Big Labor Attempts to Commandeer American Airlines

By Timothy Lee

Big Labor is at it again. This time in the airline industry.

As you’ve probably heard, US Airways has proposed a merger with American Airlines, and the latter’s labor unions have eagerly pursued contract agreements with their potential new employer. A benevolent effort meant to expedite the process? Hardly. Rather, it is a hasty, thinly-veiled act of desperation. Instead of allowing American’s bankruptcy restructuring process to run its natural course, and a stronger airline to emerge, American’s unions have acted in a manner that can only serve to muddle and complicate the situation.

Here’s the critical fact to keep in mind: American Airlines reached its current predicament due primarily to its onerous labor costs. Its industry-high labor costs, representing fully 28% of its revenue, led to bankruptcy. Now, however, its unions seek to repeat that futile process by pursuing similar deals with US Airways. It defies history and economic reality to believe that a new merger under similar conditions would create such a magical synergy allowing the new contracts to be sustained for a lasting amount of time.

On top of that, successfully integrating two separate workforces into one can be a logistical nightmare. After all, US Airways itself has yet to fully integrate the new employees it acquired with its 2005 takeover of America West Airlines. Pilots from both carriers have engaged in an ongoing dispute over seniority and pay scales, and to this day US Airways and America West essentially operate as two separate entities, with US Airways pilots only flying US Airways planes and vice-versa. How could repeating that scenario be expected to create sudden synergies or cost savings? What evidence is there that this union-proposed takeover might play out differently?

Make no mistake – we at CFIF don’t maintain any inherent antipathy toward mergers. We do, however, recognize the pitfalls and dangers of mergers suspiciously pursued and negotiated by union bosses. The unfortunate reality is that this appears to be yet another example of Big Labor pursuing its own interests at the expense of the rank-and-file employees it claims to represent.

By way of historical background, the airline industry has changed rapidly over the years due to rising fuel costs and other market forces. Countless carriers have restructured union contracts or merged with competitors to reduce costs and remain in the market.

American Airlines stands as the lone exception.

American has never merged with another airline, and until this year it had never filed for bankruptcy. As a result, its unionized employees have enjoyed arguably the best salaries and benefits packages in the industry. And in an ironic bit of history, US Airways has itself gone through several bankruptcies over the years, and even frozen or terminated pensions and many of the types of benefits they’re apparently ceding to American’s labor unions in hopes of a quick deal.

We live in economically uncertain times, in which the cushy union contracts of old have become outdated and fiscally unsustainable. The fact that American, once the nation’s model airline, is bankrupt is itself evidence of how challenging it has become to operate in the industry. Big Labor knows this well. After all, it represents a significant percentage of the industry workforce. Sadly, however, it refuses to learn the straightforward lessons of recent history, and instead continues to demand unreasonable contracts that will put the longevity and viability of airlines at risk. In so doing, shortsighted union leaders place their own survival above that of their members. They concern themselves primarily with replenishing their coffers and pursuing political victories financed by union dues.

That imprudent approach may benefit the union leadership in the near term. But in the end, it proves to the detriment of average unionized American Airlines employees, as well as customers due to the reduced long-term viability of a bloated, union-controlled airline. The alternative is to allow American the opportunity to right the ship and carve out a new, mutually-beneficial agreement with its employees. Concessions will need to be made by both management and labor, and it will necessary for American Airlines’ bankruptcy proceedings to run its course.

The Big Labor alternative to repeat the unsustainable cycle will merely prolong the misery at the expense of employees and consumers.


Comments

  1. William Russell says

    You are such a fool (the writer). Obviously you’ve read none of the history of the negotiations prior to bankruptcy. In the original bankruptcy filing the AMR CEO said the major problem was not labor. Labor has tried for the last five years to negotiate with AMR but their mantra was stall, stall, stall. Now crash. Again, you are such a fool.

  2. Kevin H. says

    Where to even begin with this ignorant diatribe? First off, American’s board put the company in bankruptcy, even pushing out its previous CEO who was steadfast against it. It wasn’t labor. Contrary to early claims and reports by the company that was the case, the numbers have since come out in bankruptcy that support the union’s claims they weren’t the issue, and as such the company has backed off those claims. Let’s remember AMR entered bankruptcy with $4.3 billion, yes, billion with a ‘b’, in cash. Doesn’t sound bankrupt to me.

    Make no mistake about the pacts with US Airways — they are very much concessionary to what the unions currently enjoy, they just don’t dig as deep as AA’s term sheet. In fact, AA’s “asks” we’e greater than those at United, Delta, and Northwest during their bankruptcies, and those airlines had no where near the cash AMR currently has in bankruptcy. By the way, AA’s cash on hand now stands at $5.1 billion.

    AA has never merged with another carrier? How about TWA? Reno Air? AirCal? American Overseas Airways? There may be others, but those are just four that immediately come to mind, the most recent of which was TWA in 2000. And as for US Airways taking over America West? Try the other way around. America West took control of US Airways in 2005 during that company’s last bankruptcy. But why report facts when they belittle your argument?

    As for AA’s unions, they gave up more than 33% of pay and benefits, voluntarily, in 2003 to help save the company from bankruptcy. And as for the unions themselves, over 26,000 union members at AA, roughly half of all union members, are members of in-house unions. Those unions have no interest other than that of their members. And it’s a weak argument to say the TWU doesn’t represent it’s constituents any less faithfully.

    Nearly every Wall Street and aviation industry analyst has criticized AA’s stand alone plan, and support a merger between US and AA. It may not be the perfect match, but the two have a whole lot more to gain together than they do separately.

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