APA Update (The Path to the US Airways Conditional Labor Agreement): May 25, 2012
The APA leadership has received a number of member queries in recent days regarding the conditional labor agreement (CLA) we reached with US Airways.
To understand the path to our agreement with US Airways management, we must acknowledge the reality of our current situation. It’s sometimes necessary to point out the obvious— negotiations in bankruptcy are not the same as bargaining with a profitable company. Without the ability to compel AMR management to bargain in good faith—actually, to even bargain at all— in Chapter 11, we are facing massive displacements, more furloughs and drastic changes to our benefits and quality of life. In short, AMR’s failed cornerstone strategy (sometimes referred to as the “Tombstone Plan”) has put American financially at the very bottom of the industry—not the best conditions for us to negotiate contractual gains. Sadly, the legal process in bankruptcy heavily favors American Airlines’ management, with minimal safeguards to preserve contractual provisions that define our compensation, benefits and working conditions.
AMR is now in bankruptcy primarily due to bad decisions management has made during the past decade. As we have said many times, all of APA’s advisers and nearly every analyst on Wall Street believe that AMR’s restructuring plan will fail and AMR will likely end up in bankruptcy again—perhaps under a break-up or liquidation scenario.
After extensive due diligence and with the future of the airline in mind, APA made the decision to pursue an alternative that is better for our pilots, our fellow employees, the communities we serve and the industry itself. Our primary objective was to pursue the best path to achieve a successful restructuring and help ensure a more promising future for the company.
From the outset, it was clear that AMR management’s objective was to gut our contract, either through an 1113 rejection or by forcing APA to capitulate and agree to an extremely onerous consensual agreement.
In vivid contrast to the wood chipper that AMR management had in mind for us, it became clear that there was a better path for our future. Beginning with the first discussions we had with US Airways, we delineated key prerequisites that would be required to gain APA’s support for a merger with US Airways. These priority items include, but are not limited to: a viable business plan and a strong capital structure; furlough and pay protection for all active pilots; support for a pension freeze with an industry-standard defined-contribution retirement plan; pay scales that would quickly exceed the current rates at Delta and United; and scope protections that would protect AA pilot jobs. Few if any of these items could be obtained from AMR management.
First, we specified that the Green Book would be the basis for a new contract. We would negotiate limited and specific changes to our CBA, instead of the massive changes AMR has been demanding.
To achieve success in merging the two airlines, APA and US Airways must have the support of a broad range of stakeholders. Keep in mind that bankruptcy strongly favors the debtor, which is AMR. The support of the diverse group of interests represented by the Unsecured Creditors’ Committee (UCC) is crucial to a successful outcome for us. In order to win the support of the majority of the members of the UCC, and ultimately the court, we were advised we needed to negotiate an industry-competitive contract.
Particularly during the past decade of “pattern bankruptcies,” our profession has been under severe assault. Most pilot groups have experienced a significant degradation of their compensation, benefits and working conditions. The exceptions have been pilots working for companies that have been consistently profitable such as Southwest, FedEx and UPS. Profits do matter and enable employees to share in the rewards of a company’s success.
While our market-based CLA with US Airways management is not the “industry-leading contract” we would all prefer, we believe that the final contract we are now negotiating with US Airways is supportable in bankruptcy court, enhances our case and will be significantly better than what AMR management has in mind for us. In comparison to what other legacy airline pilots experienced in bankruptcy, APA did much better than any before us. Most of our CBA is preserved and we have stopped the downward spiral that typifies bankruptcy. The alternative to a consolidation with US Airways is to have our contract gutted and to continue to suffer under the failed leadership at AMR under a business model that few believe can succeed.
Many pilots have expressed the opinion that a shorter term contract is preferable. Your leadership agrees. US Airways management focused on the fact that AMR was seeking a six-year duration in their 1113. The duration discussion was a major roadblock during negotiations with US Airways and went on for days. Ultimately, we decided that walking away from the table over that issue was not in our best interests. We agreed to the six-year term in exchange for an additional three percent pay raise in year five and a formula that indexes us to an average of United and Delta compensation in year six.
We have fielded some questions about why the A321 is pay banded with the S80 and 737-800. One of the often-overlooked provisions in the CLA is that US Airways agreed to put the A319 in the same band as the S80 and 737-800. This represents a very significant improvement compared with the AA term sheet, which seeks substantially lower pay rates for the A319 and the creation of a separate bid status. In the CLA, the A319/320/321 would be in the same pay band in a common bid status. Operating on an overall philosophy to add more value for junior pilots, we moved both the A319 and S80 pay scales toward the 737-800. Additionally, the 787—seen primarily as a replacement to the 767—is placed in the 777 pay band, although it weighs significantly less than the 777.
An important element of the CLA is the inclusion of binding arbitration to resolve issues that we didn’t have time to fully bargain, such as final contract language and valuation. There’s no shortage of examples of contract negotiations, merger negotiations and seniority integrations that drag on for years. We believe swift and decisive action is essential to our ability to steer this airline away from the iceberg. As I mentioned before, bankruptcy law favors the debtor. There are a number of very good reasons we needed to complete the CLA with US Airways before the 1113 court hearings began. That urgency drove our decision to resolve any remaining open issues with binding arbitration. Your APA leadership believes that the end result will be far superior to the AMR alternative, which would likely more resemble a document “agreed to” on the deck of the battleship Missouri.
While this is obviously not a CLA on parity with highly profitable airlines, our agreement with US Airways was designed to produce compensation that would exceed the highest paid “legacy carrier” (Delta) rates that were in place during the expedited negotiating process. The CLA will dramatically improve the US Airways pilots’ salaries, which have been well below industry standard—thus putting downward pressure on the value of our profession. The CLA helps the industry transition from a decade of pattern bankruptcy to a future of pattern advancement. A strong American Airlines exiting from bankruptcy with industry competitive pilot pay rates is a huge positive for our profession.
The details of a new tentative agreement negotiated by the pilots at Delta Air Lines emerged this week. The TA calls for an immediate hourly rate increase of 4 percent on date of ratification and another 8.5 percent on Jan. 1, 2013, with two additional annual salary increases of 3 percent. This is the second contract that the Delta pilots have negotiated since exiting bankruptcy in 2007.
It’s worth considering a few data points to put the Delta TA and our CLA in context. Last year Delta Air Lines generated approximately $1 billion in profits, while American Airlines lost around that same amount – a staggering difference of nearly $2 billion. In bankruptcy, the Delta pilots were forced to take a 14 percent pay reduction, in addition to a 32 percent decrease pre-petition, with no annual pay increases during the life of that contract. APA negotiated a 5.5 percent upfront increase with five additional raises of 3 percent apiece in the US Airways CLA. Meanwhile, AMR has proposed no upfront increases in their 1113 and five subsequent annual increases of 1.5 percent.
We congratulate the pilots at Delta for accomplishing an agreement many months before their contract’s amendable date. The Delta pilots established the foundation for this achievement several years ago by working extremely hard to establish a collaborative relationship with their management. This cooperative approach greatly assisted Delta in achieving a smooth transition during the Delta-Northwest merger. The successful merger and newly announced TA are excellent examples of the benefits that can be achieved by an engaged pilot union working collaboratively with an enlightened management team. These results typify what we hope to achieve by helping to facilitate an American Airlines-US Airways merger.
In contrast, APA’s efforts to try to work collaboratively with AMR management have yielded no meaningful results, which factors heavily in our pilots’ overwhelming verdict of “no confidence” in AMR management.
As of this date, there is only one known alternative to a merger with US Airways. In the opinion of your APA leadership, this merger is far preferable to the terms and conditions that AMR management seeks to impose on us. In discussing the importance of preserving our CBA to the greatest extent possible, a friend of mine who has been through bankruptcy recently said to me, “You could lose things that you’ve taken for granted your entire career, or even worse, things that you never even knew you had until they were forcibly taken from you.”
Much of the detail work remains to be done to transition from the CLA term sheet to a new CBA. The good news from our friends at Delta will be a factor in the bargaining that remains to be done with US Airways management.
On a final note, it has become very clear that American’s management has initiated a FUD (fear, uncertainty and doubt) campaign in an attempt to attack APA’s efforts to secure a positive future for our pilots and our airline. Jeff Brundage, described as a “senior adviser” to AMR, recently kicked this campaign into full swing with comments reported in the Fort Worth Star-Telegram warning pilots about possible negative consequences to AA pilot seniority as a result of a merger. What Mr. Brundage always fails to mention is the elimination of up to 25 percent of our pilot positions under AMR management’s stand-alone plan. AMR is attempting to sow the seeds of doubt on all aspects of the agreement we reached with US Airways.
There are pilot naysayers in our ranks who are urging a rejection of the US Airways CLA. Inevitably there will always be a small minority who will play right into AMR’s hands. Filter out the noise.
We will continue to provide regular updates as events unfold. Thanks for your support.
Dave Bates
President
APA Negotiating Update (The 1113 Endgame): May 25, 2012
This week, management rebutted the case presented last week by the three unions. APA attorneys cross-examined the management witnesses and challenged the management assertion that their term sheet is reasonable and necessary to restructure the airline. The record is now closed and the court will be weighing the merits of the case before issuing a ruling. As previously communicated, the deadline established for the court to rule has been set as June 22, 2012.
In the month that remains before the ruling, APA will be entering into court-directed talks with management. There are a number of key points to keep in mind as we prepare for these talks.
--While we have a conditional agreement with US Airways, that agreement only comes into play if US Airways is allowed to submit a plan and that plan is ultimately accepted by creditors and approved by the court.
--As of this update, US Airways has not been brought into the process as a competing plan for the court to consider.
--Changes to our contract through the bankruptcy process give APA the right to pursue an unsecured claim.
--There is no guarantee that we will be successful in receiving an unsecured claim, but the pilots of other legacy carriers who have gone through the Chapter 11 process have all received some form of unsecured claim.
--A 2007 court ruling in the Northwest Airlines bankruptcy casts some doubt on a union’s right to an unsecured claim if the court grants management’s 1113 motion and abrogates the collective bargaining agreements.
--The unsecured claim is a reflection of the damages inflicted on a party through the bankruptcy process. When not litigated, the amount is ultimately negotiated as part of a consensual agreement.
We'd like to thank our legal team and the numerous APA volunteers who have dedicated the past few months of their lives to this court process on behalf of our membership.
Your APA Negotiating Committee
TWU Update: May 25, 2012
Dear Brothers and Sisters:
When the Company filed its motion to reject the collective bargaining agreements for all of its unions in the Bankruptcy Court in the Southern District of New York on March 27, 2012, the TWU made several commitments to our members. First, in recognition of the long odds faced by any union seeking to oppose rejection of its agreement in the bankruptcy process, we stated that each work group we represented would have an opportunity to vote on the Company’s “Last and Best Offer” (LBO) before it was exposed to the risk of contract rejection. That commitment was met in the last vote.
We also made another commitment. We stated that in the event a work group rejected an LBO, we would vigorously resist American’s motion to reject its collective bargaining agreement and would use all available resources in that effort. That is exactly what the TWU did last week when we presented our case against American’s motion to reject the mechanic and related and stores agreements. The declarations presented are available through this link and we recommend that you review it to get a sense of both our case and how the Bankruptcy Court operates; the transcripts will be posted once all of them are available.
As one of several witnesses for the union in this proceeding, I want to make several matters clear. First, the TWU does not believe that abrogation of any of its agreements with American is justified, either by the Bankruptcy Code or as a matter of basic fairness. American has not presented a business plan that establishes that the additional relief it seeks from our members would be properly utilized or, more importantly, is even necessary. It has not made a case that our members are paid more than market rate for their work and skill. Above all, given the requirements of the Bankruptcy Code, the Company did not, and could not, make a case that our organization has not worked with it to enhance value and productivity, or has been otherwise unreasonable in responding to legitimate competitive needs. However, even though every TWU representative taking part in this process strongly believes that what the Company is seeking is not fair, none of us can assure you that the court will see matters the same way. The track record and treatment of unions in bankruptcy proceedings is discouraging and, over the last decade, successful opposition to a motion to reject a collective bargaining agreement in a bankruptcy proceeding is incredibly rare, particularly in our industry. This is not to say that we will inevitably be unsuccessful – it is simply to point out the obvious fact that we face a very difficult burden in court.
The judge has stated that he wants all parties to participate in court-supervised mediation. Given the authority that he has in these proceedings, we believe it to be prudent to cooperate in this effort and the other American unions have made the same decision. In the interim, the TWU Local Presidents and negotiating committee members are scheduled to meet next week to prepare for the court-supervised mediation. We will update you as expeditiously as possible on the results of these efforts or any further court proceedings, subject to whatever restrictions are imposed by the court. As far as an answer from the Honorable Judge Lane on American’s motion, we expect a ruling by June 22, 2012. At that time that we should know if the CBAs will be abrogated.
You can find a summary from our attorneys in the case, describing what transpired in the courtroom here. Only information and points that can legally be made public are contained in the attached summary. Please read and feel free to ask questions of your representatives.
My words to you during this difficult period is to continue maintaining the high standards and professional demeanor that you always have as skilled professionals; we must remember we are all serving something greater in the interest of public safety.
Fraternally,
Donald M. Videtich
International Representative
Air Transport Division
Transport Workers Union, AFL-CIO
