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April 2007

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Airline Bankruptcies, Mergers, and Profits Provoke Unions

By Carl Finamore
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E ntering bankruptcy protection is as common for airlines the last few years as entering drug rehab is for contemporary pop stars. The only difference is that airline owners leave the “treatment center” flying higher than ever. After all, experience demonstrates bankruptcy provides ample opportunity to dump pensions, rewrite collective bargaining agreements, and renegotiate debts. 

The results of these concessions are undeniable. The airline industry reported a 534 percent profit increase from 2005, soaring to $2$3 billion in profits for 2006. The employer-controlled Air Transport Association expects 2007 to be “even more promising, with a projected profit of approximately $4 billion….” 

Of course, the employees are left to “bottom out” on their own. Prominent union financial analyst Dan Akins estimates workers have suffered reductions in wages and benefits totaling $11 billion from 2002 to 2005. 

So while workers are in the dumps, the airlines are on Cloud 9. Statistics confirm that the enormous concessions imposed by bankruptcy courts were based on deceptive business plans with inflated labor costs and underestimated assets. 

T he Association of Flight Attendants (AFA) at Northwest Airlines understands this. It recently filed a brief challenging Northwest’s reorganization plan, arguing that it was “now obsolete.” In its brief the union demonstrated that the pre-tax 6.5 percent profit margin originally anticipated by the bankruptcy court for 2010 is now expected in 2007. The AFA-CWA also documented that most other economic projections submitted to the bankruptcy court last year by Northwest are already being exceeded. The same criticism could be made of U.S. Airways and United Airlines, both of whom walked out of the bankruptcy court with deep pockets. 

In addition to dramatically lowered labor costs, increased fares, and a record number of passengers stuffed into each aircraft also account for these profits. Now Wall Street is circling the skies looking for wounded quarry. It smells big money from more mergers and acquisitions or from the old staple of pumping up ticket prices. Prey or predator, United Airlines, American, Continental, Delta, Northwest, and U.S. Airways have all been the subject of speculation by ravenous investors. 

After receiving a steroid dose of new capital when recently acquired by America West, for example, U.S. Airways has made two unsuccessful offers for Delta in the last months. They even upped their most recent offer in February by 20 percent. Delta’s creditors committee rejected both offers, largely because they believe they can profit better flying solo after their planned bankruptcy exit in April 2007. 

But please remain in your seats, we may be experiencing some “bumpy air.” In fact, the merger mania may be slowing a bit because the mad dash for profits, following so soon after dumping pensions and tearing up contracts, is setting off some stiff opposition. The International Association of Machinists (IAM), for example, opposed the Delta merger because contract negotiations to integrate the US Airways and America West workforces were not completed. IAM airport pickets at U.S. Airway terminal doors earlier in the year declared “No Contract, No Delta.” 

U.S. Airways is also in hot water with five senators. The senators recently sent a letter to the Pension Benefit Guaranty Corporation asking them to invoke their statutory authority and “explore the possibility of restoring the terminated employee pension plans at U.S. Airways, in light of the airline’s substantially improved financial circumstances.” 

The senators objected to U.S. Airways bidding $10.2 billion to purchase Delta, including $5 billion in cash, after previously defaulting on their employee pension plan, under-funded as it was by $4.8 billion. 

The persistent stalking of Delta by U.S. Airways put the spotlight on the grotesque irony of an airline going on a Rodeo Drive-style buying spree only a short time after burying the pensions, benefits, and wages of thousands of employees. Other carriers are subject to the same criticism. 

Delta management is also the target of some controversy. Ground employees recently formed a union organizing committee right in the heart of the staunchly anti-union carrier’s main Atlanta hub. It’s not surprising as Delta’s non-union ground workers have fared far worse than their union counterparts at other bankrupt airlines, dropping to “second or third from the bottom in pay” among over 20 U.S. carriers, according to the organizing committee’s Deltaramp.blogspot. com website. 

Historically non-union, Delta urges workers to “Keep Delta My Delta.” But what does that mean when Delta’s “reorganization plan” calls for eliminating 7,000 to 9,000 jobs by the end of this year. The carrier’s pro-IAM ramp workers have a better idea: “Make Delta Our Delta.” 

Experts still believe mergers and acquisitions will take off. But with increased public scrutiny and worker discontent on the rise, don’t expect the flight to be as smooth as originally expected.  

Carl Finamore is president of the IAMAW Air Transport Local Lodge 1781. 

 

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