AMR Bankruptcy Follies: Follyville – 6.25.12

Reprinted With Permission By Holly Hegeman:

June 25, 2012
Plane Business Banter
Holly Hegeman, Editor

AMR Bankruptcy Follies: Follyville

Welcome to Follyville.

Follyville is that place where journalists live who don’t know what they are talking about.

Before I go on my rant this week, a couple of caveats. One, there is no question that the situation with American Airlines is a very complex one. Not all the employees even understand how the 1113 process has to play out, or why it is an advantage, not a disadvantage for the pilots to go ahead and vote on a deal with AMR management this coming week. Nor do most people who are following the bankruptcy understand that just because the pilots agree to to a contract with American, this does not mean that anything has changed in regard to the unions’ preference for a merger with US Airways.

Yes, as they say on Facebook, "It’s complicated."

But one would expect more of an effort on the part of those who make their living writing about the American Airlines bankruptcy to take the time to really understand what it is they are talking about.

Apparently this is not the case at the Ft. Worth Star-Telegram.

Last week the paper not only published an article written by Mike Norman, the editorial director of the newspaper, that was full of inaccurate statements, but on Sunday the paper really outdid itself with an editorial that was the most badly written, unfocused, and confusing piece of drivel imaginable.

If people weren’t confused or misinformed before in the DFW Metroplex, they sure are now.

In Norman’s piece last week, he asserted,

"American’s managers put their business in bankruptcy in November. They’d have been better off if they had gone that route back in 2003, when instead they tried to form a partnership with unions to "pull together, win together."

In hindsight, that was a quaint but unworkable notion. Teamwork between unions and management sounded good, but don’t expect the union leopard to change its spots."

Clearly, Norman is blissfully unaware of the fact that for a period of time, both factions did indeed work together, until certain executives advising then-CEO Gerard Arpey convinced him that executive bonuses, determined by a calculation that paid out money whether the airline was profitable or not, was a good idea.

That was, not surprisingly, not viewed as an example of "pulling together and winning together" by employees at American. And not just by union employees. In addition, the decision by the executives to go forward with the bonus plans more or less cut off then-APA President Ralph Hunter at the knees.

Upshot of that? A new APA president that was, as many liked to say, "What Gerard deserved" — a bombastic, radically anti-management blowhard by the name of Lloyd Hill, who managed to accomplish little during his term in office.

By cutting Ralph’s knees out from under him, management at AMR lost any chance at seeing the next APA President be anything but what they got.

I can name several airlines that enjoy improving relations between their management and union leaders — most notably Delta Air Lines. For that matter, Southwest Airlines has enjoyed relatively positive management/union relations for much of its 40-plus years.

I find Norman’s comments uninformed at the very least, and at worst, insulting to those union leaders who have worked tirelessly to persuade American Airlines management to move away from its currently flawed business plan, its proposed future business plan that is not much better, and instead embrace a business plan that most everybody who understands the industry from a financial perspective has heartily endorsed. Furthermore, and possibly even more importantly for the long-run, these same union leaders have tried to persuade management to reject the company’s outdated top-down authoritarian culture and replace it with a culture that is more innovative, open, and progressive.

Norman’s piece was littered with telling phrases, such as,

"Early in the week, leaders of all three unions seemed deeply committed to Parker’s proposals. They told the Star-Telegram Editorial Board that they so desperately wanted change at the top that they were willing to make concessions in a US Airways contract that they would not make for American.

They were enchanted by Parker’s vision of the strong, competitive airline that a merger between US Airways and American would produce."

No, they aren’t "enchanted," Mr. Norman. They have studied, and their analysts have studied, the alternative plan very carefully.

Norman’s choice of the word "enchanted" is, again, condescending and insulting to the airline’s union leaders — and their advisers — who are some of the best in the business, and well -respected on Wall Street.

Finally, Norman wrote, "If the pilots ultimately agree [on a contract], that would shatter the united front the three big unions have presented. It may be a momentary victory for managers, but right now they’ll probably be thankful for any victory at all.

No, not quite. It won’t change the pilots’ desire to do a merger with US Airways. It won’t shatter anything.

If the pilots do vote for the contract, they will vote with their head, which tells them that in the big picture, it is the best thing to do. But, as one person said to me Monday, "Our heart says we shouldn’t pass it."

The pilots are faced with a very difficult decision, and one that is predicated on the belief that the Unsecured Creditors Committee will, in fact, do what it has been entrusted to do. That is, it will make sure that the US Airways proposed alternative plan is considered, after the 1113 process has been completed.

If the UCC does that — then the fact the pilots have approved this tentative agreement that is now on the table will serve to set the parameters of a potential contract with US Airways. It will set the cost structure. This will then allow the UCC to compare and contrast costs between the two plans more accurately. It will, in effect, allow the process, and the merger protocol to proceed.

At this point, as I write this, the leaders of the APA can only go on what they believe the UCC will do. If they believe that the UCC will look at the alternative plan with an open mind, and then decide whether it or the "Standalone Plan" shows more promise for success going forward, then they should recommend that the pilots approve the contract offered byAmerican.

I have to tell you, this is a very hard choice. Because the underlying sentiment is to tell the airline to go pound sand.

But in the big picture, assuming the UCC plays by the rules, a contract would actually improve the merger protocol process.

As I said before, "it’s complicated."

As if Mike Norman’s piece last week was not bad enough, and totally dismissive of the real situation at hand, the Star-Telegram then followed up in Sunday’s paper with what was one of the worst major newspaper editorials I have ever read.

The piece, entitled, "American Airlines’ path to a future may not suit unions", while not signed, was, I suspect, also written by Norman.

First of all, the title is off the mark.

American Airlines‘ path to a future is not a management or union decision. It is a decision that will be made by the U.S. Bankruptcy Court — with the UCC playing a major role in that decision.

This is not a union/management fight.

But it gets worse.

The editorial then states, as fact, "American’s plan would work, but it’s complicated. Some of its basic tenets would produce growth without necessarily delivering the number of direct jobs at American that the unions would rather see."

Bullshit.

I would like the paper to provide one independent financial analyst’s opinion that this is the case. ONE. Just one. Good luck finding one.

There is more commentary about how great the airline once was, and how the unions are against the airline’s plan because it would rely more heavily on regional jets (which would mean fewer jobs) — again not true.

But the killer comments come at the end as the editorial sums up,

"To see American’s business plan as wrong because it’s not the way other companies have done things runs counter to that tradition. The best measure of a business is how well it delivers quality goods or services to customers efficiently and thus at the lowest price possible.

No one has shown that American’s plan wouldn’t do that."

Yeah, you can imagine the scene at the Worldwide Headquarters when I read that.

What a piece of misinformed drivel.

First of all, the "Standalone Plan" is not the right plan because it does not deliver the immediate boost to the airline’s revenues that is critically needed. Second, it is not the right plan because it forces the airline to play even a longer "catch-up" game with the other two big players. And I could go on and on. But as PBB readers, you already know what the reasons are.

And, of course, I could provide any number of Wall Street analyst comments that spell them out.

There’s one sentence that I kind of agree with, however inartfully it was constructed: "The best measure of a business is how well it delivers quality goods or services to customers efficiently and thus at the lowest price possible."

And that is exactly what the US Airways merger would do. There is economy in scale. There is an advantage to heft. But I guess no one at the Star-Telegram has talked to Southwest lately, much less Delta or Continental or United.

Oh no, that’s right. American is "Something special in the air." They don’t need to merge.

As for the last line, "No one has shown that American’s plan wouldn’t do that" — that is simply a ridiculous statement.

There are a number of financial analyst comments and reports in which those people who are paid to analyze such things have repeatedly voiced the opinon that the "Standalone Plan" is simply not the best way for the airline to grow effectively and efficiently.

Follyville.

Just down the road from the Worldwide Headquarters — in Ft. Worth. Where people once practiced journalism. Not corporate boosterism at the expense of the facts.

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This excerpt comes from PlaneBusiness Banter. Holly Hegeman is Editor and Publisher. Hegeman founded PlaneBusiness Banter in 1997. It is currently the most widely read weekly publication covering the U.S. airline industry. Hegeman is often called upon by members of the media to comment on the industry, and most recently was on ABC World News Tonight, commenting on the potential US Airways/American Airlines merger.

Holly is a former senior contributing editor for TheStreet.com in New York, where she analyzed the airline industry for four years. Holly also created the airline industry research area of the Motley Fool Investment website in 1995. She covered the industry for the Fool until 1997.

Prior to her founding PlaneBusiness, Holly served as senior vice-president at two Wall Street investment firms.

Hegeman also served as a consultant to then-Chairman and CEO of American Airlines, Robert Crandall from 1994 to 1995, where she worked on a number of communications management projects. She also authored the 1994 AMR Annual Report along with Crandall.

Holly is a graduate of Loyola University in New Orleans, and completed graduate level work at Griffith University, Brisbane, Australia, University of New Orleans-Innsbruck, and the University of Tennessee.

Holly was the recipient of a Rotary International Journalism Award, and is a past president of the New York chapter of the International Association of Business Communicators. She retains her membership in PRS:NY, a select group of New York-based communications professionals, and is a member of SABEW, the Society of American Business Editors and Writers.

You can follow Holly on twitter at @planebusiness or on her blog, http://www.planebuzz.com. Subscriptions to PlaneBusiness Banter are $197/year. For more information, contact [email protected]