Credibility

The previous discussion on fair and equitable raises the question of credibility. How credible is management’s conclusion of what is fair and equitable?

In Mr. Horton’s February 1st letter, he writes the words “Fair and equitable”. Why did he write those specific words? Or did he write those words? It is safe to assume this letter was not written by Mr. Horton. Sure he contributed final comments and edits, but the crafting of the message was most likely a collaborative effort between corporate communications and employee relations to deliver a specific message. The message? Its the beginning of management’s strategy to prove to the courts that they complied with the requirements of the 1113 process.

• The 1113 process requires management to follow the following steps: 
• The debtor must make a proposal to the union to modify the collective bargaining agreement anytime after filing a petition and before an application seeking rejection of the agreement. 
• The proposal must be based on the most complete and reliable information available at the time of the proposal. 
• The proposed modifications in employees' benefits and protections are those necessary to permit the reorganization of the debtor. 
• The proposed modifications must assure that all creditors, the debtor and all of the affected parties are treated fairly and equitably. 
• The debtor must provide the union with such relevant information as is necessary to evaluate the proposal. 
• The debtor must meet at reasonable times with the union between the time of the making of the proposal and the hearing on the application to reject the collective bargaining agreement. 
• The debtor must confer in good faith with the union in attempting to reach mutually satisfactory modifications of the agreement. 
• The union must have refused to accept the debtor's proposal without good cause. 

Management’s letter was crafted specifically to convey that AMR management is abiding by the fourth bullet above. But are they?

AMR management has provided the APA with the 1113 term sheet they intend to file with the court to comply with the first bullet above. In regard to bullet two, what reliable information did management use to develop their 1113 term sheet? In 2003 they provided reams of information to APA in an effort to support their request for the need for concessions. As of yet, none of that information has been provided to APA. Or at least APA has not notified the membership they have. So has management complied with bullet two? If not, as described in bullet five above the APA has the right to request such information once the 1113 term sheet is filed with the court.

Bullet three requires management to provide an 1113 proposal detailing the items that AMR needs in order to successfully reorganize. There are many items management has included in their 1113 term sheet that could arguably be questioned as to whether they are necessary to reorganize. It is important to understand the court’s view of necessary does not mean essential. Therefore, while management may be able to reorganize without getting a specific 1113 item, the court may still rule in favor of the company’s request.

The fourth bullet is the bullet that management is trying to establish in their letter that they are complying with. Their intent for making the statement is to convince the court that all employees will be treated in a fair and equitable manner. They propose complying with this requirement by having every work group give the same percentage, 20%, in concessions. But is their methodology really fair and equitable? If one work group already has a competitive cost structure, does the 1113 process require management to extract the same percentage concessions from each work group in order to comply with the fair and equitable provision of the 1113 process? Or is the 1113 process designed to allow a company the ability to reorganize by requiring differing concessions from employee groups based on their individual competitive cost structures?

When management develops a methodology where regardless of how an employee group’s cost structure compares to the rest of the industry they must give the same percentage concessions, you have to question whether their position is credible. When management provides an 1113 term sheet that will result in an “average” of 25% in annual concessions when they publicly state the cost reductions will be 20%, you have to question whether their position is credible. When management provides a proposal that would result in annual concessions of 31% at the end of the term of their proposed agreement when they publicly state the cost reductions will be 20%, you have to question whether their position is credible. When management provides an 1113 term sheet containing numerous items that are not necessary for the reorganization of the debtor, AMR, you have to question whether their position is credible. You have to begin to question not only management’s 1113 proposal as not being fair and equitable, you have to begin to question the credibility of those trying to define what fair and equitable is.

What is fair and equitable? Fair and equitable would be to negotiate according to the requirements of the 1113 process in a credible manner;

Develop a proposal based on the complete and reliable information of the latest pilot contracts in the industry. Ironically, this was the methodology management used in 2003 when pilot contracts were moving downward. Now that pilot contracts are moving upward, that methodology no longer works to their advantage.

Develop a proposal of modifications that are necessary to permit the reorganization of AMR, not a proposal developed to be punitive and over-reaching.

Develop a proposal that is based on the intent of the 1113‘s process of fairly and equitably by analyzing the employee contracts of AMR’s competitors and developing employee group by employee group comparisons. Instead management cleverly developed an 1113 term sheet based on cherry picking provisions from amongst our peers instead of one based on our pilot group’s current competitive position.

The APA pilots and AMR management are beginning a very difficult process, one that may or may not result in the continuation of the going concern of the corporation. If AMR is to survive the bankruptcy process, if AMR is going to succeed as a stand alone carrier, if Mr.Horton is going to have any chance of being a credible leader of an untrusting labor force he is going to have to build credibility. The 1113 term sheet provided by management, its construction, its valuation and its necessary requirement for reorganization are not only not fair and equitable, its not credible.