The latest information from APA informed us that we will begin negotiations over the 1113 term sheet with management next week.
To date we have not been provided any substantive information from APA concerning their analysis or views concerning management’s 1113 term sheet.
Considering the APA Board will once again be in DFW next week and no domicile meetings will occur until after the negotiations with management have begun, I can only assume the APA leadership will be moving forward with these negotiations without first getting face to face input from the membership. In other words, here we go again.
Since it appears there will be critical negotiations that will have long lasting effects on our careers, at the very least I believe we as members should have some kind of input into the path our leadership is about to embark on. To that end I have taken the time to look over management’s 1113 term sheet and thought it may be beneficial to point out some of the aspects of the term sheet that our leadership has not yet highlighted.
Beginning with - Duration:
Management has once again proposed a long duration contract. I say once again because this is the exact same proposal as in 2003. If you recall in 2003 it was initially a six year deal that was eventually agreed upon as a five year deal. However, the current situation is significantly different than in 2003 and the the latest legacy carriers to enter bankruptcy (Delta and Hawaiian) have not agreed to such lengthy contract durations.
These two carriers are both currently vey prosperous, showing that long term contracts are not needed to exit bankruptcy. In fact, both Delta and Hawaiian have both ratified newer agreements since their ratified bankruptcy agreements and these new contracts have provided significant contract enhancements.
AMR Management’s 1113 Term Sheet contains the following language:
Duration: Six (6) years from date of signing (DOS).
Does AMR really “need” a six year duration contract to reorganize? Remember that is one of the requirements for our CBA to be rejected and the 1113 terms to be implemented by a judge if it came to that. They must show that they cannot reorganize without a six year term.
Section 1113 (b) and (c) of the bankruptcy code has nine points that must occur before a judge can implement management’s terms. Number four reads;
c. The proposed modifications must be necessary to permit the reorganization of the debtor.
Is a six year agreement absolutely necessary at AMR to reorganize, when both DAL and Hawaiian, both currently very successful airlines, needed much less?
On September 15, 2005 Delta filed for bankruptcy protection. After nearly nine months of negotiations the DAL Membership ratified an agreement on June 1, 2006. The contract duration was for a total of 43 months, slightly over 3.5 years. The DAL duration language is below.
DAL Section 28 DURATION
1. Except as expressly provided otherwise, this Letter of Agreement will become effective on June 1, 2006, and in conjunction with the existing PWA will constitute a new PWA. The resulting PWA will continue in full force and effect through December 31, 2009, and will renew itself without change through each succeeding December 31st, unless written notice of intended change is served in accordance with Section 6, Title 1, of the Railway Labor Act, as amended, by either party hereto at least 60 days but no more than 270 days prior to December 31, 2009, or any December 31st in any year thereafter.
In the case of Hawaiian, Hawaiian filed for Bankruptcy on March 21, 2003 and after two years of negotiations the pilots rejected their initial agreement in March of 2005 by a vote of 55% to 45%. After the rejection of the agreement by the pilots the judge sent both APLA and management back to the negotiating table from which the Hawaiian pilots were able to achieve some further enhancements, particularly in the area of pensions, with a B-Plan contribution of approximately 17%. In May of 2005 the Hawaiian pilots finally ratified a new three year agreement. Since then the Hawaiian pilots ratified a follow on agreement in 2010 and currently enjoy many contractual provisions much better than our current contractual provisions,including pay.
In both the Delta and Hawaiian bankruptcy neither pilot group agreed to a long term contract, Hawaiian at 36 months and DAL at 43 months. And both are now very successful carriers. In both cases, neither judge required a long term contract, neither creditor’s committee required a long term contract and in either case neither carrier’s debt holders required long term contracts. Each of which AMR management will try to convince the APA leadership and the employees they must have to reorganize.
History shows very clearly that contrary to management’s upcoming PR campaign on why they must have long term contracts, they don’t. Unlike in 2003 when we only had approximately $1 billion in cash in the bank, we now have $4.5 billion in cash in the bank. Unlike in 2003 when we needed to secure outside financing, with $4.5 billion in cash on hand we are effectively providing our own Debtor-in-Possession (DIP) financing, which both DAL and Hawaiian had to secure from lenders yet were able to get short term contracts. And unlike in 2003, when AMR finally emerges from bankruptcy it will have much, much lower total costs giving it an immediate competitive advantage against our competitors providing for more of an immediate profitability outlook
But the most important lesson since 2003 is the understanding that the fundamental landscape of airline negotiations has changed. No longer does the NMB release unions to self-help. The NMB has become a political tool for politicians to use to ensure their constituents travel plans aren’t disrupted which would result in angry voters, even though that means airline employees are left for years working under concessionary contracts all the while having their compensation eroded by inflation.
AMR understands that if they are able to get the APA leadership and membership to agree to a six year deal that they could easily drag that out to a nine year deal. They have showed their negotiating intent the past five years, if they don’t need anything they don’t negotiate and there aren’t any ramifications.
This is just the first item on management’s 1113 term sheet, yet it is one of the most important. If our APA leadership even entertains for a moment management’s proposal, nearly 50% of our pilots will end up spending the entire last half of their career working under a 2003 or worse contract.
Not only should we not entertain a six year agreement, history has shown there is no need for one.
