Another airline may put up its tray tables
American meets Thursday to confront workers' ire, a $1 billion quarterly loss - and the possibility of bankruptcy.
The board of American Airlines holds a meeting Thursday that will determine whether a fourth major US carrier is forced into bankruptcy - cementing this as the aviation industry's worst era ever.
It's a move the airline narrowly averted last week, after unions at the world's largest carrier approved $1.8 billion in wage concessions to help the company avoid Chapter 11. But in a major miscalculation, management had delayed the disclosure that it set aside millions in special bonuses and protected pension benefits for itself.
Feeling betrayed, the enraged unions are now balking at the give backs. The result is Thursday's high-stakes meeting that will help set the tone for the future of the domestic airline industry.
Even if American doesn't file for Chapter 11, its employees will have to make concessions - whether by choice or by the decree of a bankruptcy panel. That, in itself, marks a watershed for the airline industry. In past economic downturns, labor was able to negotiate stakes in a company or delayed salary and benefit increases to keep workers content. Now, American's employees are faced with making long-term concessions - or losing their jobs.
While this choice is most striking in the airline industry, labor experts say workers across the country, from the steel industry to municipal government, are facing similar alternatives. "When the economy is slow, labor has to make concessions - but it's far worse now," says Neil Bernstein, a labor-law professor at Washington University in St. Louis. "The kinds of concessions being made are the largest I've ever seen, and I've been in this business since the 1960s."
Workers in the airline industry are facing some of the starkest choices: The economic downturn, fear of terrorism, war in Iraq, and the threat of SARS have forced unprecedented changes in an industry long known for its boom and bust cycles. Before USAirways emerged from bankruptcy last month, its workers agreed to cut wages and benefits by 30 percent. United's employees have agreed to givebacks of 20 percent. And management at Delta, Continental, and Northwest are also looking for big savings from labor, which typically makes up about half an airline's expenses.
"It really does feel like it's open season on workers," says Patricia Friend, international president of the Association of Flight Attendants, which represents United's flight attendants. "The company made it clear to us that they'd use the hammer of the bankruptcy court to get what they wanted, so it was like having a gun to your head."
Flight attendants at American, who initially rejected the package of wage and benefits cuts last week, reversed themselves, believing it was the best way to save the airline. Then, word spread of management's failure to disclose the executive bonus and pension packages. American's CEO Don Carty publicly apologized to enraged workers. The bonuses were revoked, but not the pension plan - a trust fund that would be protected even in bankruptcy.
Now, unions of flight attendants, baggage handlers, and ground personnel will vote on the concessions again. The pilots' union is withholding certification of its vote.
"Carty's apology does not change the fact that by withholding from [the unions] information about these bonuses and pension trust, it committed a material breach of its obligation to disclose all relevant information," says John Ward, APFA president. "Because of this material breach, we still intend to commence with a re-balloting."
As a result, American's already precarious position has become even more tenuous. "Labor and management have tied themselves in a big knot," says Dale Oderman, a professor of aviation management at Purdue University in West Lafayette, Ind. "With the unfortunate situation of being on the bankruptcy fence, the slight push either side will send them one way or another."
Professor Oderman and other experts contend that it was appropriate for management to try to retain top executives through bonuses. But, they say, it was a "terrible tactical error" not to reveal that information during negotiations with labor leaders - primarily because that failure violated basic trust, and put the union heads in the position of telling their rank and file that they had all of the relevant information when, in fact, they didn't.
"If you withhold information, lie, or convolute the truth, invariably they're going to find out," says Paul Dorf, managing director at Compensation Resources Inc., a management company in Upper Saddle River, N.J. "And when they do, it's invariably worse than if you'd been honest in the first place."
For its management bungle, American could pay a steep price: bankruptcy. Mr. Carty could also lose his job. But Oderman and others contend that labor will pay dearly, too. Employees will have to make big concessions, no matter the outcome of a new vote. Those concessions will come by choice - or the decree of a bankruptcy panel.
But even with these historic cuts in labor costs, many experts believe the country's major network carriers are not out of the woods, yet. Wednesday, American posted a $1.04 billion quarterly loss, which Carty admitted was "dreadful." That caps a record $3.5 billion loss in 2002.
"If all they're going to do is cut wages and lay some people off, that's not going to do it," says Professor Bernstein. "There needs to be a more major change in the way they operate for the industry to turn around."