11.29.12 – One-Year Bankruptcy Anniversary

 

APFA Special Hotline Update
One-Year Anniversary of AMR Bankruptcy

November 29, 2012

One year ago today, on November 29, 2011, we awoke to the news that AMR had filed for bankruptcy. While this was a shock to some, APFA and its members were not completely caught off guard. In fact, APFA had been preparing the membership for the possibility of a Chapter 11 filing during its summer road shows at bases nationwide. In addition, APFA was prepared to assemble an experienced team of professionals to help guide us through this difficult, and ultimately unprecedented, process.

Below is a brief timeline of events from the first bankruptcy filing by US Airways in August 2002 to where AMR stands today. Shortly, we will make available on our web site a complete summary of events surrounding AMR’s bankruptcy.

It has been a long road. And it is safe to say we’re at least two-thirds of the way through it.   

American Airlines Bankruptcy Timeline

The following timeline provides industry perspective for the years leading up to the bankruptcy filing and highlights some of the important events in the AMR Chapter 11 case.

Aug 2002       The first major US airline bankruptcy in what would be an extremely active decade following the attacks of September 11, 2001. US Airways will emerge from this, its first bankruptcy, less than 8 months later.  

Dec 2002        United Airlines becomes the first legacy carrier to file for bankruptcy protection. This case will go on for more than three years and result in significant concessions from organized labor among other cost-cutting measures.

Apr 2003        American Airlines, following total losses of $5.3 billion in 2001 and 2002, undergoes what was called a “virtual bankruptcy.” Management uses the threat of bankruptcy to achieve concessions from unionized employees in the amount of $1.8 billion annually. Despite the new cost structure, American will continue to lose money through 2011.

Sep 2004        US Airways enters bankruptcy again, this time emerging three years later having been acquired by America West. The merged airline is led by the executives of America West including CEO Doug Parker.

Sep 2005        Northwest Airlines enters bankruptcy. Northwest will emerge 19 months later with significant concessionary contracts in place with its work groups.

Sep 2005        Delta Air Lines enters bankruptcy. At this point, four of the top seven US carriers are operating under bankruptcy protection. Delta staves off a merger bid from US Airways during bankruptcy, due in large part to a lack of support from workers. Delta will emerge from bankruptcy 18 months after filing with significantly lower wages and benefits for employees.

Apr 2008        Delta and Northwest announce their intent to merge operations. The deal makes the merged carrier the largest in the world.

May 2008       APFA’s contract becomes amenable and long, drawn out negotiations with management begin.

May 2010       United and Continental announce their intent to merge. The merged carrier effectively creates a duopoly in the US, where air travel is dominated by the new Delta and United. American continues to lose high paying business travelers to competitors’ improved products and networks.

Sep 2010        Even low-cost carriers Southwest Airlines and AirTran Airways move to consolidate. Southwest’s acquisition increases its ability to compete with legacy carriers for domestic passengers particularly from legacy hubs like Atlanta, Chicago, and Washington, DC. Its Love Field headquarters makes it particularly threatening to American.

Oct 2011         Then-American CEO Gerard Arpey continues to state publically that he has no intention of taking the Company into bankruptcy. Meanwhile, employee relations are at an all-time low. Contract negotiations have been going on with all three workgroups for over three years. The Company continues to demand that any agreement be cost-neutral, citing a continued inability to turn a profit. Meanwhile, American management continues to award itself exorbitant salaries and bonuses.

Nov 2011        After years of losses, plunging stock prices, contract negotiations, and failed business strategies, American Airlines files for Chapter 11 protection in the US Bankruptcy Court for the Southern District of New York. Arpey resigns as CEO and is replaced by longtime American executive Tom Horton. In a statement, Horton says he intends to use bankruptcy to “reduce our labor costs to competitive levels.”

Dec 2011        Shortly after the filing, the US Trustee appoints the Unsecured Creditors Committee (UCC). All three of the unions on the property are awarded a seat, as are the Pension Benefit Guaranty Corporation (PBGC), Boeing Capital, Hewlett-Packard, and three major bond-holders. The UCC represents the interests of the parties owed the most money by the bankrupt company. The committee becomes the de facto Board of Directors throughout the restructuring. Although the APA and TWU send representatives to the UCC, Laura Glading chooses to sit on the committee herself.

Jan 2012         The PBGC sends a public signal in support of American’s unions when its director, Josh Gotbaum, states that his agency is prepared to fight to prevent American from using bankruptcy to shed its pension plans. The PBGC is the federal agency that backstops retirees’ benefits when a company pension plan fails.

Feb 2012        American releases its Term Sheets detailing the concessions it will seek from labor under Section 1113 of the Bankruptcy Code. Section 1113 allows for bankrupt companies to void their labor contracts and impose new concessionary agreements with only the approval of the Judge necessary. Typically, the threat of imposed draconian contracts motivates unions to achieve mutual agreements on concessionary contracts. The term sheet American executives offers APFA include dramatic cuts to wages, benefits, and work rules, and the loss of hundreds of Flight Attendant jobs.

Mar 2012        Facing pressure from APFA, APA, TWU, the PBGC and others, American backs off its original demand to terminate pensions and instead offers to freeze them. The pension freeze allows employees to keep full benefits accrued before the time of the freeze.

Apr 2012        APFA, APA, and TWU announce that they reached agreements with the management team of US Airways and that the three major unions at American support a merger between the two carriers with the US Airways team in control. This development is without precedent in major airline bankruptcies and is a remarkable move by organized labor to exercise control over its own destiny. APFA’s bridge agreement with US Airways provides a temporary contract while the two carriers merge followed by a guaranteed network-rate contract. Additionally, the agreement includes a Voluntary Early-Out Program that allows Flight Attendants to take a lump sum payment and retire. Like the demands from American, the deal with US Airways is concessionary. However, US Airways’ plan for the merged airline allows the company to grow and compete, offering long-term job stability.

Aug 2012        Faced with the prospect of living under American’s draconian term sheet, APFA approves management’s Last, Best, and Final Offer (LBFO). Although the LBFO represents substantial improvements to the term sheet, including the VEOP, it is still a very concessionary agreement. APFA, APA, and TWU remain committed to achieving a merger with US Airways inside of bankruptcy. As part of this strategy, TWU also ratifies a concessionary deal. APA rejects its first tentative agreement but a “Me, Too” letter, secured by APFA, guarantees that Flight Attendants receive any improvements to their contract that APA achieves in subsequent negotiations.

Sep 2012        US Airways and American begin to exchange confidential information regarding operations and finances. This cooperation is subject to a Non-Disclosure Agreement (NDA) between the two parties which includes a mandatory “quiet period” during which no party can speak publicly about the merger talks. Also bound by this agreement are the members of the UCC, including APFA.

Nov 2012        APA negotiates a second TA and sends it out for a membership vote. Ballots will be counted December 7th. APFA Negotiating Team is reviewing the new agreement in order to quantify any improvements the pilots may have achieved. The “Me, Too” letter secured in August mandates that American provides an equal amount of improvement to the APFA contract.

Jan 28, 2013   Exclusivity period set to expire. However, it could legally be extended up to five more months (through May 29th) at AMR’s request. If the exclusivity period is extended, it is possible that the “quiet period” may also be extended.

In short, the first twelve months of this bankruptcy have not gone the way American planned. What management expected to be an easy process of gutting contracts, slashing benefits and wages, and laying off thousands has turned out to be far more complicated. American’s stand-alone business plan is being met with increasing skepticism and, as a result, management must examine strategic alternatives to the plan such as the proposed merger with US Airways.

Unfortunately, the terms of the NDA and the confidentiality of the UCC dictate that progress reports on these talks cannot be shared even with APFA membership. APFA and most Wall Street Analysts alike remain convinced that a merger with US Airways is the best for American and its employees.

AmericanAirlines + US Airways
“Our Future Depends On It”

Leslie Mayo
APFA National Communications Coordinator