awausairtech
Veteran
U'S AIRWAYS
April 24, 2007
Dear lAM Employees,
At our Charlotte town hall meetings last week, I received a lot of questions on the company's position on the lAM Change in Control (CIC) grievance. As I answered those questions, it became quite clear to me that while we've spent a lot of time explaining our position to the lAM leadership, we haven't done a very good job of explaining it to the membership. I promised to get back to of our Charlotte fleet service employees with a written response, and believe it's worth explaining to all of our lAM represented employees
I've gone through a lot of legalese and contract language related to this topic, and while I'd like to say this is an easy one to wade through, it isn't. There are a whole lot of issues around it and they take some time to explain. I hope you'll take the time to read the explanation here.
The bottom line is that the Company firmly believes that the merger did not trigger the CIC provisions of the lAM contract. We have always felt this and have said so from the beginning of the merger talks. It is my view that if America West or the investors in the merger had believed the merger would trigger the lAM CIC provisions, then the merger would not have taken place. The lAM now is arguing differently, as is their right, and we are both doing our best to defend
our positions in this issue. .
First, why did we ask the bankruptcy court to look at the CIC?
The answer here is the CIC and the surrounding case starts with the concessions that lAM members made in US Airway's previous bankruptcies. In those concession agreements, there's some pretty specific language about what would happen in a "change in control." That language defines "change in control" as "the sale of all or substantially all of the assets or common stock of US Airways, Inc. or US Airways Group in a single transaction (or in multi-step related transactions) to a single purchaser (or a group of purchasers acting in concert)."
The language further states that in a "change of control," hourly rates of pay would go back to 2003 levels and the lAM would have the right to extend the agreements for one to three years with annual 4.5 percent pay increases. If you add that up, it amounts to roughly $627 million for fleet service and mechanics' contracts over five years.
We went back to look at this agreement first because that's what a judge or arbitrator will examine first.. A judge or arbitrator will first ask, what did the parties actually write? In this case, the lAM and the company wrote very specific language that narrowly limits the circumstances that would trigger a CIC-driven wage increase.
Our view is that the merger with America West did not meet this narrow definition of "change in control," as it's written in our agreements. There was no sale of substantially all the assets or stock of US Airways Group to a single purchaser or group of purchasers acting in concert. Rather the old US Airways stock was cancelled in bankruptcy, and the new LCC stock was issued to a host of different people acting independently, and definitely not "in concert". Those include US
Airways' creditors, America West's stockholders, the six new equity investors and other institutional and retail investors who purchased stock in the public offering of LCC.
The company also believes it has a strong case given what was said - or not said - during and after the merger. In court filings and in discussions with the media, lAM never indicated or stated that the merger would create these snapbacks and pay increases. lAM said all along that wages would remain at reduced levels following the merger (if lAM had said during the merger that the merger would snap back wages to 2003 levels, the economics of the merger would have materially changed, the new investors likely would not have invested and there would have been no emergence from bankruptcy).
There is a legal doctrine called estoppel that says if you take a position in one proceeding, and others rely on what you say, you can't turn around later and take the opposite position in another proceeding. Not only did lAM not file a claim in US Airways' bankruptcy for any wage increases supposedly resulting from a change in control, but in documents filed with the bankruptcy court, when the court was deciding whether to confirm US Airways' plan of reorganization, lAM expressly said "there will be no pay increases during 2005-2007" for fleet employees, and "there will be I % pay increases in 2006 and 2007" for mechanics.
Obviously, the lAM is now saying something very different. In our view, lAM should explain to the bankruptcy court how its current grievances can be reconciled with what lAM previously said in court. If the bankruptcy court rules that lAM can still bring these grievances despite what it said during bankruptcy, then we'll go forward with the arbitration.
It's worth noting that CW A filed a similar CIC grievance. Last year, CW A withdrew this grievance when we reached a unified agreement with that union. CW A members did not get snapbacks in that unified agreement and we believe CW A recognized it did not have a strong CIC case.
If you feel so strongly there's no merit to lAM's grievance, why didn't you just go forward with the arbitration scheduled for February rather than dragging it out by filing a lawsuit in bankruptcy court?
I hope I've explained that above, but I also believe that no matter how strong our case is, there's always a risk when you go to arbitration, just like there's always a risk in a lawsuit when you put your fate in the hands of a jury. The money involved here is substantial-- $627 million - and likewise, so is the principle of telling the court one thing to emerge with new investors and then changing that position later. We have an obligation to get to a clear understanding of this issue, and we have an obligation to start this review with the bankruptcy court.
Why did you wait until just before the arbitration to raise this issue with the bankruptcy court?
Because, as many of you know, the vast majority of grievances don't go to arbitration. They're settled, withdrawn, never pushed forward or resolved during contract negotiations. As a side note, this is what happened when CW A withdrew its change in control grievance as part of finalizing its single agreement in December 2005. We had hoped to similarly resolve this grievance with lAM as part of the transition negotiations and gave it as much time as possible to see if there was any chance of that happening. However, when we had to start preparing for the arbitration in the days before the scheduled hearing, and went back and reviewed lAM's past statements about future wages, it became clear to us that lAM's grievances were barred by what they said (and didn't say) during the bankruptcy.
2
Some of you asked in Charlotte how we could take this position with the lAM and yet pay sums to former US Airways' executives who also had "change in control" contracts.
The simplest explanation is that the executives' contracts defined a change in control very differently from the definition in the lAM labor agreements. For example, the executives' contracts said that it was a change in control if the majority of US Airways' Board of Directors changed, or if US Airways Group consummated a merger in which the people who owned Group stock prior to the merger owned less than 85 percent of the stock after the merger. Those things actually occurred in the case of the merger with America West, unlike the lAM definition that required a sale of substantially all the assets or stock to one individual or a group acting together.
Although the executives' definitions were more expansive, you should understand that the executives had to actually be personally and adversely affected by the merger to receive any benefits under their change in control contracts. Even though the America West merger was a change in control under their contracts, an executive only received a payment if he or she did not have a job following the merger.
You are right to ask these questions and to express your opinions on an issue that many of you clearly believe in. I respect where you are on this topic but I also hope you understand that my obligation as a leader of the company is to be sure that I'm doing the right thing by all the people I answer to, including our investors, owners and our fellow employees.
This change in control grievance represents a difference in opinion about the meaning of agreements that US Airways and the lAM forged several years ago. It would be best, in my view, to work out a solution at the bargaining table, because the best agreements are those that parties put together themselves. This isn't happening as fast as we would like, so we need to move to the next steps.
I'm not at all happy about the expense or emotional toll taking this back through the courts or to an arbitrator will bring. But I do believe that in the absence of a negotiated agreement, and with stakes this high, the right thing to do is ask a third party to help us resolve it. We will start by approaching the bankruptcy court and proceed to arbitration if that is what the court directs the company and lAM to do.
I hope this is helpful. I know that many of you will still disagree with the Company's position on this important issue, but hopefully you understand the position we have taken. This dispute will get resolved eventually, but in the meantime, we have customers to take care of, a company to run, competitors who want to see us fail and an industry that remains volatile. Let's focus on working together and let the court and arbitration process do what it is designed to do, while we work with the lAM on getting a new contract as quickly as possible.
Thanks.
Doug Parker
April 24, 2007
Dear lAM Employees,
At our Charlotte town hall meetings last week, I received a lot of questions on the company's position on the lAM Change in Control (CIC) grievance. As I answered those questions, it became quite clear to me that while we've spent a lot of time explaining our position to the lAM leadership, we haven't done a very good job of explaining it to the membership. I promised to get back to of our Charlotte fleet service employees with a written response, and believe it's worth explaining to all of our lAM represented employees
I've gone through a lot of legalese and contract language related to this topic, and while I'd like to say this is an easy one to wade through, it isn't. There are a whole lot of issues around it and they take some time to explain. I hope you'll take the time to read the explanation here.
The bottom line is that the Company firmly believes that the merger did not trigger the CIC provisions of the lAM contract. We have always felt this and have said so from the beginning of the merger talks. It is my view that if America West or the investors in the merger had believed the merger would trigger the lAM CIC provisions, then the merger would not have taken place. The lAM now is arguing differently, as is their right, and we are both doing our best to defend
our positions in this issue. .
First, why did we ask the bankruptcy court to look at the CIC?
The answer here is the CIC and the surrounding case starts with the concessions that lAM members made in US Airway's previous bankruptcies. In those concession agreements, there's some pretty specific language about what would happen in a "change in control." That language defines "change in control" as "the sale of all or substantially all of the assets or common stock of US Airways, Inc. or US Airways Group in a single transaction (or in multi-step related transactions) to a single purchaser (or a group of purchasers acting in concert)."
The language further states that in a "change of control," hourly rates of pay would go back to 2003 levels and the lAM would have the right to extend the agreements for one to three years with annual 4.5 percent pay increases. If you add that up, it amounts to roughly $627 million for fleet service and mechanics' contracts over five years.
We went back to look at this agreement first because that's what a judge or arbitrator will examine first.. A judge or arbitrator will first ask, what did the parties actually write? In this case, the lAM and the company wrote very specific language that narrowly limits the circumstances that would trigger a CIC-driven wage increase.
Our view is that the merger with America West did not meet this narrow definition of "change in control," as it's written in our agreements. There was no sale of substantially all the assets or stock of US Airways Group to a single purchaser or group of purchasers acting in concert. Rather the old US Airways stock was cancelled in bankruptcy, and the new LCC stock was issued to a host of different people acting independently, and definitely not "in concert". Those include US
Airways' creditors, America West's stockholders, the six new equity investors and other institutional and retail investors who purchased stock in the public offering of LCC.
The company also believes it has a strong case given what was said - or not said - during and after the merger. In court filings and in discussions with the media, lAM never indicated or stated that the merger would create these snapbacks and pay increases. lAM said all along that wages would remain at reduced levels following the merger (if lAM had said during the merger that the merger would snap back wages to 2003 levels, the economics of the merger would have materially changed, the new investors likely would not have invested and there would have been no emergence from bankruptcy).
There is a legal doctrine called estoppel that says if you take a position in one proceeding, and others rely on what you say, you can't turn around later and take the opposite position in another proceeding. Not only did lAM not file a claim in US Airways' bankruptcy for any wage increases supposedly resulting from a change in control, but in documents filed with the bankruptcy court, when the court was deciding whether to confirm US Airways' plan of reorganization, lAM expressly said "there will be no pay increases during 2005-2007" for fleet employees, and "there will be I % pay increases in 2006 and 2007" for mechanics.
Obviously, the lAM is now saying something very different. In our view, lAM should explain to the bankruptcy court how its current grievances can be reconciled with what lAM previously said in court. If the bankruptcy court rules that lAM can still bring these grievances despite what it said during bankruptcy, then we'll go forward with the arbitration.
It's worth noting that CW A filed a similar CIC grievance. Last year, CW A withdrew this grievance when we reached a unified agreement with that union. CW A members did not get snapbacks in that unified agreement and we believe CW A recognized it did not have a strong CIC case.
If you feel so strongly there's no merit to lAM's grievance, why didn't you just go forward with the arbitration scheduled for February rather than dragging it out by filing a lawsuit in bankruptcy court?
I hope I've explained that above, but I also believe that no matter how strong our case is, there's always a risk when you go to arbitration, just like there's always a risk in a lawsuit when you put your fate in the hands of a jury. The money involved here is substantial-- $627 million - and likewise, so is the principle of telling the court one thing to emerge with new investors and then changing that position later. We have an obligation to get to a clear understanding of this issue, and we have an obligation to start this review with the bankruptcy court.
Why did you wait until just before the arbitration to raise this issue with the bankruptcy court?
Because, as many of you know, the vast majority of grievances don't go to arbitration. They're settled, withdrawn, never pushed forward or resolved during contract negotiations. As a side note, this is what happened when CW A withdrew its change in control grievance as part of finalizing its single agreement in December 2005. We had hoped to similarly resolve this grievance with lAM as part of the transition negotiations and gave it as much time as possible to see if there was any chance of that happening. However, when we had to start preparing for the arbitration in the days before the scheduled hearing, and went back and reviewed lAM's past statements about future wages, it became clear to us that lAM's grievances were barred by what they said (and didn't say) during the bankruptcy.
2
Some of you asked in Charlotte how we could take this position with the lAM and yet pay sums to former US Airways' executives who also had "change in control" contracts.
The simplest explanation is that the executives' contracts defined a change in control very differently from the definition in the lAM labor agreements. For example, the executives' contracts said that it was a change in control if the majority of US Airways' Board of Directors changed, or if US Airways Group consummated a merger in which the people who owned Group stock prior to the merger owned less than 85 percent of the stock after the merger. Those things actually occurred in the case of the merger with America West, unlike the lAM definition that required a sale of substantially all the assets or stock to one individual or a group acting together.
Although the executives' definitions were more expansive, you should understand that the executives had to actually be personally and adversely affected by the merger to receive any benefits under their change in control contracts. Even though the America West merger was a change in control under their contracts, an executive only received a payment if he or she did not have a job following the merger.
You are right to ask these questions and to express your opinions on an issue that many of you clearly believe in. I respect where you are on this topic but I also hope you understand that my obligation as a leader of the company is to be sure that I'm doing the right thing by all the people I answer to, including our investors, owners and our fellow employees.
This change in control grievance represents a difference in opinion about the meaning of agreements that US Airways and the lAM forged several years ago. It would be best, in my view, to work out a solution at the bargaining table, because the best agreements are those that parties put together themselves. This isn't happening as fast as we would like, so we need to move to the next steps.
I'm not at all happy about the expense or emotional toll taking this back through the courts or to an arbitrator will bring. But I do believe that in the absence of a negotiated agreement, and with stakes this high, the right thing to do is ask a third party to help us resolve it. We will start by approaching the bankruptcy court and proceed to arbitration if that is what the court directs the company and lAM to do.
I hope this is helpful. I know that many of you will still disagree with the Company's position on this important issue, but hopefully you understand the position we have taken. This dispute will get resolved eventually, but in the meantime, we have customers to take care of, a company to run, competitors who want to see us fail and an industry that remains volatile. Let's focus on working together and let the court and arbitration process do what it is designed to do, while we work with the lAM on getting a new contract as quickly as possible.
Thanks.
Doug Parker
