Snatching Defeat From The Jaws of Victory

The Boyd Group/ASRC, Inc. ^ | April 21, 2003 | Boyd Group

[illumini]

Monday Hot Flash - April 21, 2003

Until late last week, American had it made. They had engineered an out-of-bankruptcy turnaround that put them eons ahead of the competition. With tough and direct bargaining, management and labor jointly crafted a plan to posture American to not only survive, but grow and prosper. It really looked like they had pulled it off. Now, by trying to hide a measly few million in cushy executive perks, AA management has single-handedly torpedoed the entire deal.

American had been extorting the troops to believe that the airline was in deep into the financial weeds, and everybody was going to have to hunker down to save the airline. Take a look at some of the urge-the-masses-on stuff that management was feeding to the troops:

"... American's pension plans (are) underfunded by roughly $2 to $3.5 billion..."

"...Everything is being looked at, including (changing or eliminating) the pension plan... employee benefits are a major cost item for the company..."

"...American cannot speculate the impact on employee benefits (with a PBGC takeover) ..."

- Flagship News, American Airline employee newspaper, March 2003.

Yessir, management says, your pension benefits and everything else are on the line - the company simply might have to cut them, and even may have to dump pension administration on to the PBGC, where employees can expect their benefits to be slashed to pennies on the dollar. Times are tough, after all. Sacrifice and cuts are the order of the day to get the airline through this crisis.

All that came crashing down this past week. "Everybody," apparently, does not include senior management, several dozen of which have had their pension plans engineered to be immune from any bankruptcy filing. Everybody must work together to keep AA flying, but if things go bad, the head honchos don't have to worry. They've got a pension plan they can rely on. They're above the rank-and-file.

That was bad enough, but then employees heard about the retention bonus plan for the inner circle at AA management. While employees were agreeing to double-digit pay cuts and massive layoffs, the situation was far less bleak for Carty and his inner circle of henchmen. If they stay through next year, it would be double-salary-bonanza time. No, not stay and meet some tough performance goals, but just hang around until January of 2005, and then collect several hundred grand each - a bonus equal to double their salaries. But, hey, you gotta keep good management, right?

Retention of Management? To be sure, it is tough to keep good management. Just take a look at United, where it took almost a year to cajole somebody into taking the CEO job, and even then it can be argued that they got beer performance at champagne prices. But be that as it may, when the entire airline is supposed to be a "team" in the time of crisis, it just doesn't fly to pay double-salary bonuses just to have them hang around for another 18 months or so. A team stays together. Unfortunately, this "retention bonus" would indicate that AA management may not possess the same level of company loyalty as do mechanics, pilots, and flight attendants. The message is clear: these executives can't be trusted to stay and lead, so the AA board decided to bribe them with future bonuses. Yes, there is competition for top talent. But if it requires huge bonuses to keep them interested in working, one can only wonder if that's what AA has. If AA doesn't have the type of senior executives that are dedicated to the airline without needing a double-salary bonus to stay on the property, the airline is toast.

Palaces For Us. Reduced Dental Plan For You. What was revealed late last week, fairly or unfairly, paints AA's senior management in a Saddam-esque light. From their gold-leaf palaces, replete with protected pensions and bonus programs, the AA elite had urged the masses to toil and sacrifice and sweat to defend the regime, Yet all the while they knew that if things come up a cropper they can boogie out of town, financially fat, leaving the great unwashed masses to their own fate. Fair description or not, the fact is that all the babble about "shared sacrifice" and that "everything is being looked at" now sounds like a lot of empty propaganda.

Outcomes. Until this revelation, it was a near-certainty that American would be the airline to watch. Now, it's back on the fast track to Bankruptcyville. That's not good for anybody. Some of the things to watch for:

If any union actually pulls out of the concession deal, AA will be up close and personal with bankruptcy. Worse, simply the near-total collapse in employee trust caused by this event could spook creditors, tossing American into "Chapter." In fact, it now may be impossible for AA to stay out of bankruptcy.

Carty's future is in question. He'd built a reputation for being a stand-up guy. That's over. At this point, Don Carty might as well put on a cheap plaid jacket and start selling used cars. He's got the right credibility for the job.

Watch for the trendies to call for the return of Bob Crandall, which is sort of like asking your ex-wife to come back and take over your checkbook. His track record, despite some lore, ain't exactly pure as the driven snow, and right now, a change in the front office might not do anything positive. True, Carty has destroyed trust levels with employees, but, as the president of the Allied Pilots Association has intimated, emotional decisions should be avoided. So should the return of Crandall - when it comes to emotional, he's got the interpersonal skills of a cranky badger with a migraine. Wrong guy for the job. American can get through this, but it's going to be a lot tougher. The problem is that senior management thought that it was somehow special and above the rest of the employees. If that changes - with full disclosure of any other cutsie perks that might exist - AA has a fighting chance.

But if it enters bankruptcy, it won't be labor who caused it. But they are the ones who'll pay for it.

[illumini]

Damn right! A lot of AA personnel are saying "I'll vote yes again -ONLY IF CARTY LEAVES AND TAKES AN ARMLOAD OF EXECUTIVES WITH HIM".

[John Lenin]

I don't want to sound crude, but cutting off your nose to spite your face is dumb.

[illumini]

I have to agree, but they are stating such. Personally, I think emotion should not rule the day. Try saying that to a ticked-off aisle donkey.

[Blood of Tyrants]

But telling the rank and file to tighten their belts while you build palaces is just as bad.

[Dog Gone]

With SARS on the increase, it doesn't matter what happens. Every international airline is in deep doody.

[John Lenin]

Yes, but losing your job, house and marriage would seem to me to be a lot worse .

[Beck_isright]

You mean like taking billions from the taxpayers in 2002 and instead of modernizing your airline and streamlining it, buying bigger mansions and increasing board member's bonuses with the money like AMR, UAL, Delta and Northwest did?

[John Lenin]

I am sure when they are in the unemployment line these people will realize their mistake.

[Bogey78O]

The executives were turning AA into a Ponzi scheme. The best outcome for the employees were to be unemployed and near broke.

How can you get a worse deal than that?

[John Lenin]

It's the old saying, there are no guarentees in life.

[Dr Warmoose]

I bet the executives don't have all of their wages, benefits and pensions negotiated by a union lawyer. The rank & file have no complaint against management when the R&F have voluntarily decided that they are no different from the person with the same training and seniority. Senior executives are considered on their abilities and paid accordingly. Union members lose their individuality and are seen as just another tooth in the gear.

I would be curious to know how each of the executives of each employee union are fairing under the renegotiations with AA. I wonder if the union boss's yacht payments are in jeopardy.

[Beck_isright]

This has nothing to do with the unions or the management and this tiff they are having. It has to do with a combination of outdated thinking on both parts. The unions assumed that job protection was more important than profitability. Management assumed throwing money at a 7 year old problem would fix everything. Both were wrong and we can hope for a Chapter 7 to improve the system overall. If UAL, AMR and Delta or Northwest would just collapse completely, air travel might become a pleasure again in about 4-5 years.

[Blood of Tyrants]

So your suggestion is to shut up and take it?

[Dr Warmoose]

You mean like taking billions from the taxpayers in 2002 and instead of modernizing your airline and streamlining it...]

They didn't take "billions from the taxpayers" they asked for it and were given it by Congress. Your Congress critter is responsible for stealing your money and overpaying ALL of the employees of AMR, UAL, Delta et al.

The Best thing that could have happened is for the government not to throw good money after bad, but let the individual airlines fail. The Bad executives would then be out of the system forever with the scarlet letter of massive failure on their résumés.

The demand for air travel would still be there, and the bankrupt airlines could sell their aircraft to a new set of investors who might follow the Southwest model, or become specialized, or some other method that is profitable in this sort of economy. Then this new airline could hire the best employees for the job, without the massive union overhead that came about because of the false economy of Clinton's Decade of Greed. The rest of America would be spaired the looting of our wallets to pad the expense account of overpaid executives and overpaid pilots and overpaid ground crew. But no, we get stuck with a huge tax bill, we still pay large money to get crappy service and an arrogant airline staff that makes you feel like an invader whenever you show up.

[upchuck]

This is a modified version of a rant I posted earlier today on another thread about this situation:

The people who run the various airlines are just plain stupid. I don't care if they got a MBA/PhD/yadayada from some Ivy League school. They're STUPID!

Here we are, almost two years past 911 and these idiots are still waiting for the business community to start flying again. Memo to the airline industry CEOs: Ain't gonna happen. Blame it on the internet. WebEx, Netmeeting, Remote Access... no way are you gonna compete with this. And this latest SARS mess makes these alternatives even more inviting.

It's simple: either the airlines make MAJOR changes to their business model or a bunch of them are going to be belly up in the next year or so.

Oh, and while I'm ranting, memo to the US guvament: Puh-leeze recognize what is really causing the problem and quit throwing my tax dollars at this black hole!!! Billions and billions won't change the basic (and forever) problem of too much supply, too little demand. It will only allow incompetent idiots like the assholes at American Airlines to rip us off even more!

Memo to Linda Dasshole: kindly go jump in the lake. You are, no doubt, part of this problem. PS - Please take Tiny Timmy with you.

[Beck_isright]

LOL, true, they didn't "take it". They just got the ROI that they exected and enough to pad their pockets. I agree with you, let the dinosaurs die.

[Beck_isright]

exected = expected

[Billy_bob_bob]

"...when it comes to emotional, he's got the interpersonal skills of a cranky badger with a migraine."

This is a priceless line. I'm gonna remember that one.

[Illbay]

If you lose your job and your house, that's bad, but you can survive that.

If you lose your marriage, because you lost your job and your house--well, what kind of marriage did you have to begin with?

The lyrics of the Lee Greenwood song come to mind.

[MississippiMan]

Damn right! A lot of AA personnel are saying "I'll vote yes again -ONLY IF CARTY LEAVES AND TAKES AN ARMLOAD OF EXECUTIVES WITH HIM".

This is one of those rare occasions when I wholeheartedly support the labor side of the dispute. I wouldn't want to work under such scuzzes either.

MM