U Turn presents West Thoughts on the UAL Merger
U-Turn Nation:
I received the article below from one of our subscribers. He asked us to comment on it. We’ll comment in a future issue. The article’s way too long. The date on it (April 18, 2008) doesn’t make sense, so we rechecked with the source. The date is verbatim out of the article. And the pasting below is verbatim from the email I received.
We will say this. At U-Turn, we allow any and all comment as long as it meets our rather loose guidelines. We believe in being fair and impartial in our offerings. Actually, anyone who saves the U-Turn will note that West posts outnumber East posts by a total of 23 to 2. So maybe we need to add a little more East into the yeast.
When we comment on this article, we do promise fairness and impartiality.
The U-Turn
From: XXXXX@XXXXXXXX.com
To: XXXXXX@XXXXXXXX.com
April 18, 2008
Fellow Pilots:
I am writing this letter as a criticism of USAPA’s decision to oppose the merger between US Airways and United. While I would hope that Mr. Bradford and his associates would not oppose a merger simply to assure the survival of their fledgling union, I am shocked that USAPA would oppose such a merger without seeing what the transaction would look like first.
USAPA has no clue (nor do any of us) what this final transaction will look like. USAPA’s move to reject this transaction without having all the facts at hand is a clear sign that USAPA’s self-appointed leadership is not thinking through these issues rationally. I also question whether the UAL MEC is thinking this process through all the way as well.
United is facing a struggle for profitability even now and it is not likely to get better in the quarters ahead. The emotion surrounding this potential deal is a result of questions about reductions, seniority list integration and leadership/strategy of the combined company.
This transaction will require some major fleet rationalization and route consolidation. The question for the United MEC is simply: Are you better off merging now as a likely dominant force in the transaction, or out of a potential bankruptcy if oil stays at $125 a barrel plus? There is no question for USAPA because with less that 2000 pilots of the 5200 eligible pilots joining thus far, USAPA is not really much of a player in this game at all. It is to everyone else’s’ advantage to get all the pilots back into ALPA and then follow ALPA Merger Policy as quickly as possible. So what then is USAPA concerned about? Mainly USAPA is concerned that they will not be able to deliver on any of their campaign promises and then end up gone by early 2009. Hence they likely took a short term view and came out against the much talked about but yet to be confirmed merger.
The domestic airline industry is a economic mess, and has been for nearly thirty years. Sure we have had some good years but the bad ones really outnumber the good ones. And now we are entering a full blown economic downturn that includes our biggest assets (our homes) and with oil not simply at $90 or $100 but pushing $127 (and a new record every week) we should all be asking ourselves what will it take for any airline to survive? UAL’s transformation has been harsh, as they have lost millions and the CFO has been out renegotiating loan covenants not because he has nothing better to do. Like all, I hope that this is simply an “oil bubble†but until it pops, and settles – none of us can predict with certainty what fuel will cost the airlines. And unlike all of us, the airlines cannot run out and buy a hybrid to save money.
All pilots need to face the fact that we had a very short season to get our collective bargaining back on track, and it is unfortunate some pilots would rather ride the “my seniority is not for sale†airplane right into the ground. It is interesting to note that both US Airways and NWA pilots shared the same merger advisors who followed their so-called merger model that promised all to be widebody captains with 20 days off a month, but we have been around the industry long enough to now that there are no promises in the airline business. At NWA, they gave up 30% pay raises for seniority emotions and my understanding was that the NWA MEC was offered a fair integration but they simply did not have the political fortitude to take the deal. Too bad really. It also sounds familiar.
Now, we should not tuck our tails between our legs and be thankful we should have a job, but rather we should take a step back and take a longer and more strategic view of the airline industry worldwide and our role in shaping it. The biggest threat facing all pilots is globalization. We live in a world that values cheap labor and we have money people in many countries always trying to figure out how to lower costs and increase profits. Large European airlines are trying to figure out how to get unfettered access to our markets and like the recent change in the FAA mandatory age 60 retirement, change is upon us.
The creation of a large and lean competitive domestic airline industry is a necessity to maintain pricing discipline. We often lament that our management’s failure to charge the true value of a ticket is problematic, but with seven domestic airlines it is no wonder that it takes our managements’ several tries to raise ticket prices. Now with three or four, it does become easier for those prices to go up and keep pace with the true cost of flying. It is no coincidence that most airline passenger trade groups have come out against industry consolidation. They know it probably means the end of outrageously cheap airfares.
To take a longer term view, I would ask all pilots to imagine for a moment a new UAL/LCC airline with 11,000 – 12,000 pilots, with a lean cost structure and less overhead that is a competitive force in the global airline market. That pilot group, if it can get unified after the short and medium term seniority and political angst, would be a true force that could achieve a path back to effective pattern bargaining for pilots in this industry. After some short and medium term consolidation, the new UAL/LCC would have some room still for global growth – and that will benefit all pilots.
Now, you won’t hear this from the UAL MEC or from USAPA, and frankly you probably would not have heard it from me if I was still MEC Chairman, but pilot groups right now do not have any leverage or ability to really affect this transaction. They can oppose it publicly, and perhaps in the case of UAL even generate a little ‘summer of love’ to create rank and file opposition, but unfortunately the UAL scope section was gutted leaving little tangible leverage for the UAL MEC to exercise. The UAL MEC has no BOD voting seat that has veto power like they did in the ESOP days.
Every MEC Chairman wants to be like Lee Moak of Delta and hold their management’s feet to the fire and extract some benefits for their pilots in return for the ability to do the transaction. Unfortunately, what everyone forgets is that Lee had some exceptional scope provisions and Delta management only had to deal with one powerful unionized labor group. This gave him some very good leverage that he was able to use to get a decent deal for his pilots.
But this deal would not be without some potential leverage for the combined UAL/AAA/AWA pilot group. Here is a predicted timeline:
May 2008 Deal Announced
Oct 2008 Deal Closes
Dec 2008 NMB finds single carrier and declares election
Jan 2009 ALPA Declared Winner – AAA and AWA domiciles added to UAL MEC
Feb 2009 ALPA Executive Council forms pre-merger US Airways “MEC-like-structure†to select merger committee
Mar 2009 ALPA starts Transition/Fence Agreement talks similar to AAA/AWA which could include parity to highest pay rates ($141 narrowbody at AWA) and perhaps outlier pay raises
Apr 2009 ALPA seniority integration talks commence – Nicolau vs UAL
Mar 2010 Operational integration
The NWA pilots could have been part of that DAL deal as well, except they listened to former US Air outside merger advisors who did their usual “attrition analysis†that raised NWA MEC expectations through the roof and they all thought they were entitled to be wide body captains, so any dilution of their seniority was unacceptable. So the prenupt dies, DAL does their own deal, and the NWA MEC is outmaneuvered and their pilots forgo large raises as a result all on the premise that their “seniority is not for sale.â€
But basically it all comes down to overhead. Frankly there is too much overhead in this industry and too many non-front line managers have created fiefdoms within the legacy airlines that are resistant to change and the streamlining necessary to compete in the new global airline industry. Pilots are leaders and I hope that the rank and file pilots of all three airlines – United, US Airways and America West - can see the coming economic storm and change that is necessary to compete. But it will require us all to turn off our emotional responses to seniority list integration and I am not sure that any pilot leadership group has the necessary fortitude to do that.
This industry must consolidate if it is to survive and compete globally, and pilots are better to participate from a position of relative strength – even if it means some short term pain. Thus far the airline industry has been insulated from the full effects of globalization, but we would be naïve to think that we can keep our shores safe from cabotage and the likes of Virgin and Ryanair marching in and gutting our little remaining leverage. Separately we are fodder for future bankruptcies and globalization, at least merged we have a shot to survive and thrive.
Fraternally,
John McIlvenna
Former AWA MEC Chairman
A320 Captain LAS
