Airline Bankruptcy Article - VERY IMPORTANT READ

Polar742

Polar742

All the responsibility none of the authority
Please read this. The subject matter is AMR, but the names can be replaced.

November 29, 2011As American Airlines struggled to keep up with its rivals in recent years, it could at least boast something that competitors could not: The Fort Worth, Texas-based carrier had never gone bankrupt. Not anymore.
On Tuesday, American's parent, AMR Corp., filed for bankruptcy protection, citing $10 billion in loses over the past decade. In a statement, it said it took the step in hopes of bringing down costs and emerging more competitive.
You might say it's almost business as usual for the airline industry. United, Northwest and Delta have all taxied down the Chapter 11 tarmac. US Airways did it twice in as many years.
But David Arthur Skeel, a professor at the University of Pennsylvania Law School and an expert in corporate bankruptcy, remembers that things were different 20 years ago, when Eastern Airlines and Pan Am went belly up.
"If you contacted a travel agent, they would ask you if you were willing to fly on a bankrupt airline," he said. "They don't ask that anymore."
Fading Stigma?
Skeel said it illustrates not only how commonplace airline bankruptcies have become, but also how the stigma of bankruptcy itself has all but disappeared. To be sure, Eastern Airlines and Pan Am ultimately liquidated; all the major airlines struggling today went through Chapter 11, allowing them to keep flying while they restructured debt and operations.

Bankruptcy, for the airline industry in particular, is just a way to refinance the business. It is a financial move to keep you in business and give you some time to renegotiate with your lenders.


- Pete Garcia, former vice president for Continental Airlines
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It didn't start out as a corporate strategy for the airlines, but in the past decade, Chapter 11 has become precisely that, said Robert Mann, who runs an aviation consultancy in Port Washington, N.Y.
"As the industry consolidated, and particularly with the stress that emerged after 2001, it became a definite competitive strategy," he said. "Which is to say, if you haven't done it, you haven't wrung out all the costs that you could."
Pete Garcia, who retired as a vice president for Continental Airlines in 2007 and now runs his own consultancy, agrees.
"Bankruptcy, for the airline industry in particular, is just a way to refinance the business," he said. "It is a financial move to keep you in business and give you some time to renegotiate with your lenders."
Fuel Vs. Labor
It's a complex business, but when it comes to costs, there are just two that really keep CEOs and CFOs awake at night: fuel and labor.
"You can hedge fuel costs, but that's a bet, like Las Vegas," Garcia said. "Or, you can sit down and negotiate with employees."
But that's not easy, Garcia said. As with the automotive industry, unions and the airline employees they represent have been reluctant to make concessions, among them deep pay cuts and the elimination of pension plans.
Pensions were seen as the airlines' albatross, Garcia said. Pension burdens weighed heavily at United and Continental, airlines founded in the 1920s and 1930s, respectively.
"The percentage of employees who were actually on pensions, compared to say Southwest, which is only 30 years old, that's a big difference," he said.
Bankruptcy puts teeth into talks with the unions, and the legal intricacies of Chapter 11 make it easier to renegotiate labor agreements.
"All the other airlines were able to renegotiate their union contracts and to get their labor costs down to a manageable level. American was the only one that seemed unable to do that," Garcia said.
Unhappy Employees
So, why did American Airlines wait so long?
From the airlines' perspective, there's a price to pay for wringing those concessions out of employees, said Mann, the airline consultant.
"This is a personal service industry, and having highly motivated employees on the front line with customers is paramount," he said.
"In the case of American, you've got a group of employees who eight years ago took a 30 percent pay cut, have gotten very little of it back, and now suddenly you're going to cut their compensation," he said.
There's also a not-so-subtle irony about bankruptcy: It costs money. And the bigger the company, the more it costs.
Filing for Chapter 11 is likely to cost AMR "hundreds of millions of dollars in attorney and other professional fees," Mann said. "So, you don't do it lightly."
But there's also the bankruptcy stigma. Yes, it's faded, but it's still there. Nobody wants to work for a bankrupt company, and more than a few CEOs don't want to be in charge of a bankrupt company, the University of Pennsylvania's Skeel said.
"Look at General Motors," Skeel said. "Well before it filed for bankruptcy, it was clear that it needed to file for bankruptcy. But Rick Wagoner, the then-CEO, refused to file, and stigma was one of the big arguments that he made."
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NOTE: All emphasis added by me....


Based on the numbers presented above, your 200k/yr pilot took a 30% haircut off his salary, down to 140,000k. Let's say they take another 30% hit from the bankruptcy, that's another 42,000 off the 140k, which brings the W2 down to $98,000. Over the course of 9 years, the pilot went from well over 200,000 down to 98,000, a loss of $102,000, doing the same job for the same company.

Plus the probable loss of the "A" plan pension, so now this pilot in his mid to late 50's lost his pension and has lost any ability to recoup that from a fair wage is going to retire broke after 20+ years as a faithful employee.

AMR was the last one to fall.


 
"Renegotiate Labor Contracts" is really not correct. What really happens is the airline presents their case to the judge, and that is pretty much what you get.
 
gearsdown said:
"Renegotiate Labor Contracts" is really not correct. What really happens is the airline presents their case to the judge, and that is pretty much what you get.
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Yeah, a little. Delta pilots, very notably, got the demands for a paycut reduced during their run-in. I forget the exact percentages but the company demanded x, the pilots union demanded to see the books (and the judge agreed), the union came back and said we'll take x/4 cut and they got x/3. However that may all be pilot lore. Perhaps Doug could comment.
 
Don't hate me but this is my thoughts. I think we are going to see a flattening of wages at the top end of the pay scale. The wages at the bottom will probably continue to go up. It is not unheard of nowadays for a regional FO to top $50k. Just 10 years ago that was CA pay. You're seeing a liberalization of the airline pilot pay scale of sorts.

Pay is coming down across the board. Why? Less and less consumers have less and less to spend on air fare. Why? $600-$700 bil a year trade gap is one reason. Less "good" jobs. The $2000 airline ticket to Disney is now a $500 car ride to Niagara Falls. The ones that are left are the upper level folks who own Bluestar jets cards.

UNIONS CAN'T CHANGE THIS, no matter how hard you want it to. The only thing that can get us back to the "glory days" is for our trade deficit to drop and more money stay here in the US. That will create demand which will give us leverage for future contract talks. Think about what sort of contract Republic or Pinnacle could've gotten had they been hiring 50 pilots a month but only filling 10 of those seats? AWAC is a great example, contract signed on 9/11/01. Great contract that was basically the last one negotiated/signed under the "old" way of business of 60% LF making $1 bil a year.

As pilots we are (kinda) lucky. Our jobs aren't yet completely going away - we aren't going to 1 pilot cockpits any time soon for the foreseeable future. Technology isn't really limiting our job growth. What we're seeing in the US is jobs leaving our shores and going to places like Asia. If you are willing to relocate to another country you can still find some incredible job opportunities (just follow the money, Asia & Middle East).

Anyway, that is my thoughts. Oh and one more thing, the pilots at AA weren't doing their company any favors. I don't know how much their slow taxi cost that company but I would guess by now hundreds of millions of dollars of head dinosaurs. That comes from top down leadership however. The companies with the best employees typically have the best leaders, who lead by example.

*EDIT. I said unions couldn't change this. Well I was partly wrong. Unions can change this, and their members certainly can. ALPA has it as a policy to only use unionized workers for their services when possible. We can all do the same thing, as a union member we can buy US products (the key word is product, not an import) from US sources. I realize it's a pipe dream and I am one of the very few who practice what they preach but I truly make an effort to do so. Buying local is even better - if you can find local sources for the items you want to purchase. Just remember Yao Ming in China probably won't buy an airline ticket on United or US Airways. John Peters in Boston, MA just might. Yes it's more expensive. Stop filling your garages with so much Chinese crap you can't park your car in it and buy quality stuff. OK rant over, sorry.
 
Polar742 said:
Please read this. The subject matter is AMR, but the names can be replaced.



NOTE: All emphasis added by me....


Based on the numbers presented above, your 200k/yr pilot took a 30% haircut off his salary, down to 140,000k. Let's say they take another 30% hit from the bankruptcy, that's another 42,000 off the 140k, which brings the W2 down to $98,000. Over the course of 9 years, the pilot went from well over 200,000 down to 98,000, a loss of $102,000, doing the same job for the same company.

Plus the probable loss of the "A" plan pension, so now this pilot in his mid to late 50's lost his pension and has lost any ability to recoup that from a fair wage is going to retire broke after 20+ years as a faithful employee.

AMR was the last one to fall.


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Its even less if you take into consideration COLA and inflation.
 
Just be glad you have a job to go to, Serfs. What are you going to do, storm the Bastille? You'll take what you're Given and be thankful for it. Now get back to work.

PS. Merry Christmas. Me, I'm BULLISH on the future!

pd2595580.jpg


Well. MY future, anyway. Hey, if you wanted to be Rich, you should have learned how to Steal, suckers.
 
Well, I approve of the sentiments expressed above. Even yours, fly22, you Capitalist Running Dog. But the simple fact of the matter is that if you expect some sort resurgence in the US Economy, you are going to be deeply and sadly disappointed. The Jig is Up. We don't make anything anyone else wants. Our "trade" is entirely predicated on the rest of the world being poop-scared that we're going to blow them up next (which, to be fair, we do fairly regularly). But Intimidation and Bullying are short-term girlfriends. Sooner or later they're going to leave you for the guy who actually knows how to do something other than kill people and whine about what he "deserves".
 
Boris Badenov said:
Well, I approve of the sentiments expressed above. Even yours, fly22, you Capitalist Running Dog. But the simple fact of the matter is that if you expect some sort resurgence in the US Economy, you are going to be deeply and sadly disappointed. The Jig is Up. We don't make anything anyone else wants. Our "trade" is entirely predicated on the rest of the world being poop-scared that we're going to blow them up next (which, to be fair, we do fairly regularly). But Intimidation and Bullying are short-term girlfriends. Sooner or later they're going to leave you for the guy who actually knows how to do something other than kill people and whine about what he "deserves".
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So you are saying The Revolution has a chance!

Jim-Carrey-Yes-Man-Guitar.jpg
 
OK, so I'm 35. Here's a list, off the top of my head, of bankruptcies I recall:

1) Eastern
2) Pan Am
3) Braniff
4) TWA
5) CAL
6) UAL
7) USAirways (2X)
8) Am West
9) NWA
10) DAL
11) Mesa (2X)
12) Aloha
13) HAL
14) Midway (Original)
15) Midway (RDU redoux)
16) Midway (USAiways Codeshare)
17) Chalk's
18) ProAir
19) Sun Country
20) Sun Jet
21) Laker
22) Tower
23) Kalitta
24) Southern (original)
25) Tradewinds
26) Skybus
27) Atlas
28) Alaska
29) Reeve's
30) Gulfstream
31) Emory
32) Hughes AirWest
33) Mark Air
34) MidPacific
35) PBA
36) AA

Covers a wide swath of our industry.....
 
Polar742 said:
OK, so I'm 35. Here's a list, off the top of my head, of bankruptcies I recall:

1) Eastern
2) Pan Am
3) Braniff
4) TWA
5) CAL
6) UAL
7) USAirways (2X)
8) Am West
9) NWA
10) DAL
11) Mesa (2X)
12) Aloha
13) HAL
14) Midway (Original)
15) Midway (RDU redoux)
16) Midway (USAiways Codeshare)
17) Chalk's
18) ProAir
19) Sun Country
20) Sun Jet
21) Laker
22) Tower
23) Kalitta
24) Southern (original)
25) Tradewinds
26) Skybus
27) Atlas
28) Alaska
29) Reeve's
30) Gulfstream
31) Emory
32) Hughes AirWest
33) Mark Air
34) MidPacific
35) PBA
36) AA

Covers a wide swath of our industry.....
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You then have to ask yourself, what the f was I thinking when I wanted to be a pilot?
 
I'm 5 years older than Whale Boy and I still wouldn't have chosen a different career track at all.

I think the whole bankruptcy shenanigans isn't as much a function of the airline business, just a continued dismantling of the American middle class. But that's political and well, politics are for people that don't have anything better to do. :)
 
Polar742 said:
OK, so I'm 35. Here's a list, off the top of my head, of bankruptcies I recall:

1) Eastern
2) Pan Am
3) Braniff
4) TWA
5) CAL
6) UAL
7) USAirways (2X)
8) Am West
9) NWA
10) DAL
11) Mesa (2X)
12) Aloha
13) HAL
14) Midway (Original)
15) Midway (RDU redoux)
16) Midway (USAiways Codeshare)
17) Chalk's
18) ProAir
19) Sun Country
20) Sun Jet
21) Laker
22) Tower
23) Kalitta
24) Southern (original)
25) Tradewinds
26) Skybus
27) Atlas
28) Alaska
29) Reeve's
30) Gulfstream
31) Emory
32) Hughes AirWest
33) Mark Air
34) MidPacific
35) PBA
36) AA

Covers a wide swath of our industry.....
Click to expand...

Don't forget Independence Air out of Dulles!
 
Doug Taylor said:
I still wouldn't have chosen a different career track at all.

I think the whole bankruptcy shenanigans isn't as much a function of the airline business, just a continued dismantling of the American middle class. But that's political and well, politics are for people that don't have anything better to do. :)
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Agreed.

I never intended to fly 121 for a career. Life just worked out that way.

These are things we can't control, but should be mindful of when we fill ourselves with false notions of the reality of our job. It's a job, and we're line employees.

In the end, if you really want to fly professionally, you will. You will also work your way into a good (great) job.
 
Another interesting read on the BK filing:

Source

[h=1]American Airlines: Bankrupt Companies Are Healthier Than They Used to Be[/h]Posted by STEPHEN GANDEL Wednesday, November 30, 2011 at 5:00 am

65 Comments • Related Topics: airlines, economics, economy, governance, inequality, jobs, labor, wages , bankruptcy


(Lucas Jackson / Reuters)​
Having $4 billion in the bank is not your typical definition of broke. That's why American Airlines' parent company AMR surprised a bunch of people — particularly, one presumes, the five Wall Street analysts who still rated the company's shares a "buy" — when it filed for bankruptcy on Tuesday. Its comfy nest egg aside, American isn't facing any looming debt payments. The company said it didn't need emergency financing, like most bankrupt firms do. It fact, it said that its cash on hand along with cash being generated by its operations was more than enough to continue to pay off vendors and business partners on time and in full. What's more, American has no plans to call off its planned purchase of 460 planes over the next decade. Nor does it think it will have any problem getting the $13 billion it needs in financing to do so. Where was the cash crisis that put the company over the edge?
It doesn't appear there was any.
(MORE: Why American Airlines Bankruptcy Won't Affect Your Holiday Travel)
In fact, for a bankrupt company American Airlines was in reasonably good financial shape. And it may not be alone. Stockholders are typically wiped out in bankruptcies. But when mall operator General Growth Properties emerged from bankruptcy in 2010 it was not only able to pay off all of its lenders, but it had another $5.2 billion left over to give to shareholders. What's going on? Bankrupt companies, it appears, are a lot healthier than they used to be. Here's why:
Earlier this year, bankruptcy expert Lynn M. LoPucki and political scientist Joseph W. Doherty co-published a study analyzing the bankruptcies of 102 large companies that filed from 1998 to 2007. The professors were mostly looking at the fees the firms were charged by their bankruptcy advisers. But they collected all types of data, including the companies' reported assets and liability at the time of their filing.
Here's what I found when I looked at the data: The companies that filed for bankruptcy in the last five years of the study were in considerably better financial shape than the companies that filed for bankruptcy in 1998 to 2002. Typically, you think of a bankrupt company as one that owes more than it is worth. But that wasn't the case for most of the companies LoPucki and Doherty looked at from 2003 to 2007. In fact, on average, the assets of the companies that filed for bankruptcy between 2003 and 2007 were 6% greater than their liabilities, meaning they were far from insolvent. That was a big change from the 1998 to 2002 period, when the companies that filed for bankruptcy were often truly in the hole. The companies during that period owed an average of 3% more than the total value of what they owned plus what was in their bank account. In that case, filing for bankruptcy is a no-brainer. The early 2000s recession could be altering the data a bit, but I don't think that's all we are seeing. In fact, my guess is that generally weaker companies file during good times. They are the boats that can't even sail when the tide is rising.
(MORE: Going Shopping? Beware of Shopping Momentum)
So why are more companies filing for bankruptcy when it doesn't appear they have to? In the case of American Airlines, the company said in a press release the main reason it was filing for bankruptcy was to "address our cost structure, including labor costs." American and its unions had been negotiating for a while and had come to no agreement. Other airlines have used bankruptcy as a way to force its workers to take lower paychecks and benefits. American Airlines wants the ability to do that, too. And it's not just the airline industry. Car parts manufacturer Delphi Corp. was accused of unfairly using the bankruptcy process to eliminate most of its U.S. workforce and ship those jobs overseas.
(MORE: How Much Are Workers to Blame for Inequality?)
So are all these bankruptcies in the economy's best interest? There is no rule that says you have to be insolvent to file for bankruptcy. A company just has to show that it may in the future not be able to meet its obligations, and for American Airlines that appears to be true. The company lost money in 13 of its last 14 quarters - a total of nearly $5 billion over the past three and a half years. At the rate it was going, it clearly would have been out of cash. So American and companies like it need to be able to lower their wages when the economics of their businesses no longer work. But even if the unions weren't willing to make a deal today, presumably they would have made a deal before the airline went under. Plenty of companies are able to reach agreements with their workers without filing for bankruptcy or having a strike. That's why most of us a have 401(k) today and not a pension, and why our health coverage covers so little. So why couldn't American? By filing for bankruptcy prematurely a company can gain the upper hand. Clearly, that's what American Airlines is doing.
You could argue that bankruptcy is a costly process and that few companies would opt for it unless they had to. What's more, a company's biggest shareholders are often its own management, and they are not going to want to wipe themselves out. But when your stock is already down some 90% in the past five years, as AMR's is, wiping out that last dollar or so of worth to dramatically lower your expenses might seem like a good deal. What's more, management is likely to get a whole heap of new shares when the company emerges from bankruptcy. The UAW has argued in earlier cases that companies have abused the bankruptcy code when it comes to their negotiations with unions, and that Congress needs to do more to protect worker salaries and pensions in bankruptcy proceedings. I'm not 100% sure that's the case here. But it sure seems that way.
Stephen Gandel is a senior writer at TIME. Find him on Twitter at @stephengandel. You can also continue the discussion on TIME's Facebook page and on Twitter at @TIME.​
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Must be enjoyable to have the Courts and Corporate law on your side for you to take the upper hand whenever it feels good.
 
Polar742 said:
Please read this. The subject matter is AMR, but the names can be replaced.



NOTE: All emphasis added by me....


Based on the numbers presented above, your 200k/yr pilot took a 30% haircut off his salary, down to 140,000k. Let's say they take another 30% hit from the bankruptcy, that's another 42,000 off the 140k, which brings the W2 down to $98,000. Over the course of 9 years, the pilot went from well over 200,000 down to 98,000, a loss of $102,000, doing the same job for the same company.

Plus the probable loss of the "A" plan pension, so now this pilot in his mid to late 50's lost his pension and has lost any ability to recoup that from a fair wage is going to retire broke after 20+ years as a faithful employee.

AMR was the last one to fall.


[/FONT][/COLOR]
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I ride the AA jumpseat a lot. The things I've heard from APA members are chilling. 777 Captains living check to check. People with serious problems with their money, for various reasons. Allegedly, the APA tracks an annual *suicide rate*.

Much as I often pine for the day when the old dogs retire so we can all climb the ladder... they don't deserve this. This will, in my opinion, almost certainly thin the senior ranks at AA... but it's the equivalent of lighting a small medieval village on fire to 'make a point'.
 
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