holding on to what they have.

As attrition eats away at the aircraft mechanic labor pool, at an accellerated rate because only the most senior mechanics remained after the post 9-11 downsizing, the MROs will lose those with the skills required to serve their customers. Their "product" will become less timely and of lower quality.

As the MROs lose their bargain rate mechanics the resulting crap that the MRO'S will be pumping out will eat up any savings their airline customers expected from outsourcing.

This puts AMR in a very enviable position. Their in house maintenance OH costs are lower because of better material costs and the posession of better skills. They will enjoy a huge competative edge over their rivals.

Typically aircraft mechanics are produced in large numbers during "war years". When I came into this industry you could see the strata's. WWII vets (very few by the time I arrived), Korean War Vets (Al Blackman is the last of those) and the NAM Vets. There hasnt been a surge in the supply of aircraft mechanics since Vietnam and that generation is rapidly approaching retirement eligability.

Over the last 40 year the demand for mechanics diminished as the equipement became more durable and the industry consolidated. Turbine engines being the biggest cause of declining demand.

Over the next five years or so the majority of the NAM era mechanics will be retiring. These mechanics are spread throughout the seniority list due to industry turmoil so average number of years with the company is not a good indicator of future retirement attrition rates. Average age is a better indicator.

The industry is headed for a mechanics staffing shortage and we should prepare ourselves to exploit it.

We must not make the same mistake we made in 1995. We must not settle for a long term contract that will lock us into a concessionary deal that would prevent us from being able to exploit this opportunity. It has to be two years or less, no matter what is offered. We cannot exploit a staffing shortage if we are locked into a contract.

We know that Jim Little and his cohorts on the International have no love for mechanics and we must take measures to prevent them from screwing us yet again. Jim and the TWU have been preparing, along with AMR, to completely revamp our profession for years. It started with the creation of the Tech Crew Chief program.

The Tech Crew Chief program was initiated to create a set of mechanics that would handle most of the troubleshooting while delegating the majority of the mechanic workforce to the status of parts changers. This is to facilitate the move to FAR66, where the company will issue non-portable specialized certificates that are the equivelent of our FAA issued certificates. The company would then be able to offer upgrades as needed to any worker they find, send them to their school and issue them a non-portable liscence to sign for the work they accomplish. These company certificate holders could accomplish all the regular or routine maintenance that is currently accomplished by A&Ps. Tech Crew Chiefs would handle all the troubleshooting and direct the certificate holders as to which parts they should replace.

The airlines will have created a shortage of mechanics and FAR 66 will be the airlines answer to the crisis they created.

If we give the AA a long term contract (anything more than 2 years) it will provide AA the time frame and conditions needed to get FAR66 put in place. Once thats in place our FAA tickets become worthless and our lack of portabilty becomes even more extreme.

The coming shortage can present opportunity or peril. It of the utmost importance that we position ourselves to be sure that its opportunity, not peril. We must not allow Little to get us locked into a long term contract.

Bob,

We must also require that each and every Article be covered by a Section 1113 Letter under the Bankruptcy Code. With oil over $104BBL, AMR will be crying for relief as the only major carrier that has not gone that route.

Further, since the DBP rules allow airlines to post assumed returns as actual rather than accounting for the real gains and losses of the DBP investment figures; require that any future aircraft brought on board are paid for by AMR cash but then securitized by AMR issuing and Enhanced Equipment Trust Certificate to a Beneficial Pool, Trustees, encompassing everyone on the M&E Contract on the DOS.

 

[eolesen]

Boomer, your suggestion has echos of UAL... IIRC, the IAM had leins on the ground equipment and some of UAL's HDQ real estate. Only problem was that the value of the ground equipment and real estate didn't hold up, and they couldn't just sell it on the open market.

The EETC is an interesting idea, but remember that in a bankruptcy, AMR could still dump an EETC aircraft, leaving the unions holding an empty bag that only realizes its value if the trustee is able to place it with another airline or sell it outright. Some types might be portable, but others might not be even though they seem to be desireable (i.e. B777's with Trents have a limited aftermarket potential, but B737-800's are fairly easy to place). But it's unlikely that they'd hold their value.

Second, the S1113 letters are symbolic but probably worthless. IIRC, some of US's unions had S1113 agreements in place, but management was still able to go back to the well. If the financial state of the company changes enough between the time of the S1113 letter and the time management decides to try arbrogation, it's likely that the courts are going to side with management, since survival trumps prior agreements.

 

[Bob Owens]

I have to agree with Eoleson on having liens on stuff that depreciates rapidly when things turn sour. The IAM owned and leased at least one engine to TWA and monies owed on that engine (along with monies owed to the pension)were used as leverage to get the IAM to abandon their contract at TWA(and the members covered by it).

Strike your best deal and get your csah in hand, then invest it as you will. Employees dont do well owning large companies or their assetts. The banks always find a way of screwing them out of it, al la UAL, AVIS, Peoples Express, AMR ($120k in concessions for stock options that would only net $1700 before taxes)etc.

 

[Boomer]

I have to agree with Eoleson on having liens on stuff that depreciates rapidly when things turn sour. The IAM owned and leased at least one engine to TWA and monies owed on that engine (along with monies owed to the pension)were used as leverage to get the IAM to abandon their contract at TWA(and the members covered by it).

Strike your best deal and get your csah in hand, then invest it as you will. Employees dont do well owning large companies or their assetts. The banks always find a way of screwing them out of it, al la UAL, AVIS, Peoples Express, AMR ($120k in concessions for stock options that would only net $1700 before taxes)etc.

Bob,

AMR has scheduled the delivery of some 23 B737-800's for 2009. The TWU expects to reach a CBA for the M&R during that same period. If the CBA contains contractual gains; why not securitize those contractual promises by demanding EETC's for the 737-800 in the equivalent of a bond sinking fund against the actual delivery of the contractual terms?

I'm not saying that we should take paper on aircraft due delivery instead of taking the money: I'm saying that we should demand securitization of the promises contained within any CBA against the consistent lies we've been brokered by both AMR and the TWU.

To the extent that AMR signs any agreement with theTWU telling us that all 14K TWU M&R Members will get"x" raise over the course of the contract; all of the 737-800's delivered during 2009 will be encumbered by an EETC held in trust for the TWU M&R as a irrevocable trust against those promises reduced overtime as the promises are delivered. In the event that AMR claims BK protection during the course ofthe agreement, the EETC for thegiven aircraft is exercised and the aircraft sold to satisfy claims between the actual versus promised contractual promises.

In no way do we exchange current pay for future promises: we hold the deed to the metal they need for future operations. AMR is forced to deliver what they promised if they are to continue.

 

[The Goose]

Bob,

AMR has scheduled the delivery of some 23 B737-800's for 2009. The TWU expects to reach a CBA for the M&R during that same period. If the CBA contains contractual gains; why not securitize those contractual promises by demanding EETC's for the 737-800 in the equivalent of a bond sinking fund against the actual delivery of the contractual terms?

I'm not saying that we should take paper on aircraft due delivery instead of taking the money: I'm saying that we should demand securitization of the promises contained within any CBA against the consistent lies we've been brokered by both AMR and the TWU.

To the extent that AMR signs any agreement with theTWU telling us that all 14K TWU M&R Members will get"x" raise over the course of the contract; all of the 737-800's delivered during 2009 will be encumbered by an EETC held in trust for the TWU M&R as a irrevocable trust against those promises reduced overtime as the promises are delivered. In the event that AMR claims BK protection during the course ofthe agreement, the EETC for thegiven aircraft is exercised and the aircraft sold to satisfy claims between the actual versus promised contractual promises.

In no way do we exchange current pay for future promises: we hold the deed to the metal they need for future operations. AMR is forced to deliver what they promised if they are to continue.

I love that idea but it's rather doubtful the Totally Worthless Union would demand anything that would not allow their partners absolute freedom to do with us as they will.

 

[Boomer]

I love that idea but it's rather doubtful the Totally Worthless Union would demand anything that would not allow their partners absolute freedom to do with us as they will.

Start the process of defunding the negotiations team members.

TheTWU, at the Local or International level, cannot claim that doing so would create a DFR because the TWU claimed in Federal Court,and the Federal Court Judge agreed, that they have the right to sign off any CBA except an initial CBA, and, they did just that during the home invasion of 2003 despite the call by Little for a full revote.

Given that:
1) in both 2001 and 2003, the negotiations team members were "in negotiations" for 30-60 days and only met face to face with the company for 16 TOTAL HOURS during each occurence; and,
2) in both 2001 and 2003, the negotiations team members were "required to keep all proceedings from the membership"; and,
3) in both the 2001 and 2003, the negotiations team members accepted as a TA an "agreement in principle" without actual language; and,
4) in both 2001 and 2003, the membership ratified the TA as a CBA still in an "agreement in principle" form without actual contract language having been agreed to between the parties;

There is little room for any argument that the presence of Local Leadership influenced the events to any appreciable degree. The presence of Local Leadership is desired by the TWU International as a sacrificial lamb when things go awry, as they always seem to do.

 

[eolesen]

If the CBA contains contractual gains; why not securitize those contractual promises by demanding EETC's for the 737-800 in the equivalent of a bond sinking fund against the actual delivery of the contractual terms?

You're assuming AMR is paying cash for the deliveries... which I doubt. In an EETC transaction, the banks putting up the cash to pay for the asset hold the most senior tranches. There's no other way around that. Junior tranches hold the most risk, so it probably won't do what you want. You'd be better off demanding stock or cash in escrow.

Here's a quote from CNN Money which pretty much sums up your risk:

In some cases the airplane's owners may not even have a seat at the negotiating table. That's because they don't own the airplanes outright. Instead, they bought subordinated tranches of something called EETCs--enhanced equipment trust certificates. Pioneered by Northwest Airlines in 1994, these are essentially aircraft bonds issued by a trust that enables many investors to pool their money and purchase a larger portfolio of planes. Under the rules that govern such structures, bondholders who purchased the EETC's A tranches control any lease renegotiations if the airline defaults. According to lawyers involved in the USAir and United bankruptcy, in many cases A-tranche bondholders are agreeing to new lease payments that cover only their part of the trust's debt service, leaving bondholders who own the B, C, or D tranches of the debt with nothing.

 

[Boomer]

You're assuming AMR is paying cash for the deliveries... which I doubt. In an EETC transaction, the banks putting up the cash to pay for the asset hold the most senior tranches. There's no other way around that. Junior tranches hold the most risk, so it probably won't do what you want. You'd be better off demanding stock or cash in escrow.

Here's a quote from CNN Money which pretty much sums up your risk:

What I'm saying, exactly, is that the TWU,(I know it's a longshot,) should demand that an irrevocable trust be formed that requires AMR to pay for the aircraft with cash and then contractually subordinate their ownership to a Class A EETC.

As they make good their promises, the degree/amount to which each piece of metal is bound in trusteeship diminshes. AMR has the cash to do this, they have not demonstrated the goodwill or trustworthiness in their dealings with any Unions on the property to do otherwise. If AMR signs a contract they actually intend to fulfill, it will create a foundation to rebuild respect. Promises made become promises kept.

The M&E group is the only group on the property that has consistently improved AMRs' financial position through insourcing work and lowering costs. Absent any mechanism to interrupt the flow-through to the bottom line, every other group on the property will participate in the increased profits/decreased losses from work they never performed: Nothing but promises.

While it may be true that M&E had to perform to remain on the property, the actual fact is that progress to date indicates the goodwill added to the corporate brand by the efforts of M&E Workers has not materialized in the paychecks: Promises made but not kept.

The same cannot be said of Union Leadership or Upper Management within M&E. The Union did not hire the Management staff at AMR M&E and we are not allowed to vote on the Leadership within the TWU. The TWU and Management received raises while both cooperated in preventing us from a democratic choice for the Union negotiating on our behalf: it is time for promises made to become promises delivered.

It is not on labors' back that AMR is unable to capture the uncollected margins that currently exist within the available structure and contract absent a mechanism that is transparent and honest: We don't want promises, we want deliveries.

In sum total: M&E has captured every goal set by the TWU International and M&E Managment eliminating, or reducing, the spread between performing that work required in-house versus outsourcing that work to an OSV, Outside Vendor, while retaining control of both the quality and quantity. To date, we have received outstanding reports from those we service with few reports of the type and kind currently swirling around others: We've kept our end of the deal, when are we gonna hear the momback?

 

[eolesen]

I don't disagree why you want some form of security beyond empty promises. I just think there are far better investments to look at than an EETC. You'd be better off demanding something that would actually -increase- in value (bonds or another form of annuity held by a third party in trust... ).

And I do agree that revenue sharing within the MRO should be limited to the employees doing the work. That was one of the justifications for Eagle having its own incentive program and there were a couple years where Eagle Gains paid out better than AA's profit sharing did.

But to be fair, why reward the entire M&E group? Seems to me the bases have played a pretty big role in insourcing and third party work, but what contribution has line maintenance made in the area of insourcing? Why should they benefit from work done by the guys in TUL, AFW, or MCI? Isn't that the same as having pilots, flight attendants, etc. sharing the benefits that MRO labor achieved? Just belonging to the same craft and class doesn't seem like enough of an argument.

 

[AMFAMAN]

But to be fair, why reward the entire M&E group? Seems to me the bases have played a pretty big role in insourcing and third party work, but what contribution has line maintenance made in the area of insourcing? Why should they benefit from work done by the guys in TUL, AFW, or MCI? Isn't that the same as having pilots, flight attendants, etc. sharing the benefits that MRO labor achieved? Just belonging to the same craft and class doesn't seem like enough of an argument.

Your point would be valid if the third-party work that was headed to the line wasn't taken by the bases and then in return the bases work was shipped to the line. This is happening right now with the Delta hangar getting more AA C-Checks to make way for more third-party work for the bases. You also have to look at all the extra workcards that used to be done in C-Check that are now pawned off on the line to clear up some more dock space. They can't have it both ways, getting rewarded for the third-party work, and being able to dump their regular work elsewhere. If that's the case, why not bring all the B-checks to the bases and leave the line hangars strictly for third-party work so that the higher cost of living locations can earn more through the rewards program. <_<

 

[Boomer]

I don't disagree why you want some form of security beyond empty promises. I just think there are far better investments to look at than an EETC. You'd be better off demanding something that would actually -increase- in value (bonds or another form of annuity held by a third party in trust... ).

And I do agree that revenue sharing within the MRO should be limited to the employees doing the work. That was one of the justifications for Eagle having its own incentive program and there were a couple years where Eagle Gains paid out better than AA's profit sharing did.

But to be fair, why reward the entire M&E group? Seems to me the bases have played a pretty big role in insourcing and third party work, but what contribution has line maintenance made in the area of insourcing? Why should they benefit from work done by the guys in TUL, AFW, or MCI? Isn't that the same as having pilots, flight attendants, etc. sharing the benefits that MRO labor achieved? Just belonging to the same craft and class doesn't seem like enough of an argument.

The reason for the focus on the EETC versus other debt instruments is that the Bankruptcy Courts have held them singularly inviolate despite the attempts of UAL and US Air to dump them the way UAL dumped Municipal Bonds.

As for the attempt at creating wedge issues within the M&E community: forget it.

The Line has taken work offloaded from the "B" and "C" check so that larger Class 1 and MB create the slack in their lines of operation to service opportunities that present themselves. LAX recently turned the first Hawaian(Sp?) set of MLG changes before the due date and reportedly under cost with zero defects. While the Line has not yet created the attention that Overhaul is already acknowledged to have done, the numbers are getting better and the feedback from those we service is becoming more enthusiastic.

The political pressure is growing in Washington for something to be done about the erosion in the aviation industrial base with the IATA, Flight Safety and others beginning to become involved.

I believe that politics played a factor in LUV recently announcing that the planned move for heavy maintenance to El Salvador has been cancelled. I also think that the news for UAL on the outcome of the audits for their 747's done by a Korean firm will escalate the calls for stricter controls on the quality and quantity of OSV work offshored.

Given that AMR alone has retained their full Industrial Base, capable of exponential expansion, and the points of presence within the route system; all we have to do is what we are fully capable of doing. If AMR wants to unlock the potential: they have to come to the table with clean hands. For both AMR and the TWU, clean hands is the least likely term to be assigned.

So, we end up back where we started.
1) Are there debt instruments that offer better yields and better growth potential: I'm sure there are.

2) Have those debt instruments been tested in the Bankruptcy Courts specifically when the benefits of those instruments are not held by the KERP/SERP types: have not seen that file, most likely no.

3) What do I know about the TWU and AMR when it comes to promises made and promises kept: absolutely nothing, those records do not exist.

4) What do I know about airlines: a) they need airplanes to operate, B) the newer and more efficient they are, the more likely they are to have the amenities the public will pay for, c) the newer models have lower average operations costs, and therefor higher resale value.

5) If the airline has their future aircraft on the hook to me for the terms and conditions of our contract, they will not seek terms that are too long fearing that the unforseen may come up to bite them: I like three to four year contracts and with me holding the paper to their metal, so will they.