December 3, 2011

An Insider’s View of the AMR Bankruptcy


Working for a bankrupt airline is not where I thought I would be 12 years ago when I took this job.  I came to a crossroad in 1999, standing in my living room staring at an answering machine with two blinking messages.  One from American Airlines and the other from cross town rival Southwest.  These were my top two choices.  Dream jobs.  Winning the lottery wouldn’t have seemed any more of a distant possibility.  I was honestly amazed and bewildered by the decision I was about to make.

In the end I took the job at American with high hopes of a quick upgrade to Captain and dreams of retiring as a senior B777 Captain.  At the time I was hired, my retirement seniority number was projected to be a two digit number, pretty amazing stuff at a major airline with over 10,000 pilots.

Twelve years later things haven’t worked out exactly as planned.  Various circumstances with which I will not expand upon have resulted in one basic truth.  12 years ago I was a junior First Officer on the MD80 and today I find myself in the exact same position.  12 years ago I was all full of hope, excited about the future, proud to wear the uniform.  Today I wonder if I will have a job next month.  I wonder if I will have to sell my house.  I’m thankful that I don’t have a car payment and I’m thankful that I have money in savings, although not enough, for my daughter’s college education.  The future is anything but secure.

Let’s take just a moment to recognize the elephant in the room.  New reports abound with stories blaming the employees of American Airlines for the demise of a once great airline.  Specifically to blame are the pilots.  After all, they are the highest paid labor group on the property.  No doubt you have read about the pilots refusing to accept a contract offer from management that would have guaranteed pay raises and promised growth and prosperity for the airline.  The airline said it, so it must be true.  Hogwash.

Has everyone forgotten 2003?  Ok, ok, unless you worked for the airline or were directly impacted you probably didn’t pay much attention then much less remember the details now.  In 2003 the employees of American Airlines came to the company’s rescue and voluntarily accepted huge pay cuts and reductions in benefits.  The often quoted mantra from company back then was “Pull together, win together.” 

All told, the labor concessions at American Airlines totaled over $1.8 billion.  The pilots alone agreed to cuts that, in management’s estimate, equaled roughly $660 million in annual savings for the company.  Did you catch the word “annual” in that sentence?  The pilot’s union claimed a much larger number and the truth most likely lies somewhere in between.  Pull together, win together?  These savings were in jeopardy of falling apart after retention bonuses and pension protection for executives were revealed on the last day most employees were voting on the cuts, but the labor force at American took the high road and saved the company from bankruptcy. 

The improvements gained by American Airlines in 2003 gave the company an enormous cost advantage over its rivals.  But instead of using this new found leverage to compete soundly with its competitors, American Airlines shrunk.  In 2003 when the new contracts were inked, American Airlines employed over 13,500 pilots.  Today they employ fewer than 8,000.  They sold airplanes, cut routes and unveiled a corporate pay and bonus structure that rewarded top executives with multi-million dollar enhancements based on stock price as compared with its rivals.  Of course, you would think as poorly as the airline has performed, that bonuses would not be paid…but you would be wrong.  Last year, American ranked last when compared with its competitors, but the bonuses still flowed by the millions.

Back to the contract “turned down” by the pilots last month.  First, the by-laws at the Allied Pilots Association require any Tentative Agreement (T/A) to be in contractual language before it can be voted upon.  Management knows this and the agreement tendered by American was basically a bullet point summary.  Second, any agreement deemed acceptable by the APA negotiating committee must be studied for seven days before the agreement can be offered to the pilot group to be voted upon.  Third, and quite telling, is the fact that management inserted hot button items into the agreement that they knew full well would result in it being voted down.

Specifically, I’m referring to domestic code-share.  American Airlines has an agreement with its pilots that reads as follows: 

“All flying performed by the Company, a subsidiary, or affiliate directly or indirectly controlled by the Company, or successor in interest, or flying performed on behalf of the Company as a result of any agreement to which the Company is a party or becomes a party, shall be performed by pilots named on the active American Airlines Pilots Seniority List.”

This agreement, commonly referred to as a scope clause, prohibits the airline’s use of pilots from another carrier.  It’s all about job protection.

Over the past 25 years, the pilots of American Airlines have allowed exceptions to this agreement to allow feed operations in domestic markets by its regional partners (mainly American Eagle) and with its international partner airlines (there are many) in overseas markets not served by American Airlines.

However, over the last 10 years alone, American Airlines has shrunk by almost 30% while its domestic code-share partner American Eagle has grown by the same amount.  American Airlines now wants its pilots to allow the airline to sell tickets out of New York, Boston and Washington DC on other airlines, reducing or eliminating the need for American Airlines pilots in these markets.  All markets served by American Airlines.  All markets where the airline operates crew bases and its pilots and flight attendants call home. 

American Airlines never expected their offer to the pilots to be accepted.  It was part of a plan that was set in motion long before the company filed for bankruptcy on November 29th.  Look at what happened on day one of the AMR bankruptcy.  President and CEO Gerard Arpey announced his new job at the helm of investment firm Emerald Creek Group, founded by former Continental CEO Larry Kellner.  Several new websites were launched.  Hundreds of pages of documents were filed.  So on and so forth.  A plan was made public that had been set in motion months before.  The agreement pushed across the table to the pilots was all part of that plan.

It’s all water under the bridge at this point.  The truth is that the employees at American Airlines are under fire. They are outnumbered and low on ammunition with no backup in sight.  Need someone to blame?  Point your finger somewhere else.

4 comments:

  1. Our career history is eerily similar. I was hired in 1999 by United. On the first night of training, the new-hire manager actually told us "we hit the lottery." We were also told that in ten years, we'd be halfway up the seniority list.
    Being the youngest in my class, I was also set to retire very senior. I knew I would retire in the left seat of the 747... or, the biggest and best of the time.
    Eleven days before my tenth anniversary, I was furloughed for the second time. I had moved up the 4,000 numbers they promised, but, there were no pilots behind me. United was decimated by 9/11, bankruptcy, and the outsourcing of flying to regional jets.
    Today, I am happy. In an odd sort of way, I'm glad I got furloughed and was able to start over.
    If I had hung on at United, I too would be a 12 year F/O on reserve.
    Hang in there my friend. Cherish what's important in life: family and friends. If the career falls apart, there's always room to start over.

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  2. Wishing you guys the best! I hope we never have to go through anything like this. But how does the saying go "prepare for the worst, hope for the best." And no wonder my husband (CAL) doesn't want to get a new car until they get a contract signed...

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  3. Mate I feel so sorry for you. I'm currently half way through my PPL here in the UK, luckily airlines are not in the shit over here as it seems with you in the US. But i'll tell you one thing, your a determined fella with a no quit attitude, coz anyone else would have bottled it by now, Good on ya mate!

    Oh drop me an email if you want me to give your blog a shout out, more people need to hear about your stories!

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  4. I'm glad to see you back posting again!

    The biggest failure in AA over the past 10 years, in my opinion, is the move from airline leadership to financial leadership.

    Absolutely airlines need the best financial management they can muster. Management, however, is not leadership.

    This industry has never seen airlines succeed without strong leadership and not just with the CEO either.

    As much as it is important to earn profits today, it's also necessary to have people who can accurately picture what the business will be like in 5 and 10 years. Oddly, in the airline industry, that has never been reliably predicted by financial forecasts.

    It requires people who're able to evaluate the intangibles and manage a huge group of people towards being prepared for that 5 and 10 year mark.

    Domestically, there is only one airline that has consistently done this. The "other guys" here in the DFW. Like them, hate them, it cannot be denied that they have those people.

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