mweiss,Jan 13 2005, 11:49 PM]
Note: the remainder of this message has nothing to do with pricing. It is all about refuting Bob's claim that airline management is feigning bigger losses in order to negotiate labor contracts from a position of greater strength.
Now now, you did not like it when you felt I took things out of context, this is at least the third time you have made this claim, and that is not what I have written.
Some contracts are easier to renegotiate than others. Construction contracts tend to be especially difficult. Aircraft leases and employee contracts tend to be much easier. It's all dependent on who has what leverage on whom.
Well if the company were in BK then the positions of leverage changes doesnt it? Those tough construction contracts, capital improvements, would have been the first to go. Now the question is would the company in the position it revealed in the 10K have been able to get a judge to impose a contract as harsh as the one we got stuck with while the company was continuing with several huge capital improvements?
The past is easier to use than the future here, because those numbers are more readily available to me. If you have the future numbers, by all means bring 'em in.
Isnt that I've been saying to you? You keep claiming that the losses exceed the savings and you claimed that you can figure out what those savings will be.
I can tell from your question that you think the answer is "no." You'd be wrong. Now, they don't set the price in the same way that the union can, but that's because the AA has more of a choice in fuel suppliers than it does mechanics.
Ok let me rephrase the question, do you think that Exxon would turn around after an agreement has been made and allow AA to dictate new terms with nothing in return, because the company was threatening that if they dont give them what they want that they would get a judge to impose harsher terms?
In other words, TWU should be negotiating from a greater position of strength than it is, if it's missing the information contained within the financials.
Absolutely. Not solely based on the airline's profitability, but they'd be fools if they didn't take it into account.
"How well the airline is run" is not equivalent to "how profitable the airline is." GE gave more favorable payment terms to US (though less favorable interest terms), because the airline is in trouble and they're trying to reduce their loss exposure.
Yes but GE also would have the opportunity to make up those losses in the future, the employees will not. As you said they are hedging their bets by helping the company stay afloat now they continue to get lease payments, which they may not otherwise get, plus they will reap more in the future from the higher interest payments. The employees are being told to expect a lot less now, and work under terms that in all likelyhood continue to reduce their real income till 2011.
The alternative was to take back possession of these aircraft now, when there may not be a readily available new lessee.
I would also guess that USAIR is not the only carrier where GE is involved, lower labor costs spearheaded at USAIR would likely have industry-wide effects and even if USAIR went under they make up their losses at the next carrier, maybe not this year, but certainly between now and 2011.
Now, since that example would show a bigger net loss, it would have no impact on operating loss, which is a number also publicly available to you. If I were on the other end of that negotiation, I'd see right through that in a heartbeat. If your union leadership doesn't know how to recognize this, they need to be replaced by people who do. Otherwise, they're getting suckered, and, in turn, so are you.
However if you look at AMRs 10K (pg 25)filed in 2003 it states :
2002
Operating Income (Loss) (3,330)
However right next to 2002 are two notes, 1 & 2. 2 reads; Includes a one-time, non cash charge, effective January 1, 2002, of $988 million net of tax, to write-off all of AMRs Goodwill.
It gives further explanation of Goodwill and the fact that they used FASB No. 142.
As far as replacing all the union officials involved, on this we can agree.
So in this case it was part of the posted operating losses, not just net losses. It does have an added line that is just labeled as Income with an explanation that shows $2.5 billion. But the figures given to us was that the company lost $3.5 billion. You must remember that the vote came out when the report was filed and the Unions had this information not the members yet the union was running around saying that the company lost $3.5 billion.
Accelerated depreciation (such as through MACRS) exists as a means of corporate welfare. OK, I'm editorializing. It's there as a tax break, allowing a company to pay less in taxes today at the expense of paying more in future years. That's a good deal for businesses because they effectively get an interest-free loan from the feds.
And in this case can be used, as it was back in 1992 or around there, to give the appearance that the airlines were in deeper financial trouble than they actually were.
Note: the remainder of this message has nothing to do with pricing. It is all about refuting Bob's claim that airline management is feigning bigger losses in order to negotiate labor contracts from a position of greater strength.
Now now, you did not like it when you felt I took things out of context, this is at least the third time you have made this claim, and that is not what I have written.
Some contracts are easier to renegotiate than others. Construction contracts tend to be especially difficult. Aircraft leases and employee contracts tend to be much easier. It's all dependent on who has what leverage on whom.
Well if the company were in BK then the positions of leverage changes doesnt it? Those tough construction contracts, capital improvements, would have been the first to go. Now the question is would the company in the position it revealed in the 10K have been able to get a judge to impose a contract as harsh as the one we got stuck with while the company was continuing with several huge capital improvements?
The past is easier to use than the future here, because those numbers are more readily available to me. If you have the future numbers, by all means bring 'em in.
Isnt that I've been saying to you? You keep claiming that the losses exceed the savings and you claimed that you can figure out what those savings will be.
I can tell from your question that you think the answer is "no." You'd be wrong. Now, they don't set the price in the same way that the union can, but that's because the AA has more of a choice in fuel suppliers than it does mechanics.
Ok let me rephrase the question, do you think that Exxon would turn around after an agreement has been made and allow AA to dictate new terms with nothing in return, because the company was threatening that if they dont give them what they want that they would get a judge to impose harsher terms?
In other words, TWU should be negotiating from a greater position of strength than it is, if it's missing the information contained within the financials.
Absolutely. Not solely based on the airline's profitability, but they'd be fools if they didn't take it into account.
"How well the airline is run" is not equivalent to "how profitable the airline is." GE gave more favorable payment terms to US (though less favorable interest terms), because the airline is in trouble and they're trying to reduce their loss exposure.
Yes but GE also would have the opportunity to make up those losses in the future, the employees will not. As you said they are hedging their bets by helping the company stay afloat now they continue to get lease payments, which they may not otherwise get, plus they will reap more in the future from the higher interest payments. The employees are being told to expect a lot less now, and work under terms that in all likelyhood continue to reduce their real income till 2011.
The alternative was to take back possession of these aircraft now, when there may not be a readily available new lessee.
I would also guess that USAIR is not the only carrier where GE is involved, lower labor costs spearheaded at USAIR would likely have industry-wide effects and even if USAIR went under they make up their losses at the next carrier, maybe not this year, but certainly between now and 2011.
Now, since that example would show a bigger net loss, it would have no impact on operating loss, which is a number also publicly available to you. If I were on the other end of that negotiation, I'd see right through that in a heartbeat. If your union leadership doesn't know how to recognize this, they need to be replaced by people who do. Otherwise, they're getting suckered, and, in turn, so are you.
However if you look at AMRs 10K (pg 25)filed in 2003 it states :
2002
Operating Income (Loss) (3,330)
However right next to 2002 are two notes, 1 & 2. 2 reads; Includes a one-time, non cash charge, effective January 1, 2002, of $988 million net of tax, to write-off all of AMRs Goodwill.
It gives further explanation of Goodwill and the fact that they used FASB No. 142.
As far as replacing all the union officials involved, on this we can agree.
So in this case it was part of the posted operating losses, not just net losses. It does have an added line that is just labeled as Income with an explanation that shows $2.5 billion. But the figures given to us was that the company lost $3.5 billion. You must remember that the vote came out when the report was filed and the Unions had this information not the members yet the union was running around saying that the company lost $3.5 billion.
Accelerated depreciation (such as through MACRS) exists as a means of corporate welfare. OK, I'm editorializing. It's there as a tax break, allowing a company to pay less in taxes today at the expense of paying more in future years. That's a good deal for businesses because they effectively get an interest-free loan from the feds.
And in this case can be used, as it was back in 1992 or around there, to give the appearance that the airlines were in deeper financial trouble than they actually were.
