Just as in the previous discussion about Duration, management appears to have taken another page out of the 2003 play book, they have informed APA that they expect $370 million in annual concessions from our current contract. While most pilots understand there will be concessions forthcoming, the manner in which we get there may become more of a debate.
On February 1, the day that management provided APA their 1113 term sheet, AMR Chairman and CEO, Tom Horton, sent the employees of AMR a letter describing the upcoming restructuring process. In that letter Mr. Horton wrote the following statements;
“Commitment to success - We have thoroughly analyzed the competition and the industry and what we must achieve is crystal clear. Competing and winning requires a financial improvement of more than $3 billion, and that, in turn, requires significant savings in employee-related costs - of more than $1.25 billion per year.
Fair and equitable - All workgroups will have total costs reduced by 20 percent, including management. While the savings from each work group will be achieved somewhat differently, each will experience the same percentage reduction.”
Interestingly, Mr.Horton uses the header, “Fair and equitable”. Looking at our latest annual report, 2010, and then looking at our last quarterly report, 3rd quarter 2011, annual wages, salaries and benefits totaled approximately $6.9 billion for AMR (2011 projected). Mr. Horton states AMR needs $1.25 billion in cost reductions to remain competitive. With $6.9 billion in total employee costs, $1.25 billion would equate to slightly over 18%. Why does he state 20%?
If you use the $1.25 billion in cost savings he suggest based on 20%, that would equate to annual wages, salaries and benefits of $6.25 billion ($1.25 billion/.20). Where is the other $650 million in wages, salaries and benefits ($6.9 billion minus $6.25 billion)? Is American Eagle not included in these totals? If not, why not? Is this 2003, all over again? Should American Airline’s employees agree to cost reductions without knowing what American Eagle’s reductions are? Following the 2003 concessions by American Airline’s employees, the employees of American Eagle gave no concessions.
So where does management get 20%? Where do they get $370 million in annual concessions from the pilots? Our current contract cost AMR approximately $1.5 billion annually. 20% of $1.5 billion is $300 million. $370 million in annual concessions would actually equate to a cost reduction of 24.7%. Why does Mr. Horton say 20% in his letter when it is really approximately 25%?
But even worse, look at the last page of the term sheet that management provided our union, (Pilot 1113(c) Priceout). On the last page management breaks down the annual cost savings of their requested concessions. In year one the projected cost savings are $274 million rising to $470 million in year six. Management then averages the six years to get the $370 million “average” savings. The “trick”, is that at the end of the six years the $470 million in annual cost concessions will be ongoing. In other words, under “management’s math” by the end of the sixth year the pilots’ contract will have been reduced by over 31%. Where is Mr. Horton’s fair and equitable 20% in reduced costs from all work groups?
Mr. Horton writes in his letter, “We have thoroughly analyzed the competition”. He then goes on to further write, “All workgroups will have total costs reduced by 20 percent”.
When AMR management analyzed the competition did they analyze each work group against the competition or just the other carrier’s total costs against American Airlines? If management did a proper and thorough analysis of each work group did each work group really end up being exactly a 20% differential from our competitors or did management just lump us all together without really analyzing what our pilot costs were as compared to our competition? Does anyone else find it amazing that every work group at AMR just happened to be exactly 20% less competitive than each of their competitors work groups?
Since 2003, pilot contracts in the industry have steadily improved, much more so than the other employee groups. This in and of itself would tend to suggest that the cost gap of our pilot contract is less than the other employees cost gaps. Then how can it be after management's analysis that they came to the conclusion that each group is exactly 20%?
It appears just like in 2003, management sat down and developed a template that would support their position to extract the concessions that they want from the pilots, not necessarily the concessions needed from the pilots to reorganize. Where is the supporting documentation? How could a basic mathematical calculation of 20% end up being 31%? Are they really seeking a competitive contract or are they just trying to extract as much as they can out of us by trying to develop a methodology to support it?
In 2003 management’s methodology actually did a work group to other carriers’ work group comparison which resulted in the pilots giving a disproportionate share of the total concessions, $660 million of our $2.1 billion contract or 31%. In contrast the Flight Attendants gave 26%, TWU 23% and Management and Agents 12%. Now that many of the other carriers’ pilots have negotiated improved contracts management changes their methodology so that once again the pilots end up giving the disproportionate share. Under their 20% one size fits all, the pilots would be giving 30% of the requested $1.25 billion in concessions even though we only represent 9% of the employees at AMR.
Why did AMR management change their methodology? Because if they did as they did in 2003 and they compared our contract to the latest ratified contracts in the industry our cost gap is no where near 20%. The only way to get the pilots to give another disproportionate share of concessions was to come up with a new methodology based off of a different metric than in 2003, one that is structured to the current environment that works to their benefit.
In the case of the DAL bankruptcy 1113 negotiations, DAL management informed the pilots that they needed approximately $325 million in annual concessions to successfully reorganize. After nine months of negotiations, DAL management and DAL ALPA agreed on approximately $280 million in concessions. Why less then the requested $325 million in concessions? Because the DAL MEC didn’t negotiate to management’s arbitrary request. The DAL MEC negotiated changes to their contract that were needed to make their pilot group competitive and that provided DAL management with what was needed to reorganize not what they arbitrarily wanted.
APA made the mistake in 2003 of negotiating to a number, are they going to make the same mistake again. Management will manipulate the numbers to say anything they want, but what they need is a competitive pilot contract. What is that number? No one knows, not even management. APA should forget management’s arbitrary figure and negotiate an agreement that makes us competitive.
Ask yourself, how Mr. Horton came to the 20% value he mentions in his letter, when it is really nearer 25%? Ask yourself, by giving $470 million in concessions in the last year of their proposed six year deal, and every year thereafter, how that equates to anywhere near 20% when it is actually nearer 31%? Ask yourself, did each employee group really end up being exactly 20% less competitive than their peers at their competition? Ask yourself, after SWA, DAL, ALK, HAW and many other carriers’ pilots received contract enhancements after 2003, not to mention the enhancements that the “new” United pilots will soon be receiving, does our pilot contract really have the same cost gap to our peers as the other American Airline’s work groups have to theirs?
Ask yourself, did AMR management just develop a methodology and an arbitrary value to extract a disproportionate amount of concession from the pilots, once again? Is this really “fair and equitable”?
If the APA leadership accepts and negotiates using management’s methodology I think it is safe to assume there is no way the pilots of American Airlines stand any chance of coming out of these upcoming negotiations with any resemblance of a competitive industry style contract.
