Interesting AA politics. A long reAAd however.

Derg

New Arizona, Il Duce/Warlord
Staff member
GENTLEMEN -- THIS WAS DISTRIBUTED TO MIA PILOTS THIIS MORNING BY TOM FRASER
(MIA CHAIR). IT IS A CREDIT TO TOM' THAT HE MADE THIS AVAILABLE TO US EVEN
THOUGH HE VOTED YES ON THE TA AT THE BOD.

THE MESSAGE THAT FOLOWS CONTAINS VITALLY IMPORTANT INFORMATION WRITTEN BY A
SENIOR INVESTMENT BANKER SPECIALIZING IN TURN-AROUNDS AND BUY OUTS TO HIS
BROTHER WHO IS AN AA PILOT. THE AUTHOR IS NOT INVOLVED IN THE AMR SITUATION AS
AN ADVISOR TO AMR OR APA. HE PROVIDES VERY VALUABLE INSIGHT AND A WALL STREET
FINANCIER'S PERSPECTIVE ON WHAT IS TRANSPIRING AT AMR AND APA IN THIS TA.

THIS SHOULD BE AVAILABLE TO EVERY AA PILOT BEFORE THEY VOTE BUT PROBABLY WON'T
BE DUE TO AMR'S/APA'S CRAM DOWN VOTING SCHEDULE. AMR AND THOSE ASSISTING THEM
INSIDE APA DO NOT WANT US TO HAVE ADEQUATE TIME TO CONSIDER THIS DEAAL BECAUSE
MORE SOLID INFO LIKE THIS WOULD BECOME AVAILABLE AND WOULD EXPOSE WHAT IS
REAALY GOING ON. IF YOU EVER READ ANYTHING -- PLEASE READ THIS AND PLEASE PASS
IT ON AS WIDELY AS POSSIBLE TO OTHER AA PILOTS.
Fraternally -- Brian

=========Begin Message forwarded from MIA Chair Tom Fraser=============

The following was written by John Danhakl.

John runs one of the largest private equity funds in the U.S.
(Leonard Green LP) His firm buys distressed companies (often from
BK), changes their management and turns them around. He runs a 4
Billion fund with over 20 Billion in assets. He is the lead
partner (of 3) of his firm, and was named 2002 Buyout Executive
of the year. He sits on the BOD of several major corporations and
has been a financer for several companies that have undergone
re-organization. He's a Harvard MBA, former investment banker at
Drexel Burnham Lambert and was the director of investment banking
at DLJ before he became a partner at Leonard Green. In the
interest of full disclosure, he is the brother of SFO Based FO
Jim Danhakl.

Statement from John Danhakl

There are many valid points but they are shaded to favor the
outcome that has been predetermined. At the end of the day there
are a lot of judgments required here about the risks versus
benefits of bankruptcy.

From where I sit, it appears that your union played a really
terrible hand of poker.

Specifically, they caved to all points proffered by management
based on the threat by management that they would file bankruptcy
and bad things would happen. My sense is some fairly senior
pilots feel that their pensions are more important than their
jobs--probably a valid point at this stage of their careers, but
a lousy one for those like you left behind. The judgment was that
a near term bankruptcy would threaten the pensions. I don't
believe this to be the case. I believe that improving the cost
position and balance sheet of the airline by going through
bankruptcy now would put the company in a better position to
compete going forward providing the greatest assurance that the
pension obligations would be me. The important point is to note
that funds already contributed to the pension remain in the
pension. The company can't get at them, even in bankruptcy. The
pension issue really addresses future contributions, and to my
way of thinking, the future is pretty murky such that I would
highly discount future contributions.

There are several indefensible positions forwarded by
management--particularly the duration of the agreement, that were
essentially rammed down your guys throats. While this was a nice
thing for AMR to have, it is not at all clear to me why it is
needed in terms of addressing the financial challenges short
term. You could do a one to two year contract and if things don't
get better extend it in two years. Why agree to six years now?
Why not ten years? Why not fifteen years? It is an arbitrary
number.

The magnitudes of the cuts are also arbitrary, but I don't have
any basis to comment on whether they are too much or too little
or fall disproportionately on you guys versus other labor groups
or management. I would comment that based on your
characterization of the discussions and the other terms your guys
agreed to, my sense is that you probably got screwed here.

I do know that there would be nothing stopping the company from
giving you a substantially greater equity interest. If you are
giving up $660 million per year, why not get $200 million per
year back in stock? There are no cash flow or credit issues
associated with that kind of approach. The only thing stopping
management from agreeing is 1. Greed, and 2. They view you as
patsies.

While the strains on the business from bankruptcy are
considerable, the protections and benefits afforded by bankruptcy
are also considerable. Important points not addressed by the
letter are that all pre-petition claims, other than secured
claims against equipment you want to keep flying are treated as
follows:

- No payments of interest or principal are required prior to the
emergence from bankruptcy--this is a tremendous source of cash
(lack of a use of cash) - Unsecured claims to vendors
pre-bankruptcy will be held in abeyance. While your counsel
suggests that vendors will put the company on COD, what more
typically happens is that they will actually extend the company
more credit. They are likely tightening up now because they
expect the company to file. A bankrupt company can't again file,
so they are protected from the treatment discussed at the end of
this point. Post-petition claims typically are fully satisfied
while pre-petition claims are compromised. These pre-petition
claims will probably receive no cash and be flushed into equity,
meaning a much better balance sheet post transaction.

- Existing equity holders will be wiped out. This means that if
you sign now and subsequently go into bankruptcy, your equity
will be worthless.

Additionally, the company will be able to reject contracts and
leases that it finds unattractive, substantially reducing costs.
This may include some labor contracts, however there have been
protections put in place to mitigate the companies ability to
entirely reject labor contracts as a result of the Continental
bankruptcies in the 80's-so you enjoy special protections.

Bankruptcy has been very good for airlines in certain
circumstances. Continental emerged stronger and better in the
early nineties. U.S. Air is emerging now with a substantially
improved balance sheet. The companies that don't do well are
marginal players with lousy balance sheets who are effectively
obsolete--the Braniffs, PanAms, etc. AMR is a too big to fail
company in my opinion. The "liquidation" scenario is not
realistic because you serve too many people and you fly too many
airplanes. There would be no one to buy them. In addition, the
points your attorney makes about the strains of bankruptcy are
mitigated by the fact that the whole industry ex Southwest is
essentially in bankruptcy or damn close and thus the stigma would
be less. People are getting comfortable with the concept of
buying tickets on bankrupt airlines.

I believe his comment about the access to credit is just wrong.
How is it that U.S. Air can get access to a DIP without
pre-determined contracts. How can United get a $1.5 billion DIP
without predetermined contracts. Trust me - if management was
really ready to file at 3:00, they had DIP financing lined up.
The point is •.

Regarding management always getting what they want in bankruptcy,
that point is simply wrong. CBA's can not be abrogated wholesale,
and despite what your lawyers suggest, there is broad latitude
given to judges. In the UAL bankruptcy there is a hearing on the
very day that you vote (April 14th) regarding disposition of
their flight attendants contract. Why not postpone the vote until
you see the results of that judge's verdict? You might feel
pretty stupid voting in a contract because you fear that a judge
will slaughter you, and then find out a day later that judges
are, in fact, pretty reasonable. (Most of the time)

Also, regarding timing, AMR's quarterly earnings report is coming
out on the April 15th, the day after the vote. Seems like things
could be much clearer for you in a couple of weeks. Why the rush
for a vote when you have nothing to gain?


As far as creditor committees always not taking employees into
consideration, that point is also wrong. Creditor committees
almost always have a union member on them. In the recent Hawaiian
airlines bankruptcy a pilot was named as the chairman of the
creditors committee.

Looking at the numbers that you have provided me, my approach to
the members, assuming you want to continue fighting is as follows:

AMR is in financial trouble. Who is being asked to help?

Pilots 37% or $660 million, $66,000 per person

Mechanics 34% or $620 million, $21,000 per person Flight
Attendants 19% or $340 million, $17,000 per person Agents 4% or
$80 million, $4,000? per person Management 6% or $10 million,
$10,000 per person Lenders 0% Equipment Lessors 0%

The pilots are being asked to disproportionately share the burden
resulting from horrible financial decisions by management. I
haven't heard about wide scale personnel cuts nor compensation
cuts by management. Lenders are giving nothing. Lessors are
giving nothing. Bankruptcy is probably inevitable for the company
and it is the correct thing for the company to do to make sure
everyone is contributing to the solution. The pilots should only
agree to the contract if all interested parties are contributing
(i.e. through bankruptcy) and only if you get material ownership
of the company and a material board role going forward.


John Danhakl
 

speedman

New Member
So after this paycut the pilots are getting to their pay, anyone have any idea on how much they will be earning? some AA pilots not clearing the 100K mark maybe?
 

av8sean

New Member
I was really shocked the way APA rolled over on these negotiations. Usually they are very fierce in negotiations. If AA tried to give them a lame contract in bankruptcy I wouldn’t doubt they’d strike and kill the company before working with a substandard contract.
 

MUTiger

New Member
It's the ex-TWA people that really getting screwed over here. With the projected cuts affecting the bottom of the seniority lists, it's all the TWA people who are getting cut, most of them in STL. My aunt has 30 years with Ozark/TWA/AA and she's getting furloughed. I wonder how it feels to have someone with 27 years less experience than you get to keep their job and you lose yours?

-tiger
 

farwellbooth

Well-Known Member
[ QUOTE ]
The important point is to note that funds already contributed to the pension remain in the pension. The company can't get at them, even in bankruptcy.

[/ QUOTE ]

Maybe I'm a little confused with semantics but I don't need to go to Harvard to figure out that US Airways retirees just lost a good portion of their pensions under bankruptcy. Maybe they are guaranteed their previously contributed funds but how future funds are calcuated are very important.

It may seem like a lot of concessions but I think most people would rather watch United and US Airways from the sidelines vs. bankruptcy and give even more concessions. I don't really know jack, just a couple thoughts.
 

pilot602

If specified, this will replace the title that
[ QUOTE ]
My aunt has 30 years with Ozark/TWA/AA and she's getting furloughed.

[/ QUOTE ]

Yeah, the Ozark folks are the one's who are really hurting through all this. They got hit hard with the TWA merger and now they are at the bottom ofthe list at AA. Hell it looks like dad has lost his medical benefits and he wasn't even told!!

If there were no Oz people left at TWA/AA I'd say the TWA folks are getting a taste of their own medicine (not trying to be vindictive, but the TWA folks really treated the Oz folks poorly when the merger hit and even somewaht to this day).

In the end, every merger sucks for every person involved ('cept for the fat cats - they just get fatter) and now these big airlines are realsing that yes they're the biggest in the world but because they are now the biggest they can't react to market changes as quickly as the small guys can.

Bigger is not always better ...
 
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