A few final hurdles
BY D.R. STEWART World Staff Writer
Thursday, November 29, 2012
11/29/12 at 3:50 AM
See previous stories about American Airlines and its Tulsa operations.
American Airlines, whose parent, AMR Corp., filed its bankruptcy reorganization petition a year ago Thursday, is nearing its goal of emerging from Chapter 11 with significantly reduced debt, labor and pension costs, company executives and industry officials said.
One major hurdle remains for
the nation’s third-largest airline
in the form of a contract ratification
vote with its 8,000-member
Allied Pilots Association.
Results of the balloting will be
released by the APA on Dec. 7.
If the pilots ratify the tentative
contract agreement, American
will have restructured contracts
with all of its unionized
labor groups: the APA, the Association
of Professional Flight
Attendants and the Transport
Workers Union, which represents
6,000 mechanics and
related work groups at American’s
Tulsa maintenance base.
The new labor agreements
alone are a worthy accomplishment,
said Jeffrey R. Erler, a
partner and lead bankruptcy attorney
for Bell Nunnally & Martin
LLP in Dallas, and who has served as counsel to creditors in the
AMR case.
“If they are successful in restructuring
their pilots contract, it would be, by
far, their biggest accomplishment,” Erler
said. “Without the new agreements,
there’s no way this company reorganizes
and emerges from Chapter 11. And,
without the labor agreements, I’m not
sure anyone wants to step in and do a
(merger) deal. Most merger partners
want to know that they have certainty
before they do the deal."
Another view is offered by John
Hewitt, chairman of maintenance at
TWU Local 514 in Tulsa.
“We can start talking about accomplishments
when American begins to
formulate innovative business strategies
and services and to improve employee
relations in ways that add value
to customers and employees,” Hewitt
said.
The consensus opinion among bankruptcy
experts and airline industry
analysts is that if the pilots ratify their
contract and AMR successfully restructures
its remaining aircraft and
real estate leases, the company could
emerge from bankruptcy by the end of
2013’s first quarter and compete successfully
as a standalone carrier — despite
the appeal of a merger with US
Airways, the nation’s fifth-largest airline.
“Either way, they can survive,” said
Mike Boyd, president of Boyd Group
International, an airline consultant in
Evergreen, Colo. “It’s a matter of how
well they will survive. US Air could
bring a strong presence in the East,
and it would strengthen DFW (Dallas/
Fort Worth International Airport) and
Charlotte,” US Airways’ hub at Charlotte/
Douglas International Airport in
North Carolina, he said.
When AMR entered bankruptcy a
year ago, its goals included reducing
overall costs by $2 billion annually, cutting
13,000 jobs from its 66,550-person
work force and increasing revenue by
$1 billion a year.
On Feb. 1, AMR told its employees
it needed $1.25 billion a year in labor
cost reductions — $390 million from
its TWU mechanics, $370 million from
the APA, $230 million from the flight
attendants, $165 million from management
and support staff and $95 million
from non-union employees.
The company’s demands weren’t
well received by union workers, eight
and a half years after they had given up
$1.6 billion a year in wages and benefits
to help the company avert a bankruptcy
filing.
But AMR said it needed new labor
agreements to compete against its major
airline competitors, all of which
slashed costs in bankruptcy over the
previous decade while it lost more
than $10 billion.
American said its labor costs were 24
percent higher than the average of the
other network carriers and 79 percent
higher than the low-cost carriers in
2011’s third quarter, AMR said in court
documents.
“American has financed these persistent
losses by borrowing money —
accumulating a total of $16.8 billion
in debt as of 2011,” AMR said in court
filings.
Although AMR has not achieved its
goal of reducing labor costs by $1.25
billion, it has won more than $500 million
in concessions from the TWU and
the APFA, industry analysts said.
“With the pilots looking at a tentative
contract agreement, American
will have competitive labor contracts,”
said Ray Neidl, an analyst with Maxim
Group in New York. “They’ve done
a nice job of trimming costs, reorganizing
their system, getting RASM
(revenue per avaiable seat mile) up. It
appears they have been making good
progress toward emerging in a standalone
plan."
Boyd said even more important than
the restructured labor contracts were
the reworking of AMR’s debt and pension
costs.
“If you take out their debt and pension
costs, they would have been making
money,” Boyd said. “The real challenge
was to get rid of those costs and
move on."
In bankruptcy, AMR has reduced
its debt and, after negotiations with
the Pension Benefit Guarantee Corp.,
agreed to freeze as of Nov. 1, rather
than terminate, its defined-benefit
pension plans.
The company’s generous health care
benefits have been altered to require
employees to pay a bigger share of
their medical insurance premiums and
the company has asked the bankruptcy
court for authority to stop paying premiums
for retirees, court documents
show.
As a result, AMR will save hundreds
of millions of dollars a year in reduced
pension and health care costs, analysts
said.
Additionally, AMR has renegotiated
hundreds of aircraft and real estate
leases, parked older planes and has begun
receiving the first three dozen of
400 new fuel-efficient Boeing and Airbus
aircraft on order.
The new aircraft use 35 percent
less fuel than the 25-year-old MD-80s
that form the backbone of American’s
597-plane fleet, company executives
said.
“Since the (bankruptcy) commencement
date, American has taken possession
of 22 new 737-800 aircraft and
put those aircraft into service,” AMR
said in court documents. “In addition,
American is scheduled to take delivery
of 14 new 737-800 aircraft during the
next six months."
Fred Russell, who follows American
as CEO of Fredric E. Russell Investment
Management Co. in Tulsa, said the new
aircraft will not only save the company
millions of dollars in fuel but also generate
additional passenger revenue.
“They have ordered a huge number of
planes and when they are in operation
they will transform the experience and
satisfaction rating with American Airlines
among business and leisure travelers,”
Russell said. “It’s a freshness that’s
a huge intangible for American and will
have a powerful effect on the brand."
The company also has some problems
it must face, including toxic labor
relations and a lack of leadership at the
top, analysts say.
“Given the historic acrimony between
management and the unions, it’s
not surprising they want a new face,”
said Erler, the Dallas bankruptcy attorney.
“My view is that labor is pretty
much of the opinion they made concessions
in 2003 to keep the company
out of bankruptcy, but then they were
taken advantage of by management."
Boyd said the company needs aggressive
management and a strong
leader who is willing to be the public
face of American Airlines.
Reflections on American
Airlines’ year in bankruptcy:
“The vast majority of the work needed on
the financial restructuring of the company
is complete, including restructuring debt
and leases, grounding older planes, improving
our vendor and supplier relationships;
we have ratified labor agreements with
nearly all of our work groups. … Our future
is bright. … We are well on our way to
building a new American Airlines.
— American Airlines spokesman Mike
Trevino
“When you’re closing down maintenance
bases, when you’re telling retirees their
benefits may be cut, when employees are
worried about outsourcing of their jobs,
what mental evasion are you going through
to justify spending $50,000 to $100,000 to
repaint an airplane? They’ve had the same
livery for 45 years, and it’s priceless — it’s
brilliant, clean, and why are they paying
somebody to change their livery?”
— Mike Boyd, president of Boyd Group International,
airline consultant, Evergreen, Colo.
“I call the years in bankruptcy ‘dog years’
because each one takes years off your life.
The longer they’re in, the longer their reputation,
their performance (suffers) … and
American is not well positioned to wait out
a storm. It puts a premium on getting out.
… They’re at risk of somebody else filing a
(restructuring) plan — the pilots union, US
Airways.
— Max Newman, bankruptcy lawyer, Butzel
Long, Bloomfield Hills, Mich.
“Working with US Airways, APA was able
to achieve in just over a week far more
than we had been able to achieve in more
than five years of trying to bargain with
AMR management. Our interaction with
US Airways was in stark contrast to what
we have been experiencing with AMR. We
dealt directly with the people whose jobs
are to run an airline. … Completely absent
from the discussion were the posturing
and game-playing that characterizes the
approach AMR management takes when
dealing with us.
— Dave Bates, former president, Allied Pilots
Association
“Now AA and the media … have continually
pointed the finger at the unions for the
obvious morale issues that are prevalent
throughout the company, but one must
ask, how does the management team at
the most heavily unionized airline in the
United States (Southwest Airlines) keep
their employees so engaged in making their
company, keeping the airline so strong?
It’s easy: at Southwest they, the executive
team, recognizes the importance of treating
all their employees with dignity and
respect, along with good pay and benefits.
Most importantly, Southwest never forgets
that it is the passengers and the front-line
employees who make the airline successful
and profitable.
— Gary Peterson, president, Transport
Workers Union Local 565, Dallas
“But they have had tenuous labor relations.
In my experience as a flier, it has permeated
the customer experience. They have
a huge obstacle in front of them trying to
repair those relationships.
— Jeffrey Erler, partner, lead bankruptcy attorney,
Bell Nunnally & Martin LLP, Dallas
“I think their brand has been tarnished.
… But time heals all wounds, and AMR,
whether they emerge as a standalone carrier
or with a merger partner, will have a
chance to shine again.
— Jake Dollarhide, CEO, Longbow Asset
Management, Tulsa
TIMELINE OF AMERICAN AIRLINES’ YEAR IN BANKRUPTCY
Nov. 29, 2011: AMR Corp. files
Chapter 11 bankruptcy petition,
listing assets of $24.7 billion and
debts of $29.6 billion
Dec. 5, 2011: Transport Workers
Union appointed seat on
Official Committee of Unsecured
Creditors
Feb. 1, 2012: AMR says it needs
to cut 13,000 jobs, including
9,000 TWU positions, and
reduce labor costs by $1.25 billion
annually, to compete in the
airline industry
Feb. 27: American workers
stage protests at the nation’s
airports over job cuts and terminated
pensions
March 8: AMR asks U.S.
Bankruptcy Judge Sean Lane for
six-month extension, to Sept. 28,
to file its restructuring plan
March 27: AMR files motion to
reject its three union collective
bargaining agreements
April 19: AMR reports first
quarter net loss of $1.66 billion
April 20: American’s unionized
pilots, flight attendants and mechanics
reach labor agreements
with US Airways that would be
effective in a merger of the two
companies
May 10: TWU members begin
voting on company’s “last best
offer” covering seven work
groups
May 15: Tentative contract ratification
vote results announced,
with five of seven TWU work
groups accepting company’s last
offer; maintenance & related and
stock clerks reject the offer
June 11: TWU negotiators for
mechanics & related and stock
clerks begin mediated contract
negotiations
June 12: Mediated TWU
negotiations end without an
agreement
June 14: US Airways CEO Doug
Parker says at company’s annual
shareholders meeting in New
York that the airline has received
“tremendous” support from
AMR bondholders and analysts
for a merger with American
Airlines
July 18: AMR reports second
quarter net loss of $241 million
July 19: US Bankruptcy Judge
Sean Lane grants AMR’s request
to extend its exclusivity periods
to Dec. 28 and Feb. 28, 2013,
respectively, to present a reorganization
plan and solicit support
for the plan
July 23: TWU maintenance
& related and stock clerks, and
Allied Pilots Association begin
voting on tentative contract
agreements
Aug. 8: Mechanics & related
and stock clerks narrowly approve
new six-year contracts
Aug. 9: Allied Pilots Association
rejects tentative contract
agreement
Aug. 15: U.S. Bankruptcy Judge
Sean Lane rejects AMR’s motion
to reject pilots’ collective
bargaining agreement, saying
company has not shown necessity
of unrestricted furloughs and
code-sharing
Aug. 17: AMR drops its proposal
for unrestricted furloughs
and code-sharing at APA
Aug. 22: Leaders of the APA
meet with US Airways pilots
and CEO Doug Parker about a
transitional labor agreement in
a merger of American and the
Tempe, Ariz.-based carrier
Aug. 31: American and US Airways
sign non-disclosure agreement
under which the carriers
exchange proprietary financial
information
Sept. 4: Lane approves AMR’s
motion to reject the APA’s collective
bargaining agreement
Sept. 10: American announces
it will close its Fort Worth Alliance
Airport maintenance base
by the end of the year, lay of 839
Tulsa mechanics and consolidate
major aircraft maintenance
operations in Tulsa and Dallas/
Fort Worth International Airport;
more than 1,700 mechanics &
related workers at American’s
three aircraft overhaul bases
will be laid off in December and
February, the company said
Mid-September: American begins
cancelling dozens of flights
a day as pilots report increased
numbers of mechanical and
equipment failures
Sept. 17: American notifies
11,159 members of the Transport
Workers Union, including nearly
3,000 workers in Tulsa, that
their jobs could be affected by
layoffs or a plant closing in 60 to
90 days
Sept. 20: American cuts up
to 2 percent of its remaining
scheduled flights in September
and October, accusing the APA
of inflated mechanical write-ups
and high rates of sick time taken
by pilots; APA leaders say there
is no organized job actions, that
increase in flight delays and
cancellations are due to American’s
mismanagement of aircraft
maintenance and crew resources
Sept. 25: Kate Hanni, executive
director of FlyersRights.org,
warns 25,000 members of the
organization to consider booking
with an airline other than American,
given its spate of flight
cancellations and bankruptcy
issues
Sept. 26: 1,595 American
mechanics and stock clerks,
including 743 in Tulsa, accept
the company’s early-retirement
incentive plan that includes
$39,000 in severance pay; the
early retirements could reduce
layoffs needed to cut costs, the
company says
Sept. 29-Oct. 1: Flight crews
on two American flights make
emergency landing and return
to originating airport after seats
come loose just after takeoff;
maintenance crews from American’s
Tulsa maintenance base
are dispatched to New York to
examine the planes
Oct. 16: AMR asks bankruptcy
judge to extend by 30 days, to
Jan. 28 and March 28, respectively,
its exclusive right to file
a reorganization plan and seek
support for the plan
Oct. 17: AMR reports third
quarter net loss of $238 million
Oct. 25: American announces
it will lay off 436 mechanics at
its Tulsa maintenance base, 66
more than previously reported;
the new totals are reported as
the company recalculates early
retirements and the effects of
“bump-and-roll” union seniority
moves
Nov. 8: U.S. Bankruptcy Judge
Sean Lane grants motion of AMR
and Committee of Unsecured
Creditors to extend AMR’s
exclusivity periods to Jan. 28 and
March 28
Nov. 9: American and Allied
Pilots Association reach agreement-
in-principle on a tentative
contract
Nov. 16: APA board of directors
votes 12 to 4 to submit the tentative
contract to APA members
for a ratification vote
Nov. 23: Voting begins at noon
CST on APA’s tentative contract
Sources: U.S. Bankruptcy Court for the
Southern District of New York, AMR Corp.,
Transport Workers Union, Allied Pilots Association,
Association of Professional Flight
Attendants, news reports
D.R. Stewart 918-581-8451
don.stewart@tulsaworld.com
Associated Images:
Bloomberg file
Charles Lynn of Broken Arrow, a mechanicat American Airlines’ Tulsa base, protests the company’s tentative contractoffer in August. KT KING/Tulsa World
Tom Horton, CEO of AMR Corp., listens during an interview inNew York in February. Bloomberg file
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