Since behaving like responsible adults and taking their own best interests into account was too difficult, the Allied Pilots Association has now decided to stamp its feet and shakes its fists.
The APA has taken steps, very publicly, to get a strike vote against American Airlines. The APA board has taken a vote to authorize that steps be taken to make “. . . necessary preparations to conduct a strike vote of the membership and to initiate balloting upon the first action of AMR to impose any of the negative term sheet provisions.”
The problem is, the National Mediation Board has to give the APA permission to take this kind of action and even when it does, it imposes a 30 day cooling off period first. Not only has the NMB traditionally been very, very reluctant to release parties from negotiations, in the past decade it has shown no inclination to even hear a union out fully on its desire to strike.
Furthermore, once an airline exits bankruptcy, the NMB will be inclined to keep parties at the table for a long, long time.
So, lacking any influence on the bankruptcy for AA in the form of having a promised 13.5% equity stake in the airline or an influential seat at the unsecured creditors committee, the APA decided to fire its rational voice (David Bates) and act like a union from the old school days in making noise in the press about its desire to strike.
Well, there will be no legal strike over the next several years at American Airlines.
When the pilots stop throwing temper tantrums, I’m afraid their going to discover that they have sent themselves backwards 10 years or more both in compensation and quality of life. All because the membership making it personal.
QANTAS has shown a loss for its 2nd Quarter results and in the process announced a cancellation of its orders for the 787-9. Nominally, the basis for this is to reduce spending and QANTAS has already deferred some A380 deliveries for the same reason.
Reasons for QANTAS’ losses are in its international division and include very high fuel costs in that region. This begs the question as to why QANTAS would want to give up aircraft that would improve its position on fuel costs considerably. The international division relies upon a lot of 4-engine airliners presently and older Boeing 767 aircraft as well. While it has reduced its average fleet age, that has come about primarily through purchases of a few A330 aircraft and new Boeing 737-800 aircraft.
It’s notable that the 737-800 becomes less than desirable with the 737-8MAX on the horizon.
I would think that by now QANTAS would have come up with a rational fleet approach for its international long haul flying. While it has some critical mass on the A380, it still is operating an ever aging 747-400 fleet with some of those aircraft not due for retirement until 2018. The 767s can be improved upon massively with the 787 and that would help considerably.
The age of 4-engine airliners for even QANTAS’ trans-Pacific flying is ending in many respects. Virgin Australia is using the 777-300ER for similar routes to the US West Coast now and likely seeing far better CASM than what QANTAS experiences with the 747-400.
In a tiered approach, one would expect the 787-8 to replace about half of the 767 aircraft. The 787-9 could replace another 1/4 to 1/3 of that 767 fleet. The 777-200/300 could replace the remaining 767/747 flying easily and that leaves the A380 for high demand, trunk routes. With a 787/777 fleet, QANTAS would also experience better flexibility in its pilot group since a pilot can transition between either aircraft in just a handful of days.
It’s possible that if Boeing got off its delay in offering the 787-10, this aircraft could provide QANTAS with a nice fleet for medium to long haul travel at a fuel cost that would not be beat by any other airline.
A part of me sees QANTAS becoming a smaller and smaller player in the international domain. It lacks good partnerships with other airlines and the partnerships it does have sees those partners leaning heavily on QANTAS to do much of the expensive flying. It needs partnerships that are more equal in scope and which allow the airline to perform successfully on routes it can fly while offering customers options on routes it cannot fly.
It feels as if QANTAS and its leadership are simply managing the airline to mediocrity and you quickly become irrelevant in the marketplace that way.
Lest one believe that the APFA was going to meekly accept its contract and go forward quietly . . .
Surprise. They aren’t. APFA President Laura Glading has communicated that: “Now we need to work together to get rid of American Airlines management.” Glading says that the goal of the contract was to provide a mechanism to support a merger between US Airways and American Airlines with US Airways management taking over.
There is no doubt that APFA leadership does want that merger to happen. They’re angry and they want to show it to the current AA management, who, in fairness, has earned the enmity. But I’m not sure that rank and file saw it as quite the same purpose. The APFA membership are tired, beat up and fairly miserable. Yes, they’re angry too but the chatter I saw out there prior to the vote seem to indicate a certain inevitableness to the process.
The APA is now demanding information from AA to back up its filing for Section 1113 terms. This amuses me since their contention is that the contract was worth less savings than the Section 1113 terms are. So . . . why the hell didn’t you vote for the contract?
Because your membership is angry as hell and likely wouldn’t vote for any deal ever proposed by AA management.
I think that the APA is now officially irrelevant in most of the bankruptcy process. It denied itself a seat at the table by voting their contract down and trying to get that leverage back by challenging AA in court is a somewhat desperate move. The bankruptcy judge essentially agreed with American’s terms except in two relatively minor areas and where he did disagree, he provided a roadmap to AA to refile its motion and win.
This is going to be painful to watch the APA relegated to the sidelines and with a terrible contract to boot.
JetBlue CEO David Barger says that not only have they not received a non-disclosure agreement from American Airlines nor any contact regarding a merger, JetBlue does not want to merge with American Airlines.
Under any circumstances. Barger says that JetBlue sees its future as a successful independent and not bringing any value to the table in a merger with an airline such as American.
I agree. Purchase of JetBlue is an asset purchase, primarily, where American Airlines would suddenly be free to try to operate JetBlue routes with a cost structure exceptionally higher than JetBlue’s. Even after a successful, stand-alone bankruptcy exit, AA is unlikely to be able to operate at the same cost level of JetBlue or even close to it. So how does it win with JetBlue routes?
I like JetBlue still but I do think the airline has stagnated considerably since the departure of David Neeleman. In fact, I think that JetBlue has missed opportunities just preceeding and after American Airlines’ bankruptcy filing. Opportunities that I think Neeleman would have gambled on and won. That said, the airline is profitable, successful and operating in its niche acceptably. Barger isn’t wrong about not adding value to an airline such as AA.
Two senior QANTAS 747 pilots got into a heated argument over what data to input into a flight management system for takeoff. This occured on the QANTAS flight from DFW to Brisbane August 14. Ultimately, the flight was cancelled and set to take off the next day due to weather. However, it was determined that these two pilots could not work together and a replacement crew was sent. Both pilots are now suspended from duty.
Was this a safety of flight risk? Possibly. The environmental data one inputs into a modern flight management system determines things like take-off thrust and the speed at which an aircraft should lift off. On shorter runways, this can be criticial. On a flight like the DFW to Brisbane one, it is particularly critical since the aircraft will typically be fully loaded with a full fuel load. The flight is the longest that a 747 currently flies and is at the very edge of the range performance for a 747-400. On the other hand, DFW possesses runways that are extraordinarily long and even with a slightly incorrect performance calculation, a pilot would be able to adjust and continue the take-off or even reject the take-off if he/she sensed a problem.
But getting along in the cockpit is critical and this speaks to two pilots acting very unprofessional just prior to a flight where working as a team is what gets the aircraft to its destination. A destination that requires crossing 6000 miles of Pacific Ocean.
The Association of Professional Flight Attendants (APFA) of American Airlines has voted to accept the last and best final offer from American Airlines. This will please the bankruptcy court at the minimum.
American Airlines executives may choose to crow about this but I wouldn’t. The APFA doesn’t appear to have done this with enthusiasm or even belief in the idea that AA can thrive. They seemed to have done it out of exhaustion and the fact that the alternative gave them no hope for any improvement whatsoever for many, many years. It wasn’t the wrong choice but it wasn’t an enthusiastic endorsement of AA either.
In a couple of weeks, we’ll find out just how bad it will be for pilots at American Airlines when the bankruptcy judge rules to impose Section 1113 terms on the pilots. Make no mistake, this will hurt the pilots today, hurt them tomorrow and hurt them 5 years from now. Rather than position themselves to have a voice in their future and their airline, they are now positioned to sit and eat crow year after year. If any pilot believes the NMB will grant them the right to strike in the next 5 years, they’re kidding themselves like no one else out there. They may negotiate, that doesn’t mean they will be one step further along in pay or benefits than they will be two weeks from now.
Investors and creditors take note. This is a bad development for American Airlines. Even if they achieve their costs targets, this is the equivalent of winning the battle and losing the war. Costs may be low enough to survive but the costs are and will remain so, only half of the equation.
The other half is the somewhat more nebulous revenue side. The only way AA improves revenue is by marketing a better service to customers. It’s not enough to be the price winner in this environment. The other guys can match you fare for fare in the marketplace. It’s not enough to have the vaunted Cornerstone Strategy which, at best, concentrates business in hotly contested markets.
You have to have a product that someone wants to buy. American doesn’t have that today. An airlines employees are a massive factor in delivering service that brings customers back. Other airlines have proven this true over and over again.
American has a badly bruised and very angry workforce that will come in contact with every one of those passengers. That will have severe consequences for American Airlines over the next several years.
Let me ask you this: Where is American Airlines Cornerstone Strategy for improving employee morale and service product? That’s the cornerstone strategy that I would like to see talked about. Today, it doesn’t exist.
Mexican LCC carrier, Volaris, has announced it will begin service to Denver with twice weekly flights starting on the weekends and then moving these flights to daily as the peak season begins. The airline will serve the route between Mexico City and Denver.
The truly interesting thing in this is what isn’t being said . . . at least not yet.
Volaris is Southwest Airlines’ international partner in Mexico. The two airlines have a code share of sorts in place today (although it requires purchase of tickets from each airline to get the flight(s) you want.) Southwest is supposed to be working on technical solutions that will allow it to truly do a seamless codeshare with Volaris and other operators. So far, Southwest has been awfully quiet on this and when asked it generally responds that it has enough on its plate with the Airtran integration.
This would appear to be an opportunity for Southwest to enjoy more feed back and forth with Volaris given how big Southwest is in Denver. But no one has said a thing about it and it is entirely possible that nothing will be done to expand on it.
I’ve begun to suspect that Southwest has looked at its Volaris opportunities and balanced them against the capabilities that Southwest has bought with Airtran. Owning Airtran, Southwest is able to institute direct flights to Mexico and control the feed and revenue stream without having to cooperate with another company. It hasn’t figured out how to codeshare with Airtran operations any better . . . yet. But there is incentive to do so and it’s notable that in its purchase of Airtran, SWA likely does have a pathway to international operations in Mexico that is more clear.
Furthermore, SWA’s desire to operate Houston Hobby as a kind of “international focus city” to Mexico and Central America signal that it may be more interested in serving those destinations itself. I think this is exactly what is going on. Southwest sees opportunity and, more importantly, I think it sees a way to operate to those destinations without necessarily having to establish a large international infrastructure. It’s notable that SWA flights from Houston to Mexico and Central American destinations could be done without crew layovers in international cities. They would be international turns.
It’s time someone ask Southwest what it’s plans are for 2013 and what it’s plans are for international destinations. My bet is a 2015 start date for international operations using a new IT infrastructure.
Bankruptcy Judge Sean Lane did not impose Section 1113 terms per American Airlines’ request on pilots yesterday but don’t think that that was a win for the pilots. Judge Lane found two small areas where he disagreed with need. The first was unlimited codeshares and the second was an overly large number of furloughs.
American Airlines will revise its proposed terms and hand them back to the court in days and something will be decided. The pilots can crow victory for labor all they want, this wasn’t a win for them on any level. American Airlines is going to get fundamentally what they want and the judge signaled that, so far, he sees nothing out of line with the forming business plan despite the specious arguments made by pilots that it was unsustainable.
The business plan isn’t pie in the sky. I honestly don’t think they have made a strong business case for a long term view either. The continued focus on costs ignores the revenue problem which, despite AA PR, remains pretty bad. Costs are much easier to quantify and therefore generally remain in focus during bankruptcy. Revenue is based on a plan and projections that fundamentally rely on business conditions that are assumed and the ability to execute the plan.
My reservations about American Airlines are based on two fundamental observations. First, the executive team in place today is in no way fundamentally different than the one in place for the past decade. Over that past decade, the executive team has not shown itself capable of executing a plan to success. As a result, the company has lost more than $10 Billion over 10 years. That is not a company proving itself.
Second, business conditions in the industry are too volatile for making sound projections. Delta Airlines exited bankruptcy with a business plan based on $80 / barrel oil prices. Within months they were faced with $130 / barrel oil prices. The airline industry is subject to strong influences from a variety sources that are entirely outside of the airline industry’s control. The sum of American Airlines’ plan for revenues is “the other guys are doing this and we therefore think that with reduced costs, we can do that or better.”
The problem with that is you only know how the other guys are doing today, not how they’ll be doing tomorrow. The other guys have other issues to cope with that aren’t always the same issues that AA is presented with. Delta fixed many of its issues with a merger and built an unparalleled network as a result. Then they doubled down and did a deal to capture the NYC market. United did its merger in the reality that to compete with Delta, it needed scale and it remains to be seen that the ContiUnited merger is a true success. There is evidence that they’ll succeed, we can’t declare it a success quite yet.
My problem with American is that, so far, the business plan seems to ignore weaknesses that are inherent in the system today. In part, the Cornerstone Strategy relies upon capturing market share in very competitive markets. Anyone who follows this industry knows that in light of the capacity restraints that airlines have shown, American Airlines has been the least effective in this and hasn’t shown much restraint. Furthermore, to gain that market share means getting it on price (which sets off an industry war on fares) or on service. American Airlines continues to do virtually nothing to improve service and demonstrate that it has a handle on service issues and can get its employees to assist in raising the customer experience level.
I think American Airlines needs a team that can execute a revenue and service plan. That team sits at US Airways, not American Airlines.
American Airlines CEO Tom Horton told the Financial Times that an American Airlines merger partner could be decided within weeks. In the Financial Times story, Horton also reiterates his claims of being a consolidation advocate before it was cool to be one as well as that he suggested a US Airways / AA merger before Doug Parker did.
Want to know what I notice? US Airways and Doug Parker have gone radio silent. They have been largely radio silent for a few weeks now. Despite Horton’s Weird PR Trip, Parker & Company are nowhere to be seen.
And that does not mean that US Airways is having second thoughts. It’s not the snake you hear that bites you. It’s the snake that you don’t hear and don’t see that gets you.
I also note that Tom Horton is sounding very shrill these days.
Terry Maxon at the Dallas Morning News has THIS blog entry on why we might have not heard much from the APA on a US Airways merger lately. The short version is that the APA board issued orders that APA President David Bates not speak about this after his appearance with Doug Parker in Washington earlier last month. Color me unsurprised.
The Allied Pilots Association Board is very dysfunctional. It’s comprised of Captains elected from pilot bases who each are sure they know one hell of a lot more about an airline than any other person. As a result, they run their union a little bit like the Mafia runs New York. They’re unified but only to a point and damn anyone who gets in the way of their opinions.
This means that unions officers such as the president, vice-president, etc really don’t get much power to execute in their offices. I think we now know why David Bates was asked to resign: He had already upset the board who wants its opinions to be public, not his.
No good deed goes unpunished and David Bates was punished.
This also speaks a lot on why the APA voted down its last offer: there was one set of voices advocating for the contract and entire board arguing against it in the background. No pilot wants to piss off his local union representative either.
What does it all mean? Simply this: Expect much more dysfunctional behavior on the part of the APA in the coming months. Do not be surprised if they appear to back away from US Airways as the APA board is going to want to be in charge of such a merger when it comes to the various pilots unions and it will want to use its power in endorsing a merger to get satisfactory terms. To do that, it first has to go silent on Doug Parker.
The problem is . . . by voting down that contract, Parker can’t use them nearly as much as he could have. He now has to work with other unions and bondholders and other members of the unsecured creditors committee. By allowing ego to get in the way of strategy, the APA has nearly completely removed its voice from the process.
But, hey, they sure smacked David Bates and Tom Horton around, didn’t they? (insert sarcastic tone)
There is a “heavy” circling JFK airport at this moment dumping fuel and preparing for an emergency landing. That’s all I can get right now but more as I learn it.
Well, it wasn’t a heavy. It was a Pinnacle Airlines Delta Connection airplane. Flight 3285. A regional jet with 2 blown tires and they proceeded to JFK from Boston after concluding the winds at Boston were too high for a safe landing.
The APA board has named American Airlines first officer Keith Wilson interim president of the Allied Pilots Association. Interesting to me is that Keith Wilson has been told to work towards getting respect for all the sacrifices made over the past 11 years by AA pilots. Also interesting is the fact that it is Keith Wilson who ran against David Bates in the last APA officer elections.
The patients have taken over the asylum (again) and are asking for all the warm milk and cookies they can get since they had to forgo some of that a while back.
Now that the APA has thrown its temper tantrum, let’s take a guess at where things go for American Airlines for a while. I think that the APFA will see their membership vote no to their contract because, at the end of the day, having a similar temper tantrum will feel more satisfying. This won’t matter because I think the bankruptcy court is going to give AA exactly what it wants: imposed terms on both the APA and APFA.
It’s possible the court will wait for the APFA vote and the judge has shown previous interest in seeing rational agreements happen but . . . the APA vote is a signal to the court and judges are able to be emotional as well. I think AA gets terms imposed and I think Tom Horton gets to chuckle at the unions. He provoked them and got what he wants.
(Update: The court did delay its ruling on the APFA contract. I expect the APFA will also turn down its last offer.)
US Airways and Doug Parker now have a much more difficult uphill battle to pursue a merger. The pilots just damaged his credibility badly and markets will take notice. He won’t have influence through the unions because they are giving up a voice at the table as creditors. They’ve lost some credibility in the PR wars going on and Tom Horton wins this round. It isn’t good.
A merger still is quite possible and still the most sensible thing to do. In some ways, it’s even smarter to do it in bankruptcy as opposed to after AA’s exit. There are decisions that can be made that are easier to execute in bankruptcy as opposed to out of bankruptcy. Creditors (future shareholders) are more willing to accept those decisions in bankruptcy than outside of it. A merged company before bankruptcy exit probably sees a little less shareholder value at the exit but probably sees much more value created for shareholders after 3 to 5 years. If (potential) shareholders are willing to see the long term, this deal makes sense.
But Doug Parker & company now have to go to work hard on bondholders and influential members of the unsecured creditors committee. They have to present a sterling and realistic business case. All their ducks need to be lined up perfectly and even with that, one more thing has to happen:
The current AA executive team has to make a mistake. It doesn’t have to be a very big one but it needs to be enough to cause some to question their ability to deliver on a stand-alone plan. Another quarterly loss could do it. Possibly declining revenues might as well. Delta and United could do US Airways a favor and engage in predatory behavior against AA in its cornerstone markets and that would certainly do it.
A US Airways / AA merger makes huge sense when it comes to competing with UA and Delta. Those two have proven that their scale is helping them in ways that AA can’t experience. It is crystal clear that both airlines need each other in the future.
And if you don’t think this fight is about who runs the company, you are kidding yourself. It really does boil down to that and, in a way, you want that kind of discussion to happen. Doug Parker is seen as having “failed” at 3 attempts to merge with Delta, UA and Continental. I would argue that he didn’t “fail” but that marriages with those airlines were a bit less optimal than they would have been with AA. The real truth is that if anyone is the “ugly chick” in the airline world for the past 5 years, it’s been AA, not US Airways.
After all, it’s AA that has lost $10 Billion in 10 years, not US Airways. It’s AA that has refused to address its costs and revenues, not US Airways. It is AA who has an atrocious relationship with its unions, not US Airways. US Airways’ union problems are a product of the unions, not management. And the circumstances under which those problems occurred can’t happen again because of new federal laws.
I’ll point out that US Airways not only didn’t like AA for a merger partner for 6 years, it went to the very best prospects over and over again. That wasn’t dumb, that was smart. They didn’t lose because they were bad ideas, they lost those merger attempts because their counterparts wanted to remain in charge at those airlines.
You see, those executives didn’t fear US Airways. They feared Doug Parker and the reason they fear Doug Parker and his team is that they are aggressive, smart and overperform. There is firm, consistent evidence of that. Parker & company can make quite a few other executive teams look stupid and no one wants to look stupid.
So, I think Parker will go radio silent for the next few weeks, await some outcomes in bankruptcy court and spend their time quietly working with bondholders and lenders to firm their business case for creditors and shareholders. Tom Horton isn’t dumb but if I had to choose between him and Doug Parker to run a modern airline against the likes of Jeff Smisek and Richard Anderson, I’d choose Parker. Parker is aggressive, hungry and willing to think outside the box when it comes to an airline. Horton hasn’t shown any inclination at adopting new behaviors in light of a changed industry.
I’ve been on vacation since last week and while I was away, I had a peculiar urge to not blog on the airline industry. It’s time to change that.
American Airlines’ three big unions have had votes on last best and final offers taking place with results in from 2 of them. The TWU wisely chose to accept their offers and did so without fanfair. The APFA still has a vote going on that will go past the bankruptcy court deadline as it stands today although the APFA remains confident that they’ll be given more time to conduct their vote. I’m not so sure about that after the results of the APA vote.
The Allied Pilots Association has voted down their contract and this brings a flood of thoughts to my mind. Their vote should have been about remaining unemotional. Emotion dictated offering a big “screw you” to any contract but that wasn’t the wise choice in this vote. Accepting the contract offers flexibility in negotiating in the future and a firm role in the bankruptcy reorganization. With the APA holding 13.5% of the equity in the reorganized company, they had a voice that could bark. Without it, they are relegated to the sidelines. An emotional vote wasn’t the way you wanted to go in this.
The APA will be without voice in this process. The bankruptcy court will impose AA terms on the APA. The NLRB will not release the APA to take industrial action against American Airlines for years more now. They’ll insist on more negotiations and even arbitration but they won’t let the APA strike. AA now has zero incentive to do a new deal upon exit from bankruptcy and zero incentive to cooperate in negotiations as the longer they have their terms in place, the better the costs. My best guess? The APA has screwed itself for at least 5 years from the date of bankruptcy exit. They will not be getting a contract that has parity with United and Delta for a long, long, long time. They will have little influence on a merger, if any. The AA executive team no longer need even pay much lip service to the APA. In short, they not only shot themselves in the foot, they shot themselves in the head.
Am I surprised? Actually I was. Why? I cannot say. The truth is that the APA is not a rational organization and it has been mad and throwing temper tantrums for years. When former APA President Lloyd Hill was in charge, nothing got done but pilots got to complain loudly and throw temper tantrums and that felt satisfying. Then David Bates was elected and elected on a platform of approaching negotiations with AA rationally. More surprising was that David Bates and his fellow officers actually did approach their jobs in the union rationally.
So rationally that I forgot about the overall APA membership. Oh, there were hints from time to time. Board members from various pilots’ bases would from time to time throw wrenches into the carefully plotted course charted by Bates but Bates seemed to manage this pretty well and keep some forward progress going. So well that I started to not pay attention to those renegade board members. Bates has done an excellent job of putting smart before emotional. Sadly, pilots don’t want smart. They want emotion.
So Captain David Bates has resigned as President of the APA. The vote against the contract really was a vote of no confidence towards him and his fellow leaders. Bates did the right thing because going forward, he wasn’t going to be an effective leader. Why remain in office as an ineffective leader?
Pilots are weird creatures and their unions are stranger. They will, at almost every chance, cut off their nose to spite their face. They believe themselves smarter than anyone else at the airline and always believe that if the airline would just do what they, the pilots, thought best for running an airline, the airline would thrive.
The problem is that no pilot has ever proved themselves to be an effective airline executive in modern times. To the contrary, most have failed miserably. You can’t “control” an airline. You can manage one, lead one but you can’t control it like you do an aircraft. The airline will provide violent feedback and eject the person trying to control it. It’s not an inanimate object designed for steering inputs. It’s living creature with a mind made up of all of those a part of the organization. It has to be persuaded to do things, not mandated.
The arrogance of airline pilots is nothing new in this area. The greed isn’t either. I am reminded of when Braniff International went to its pilots for temporary cost reductions to keep flying. My father was the man who approached them. At that time, senior Braniff captains were earning as much as 5 times more than my father, one of two executive vice presidents. When asked for reductions to keep cash flow positive, the pilots refused and then offered to just loan the money to the airline via the union and at interest rates above market. Obviously more loans weren’t the solution, Braniff management walked away shaking their collective heads and eventually filed bankruptcy. And never flew again.
All the pilots lost their jobs, had to start fresh at new airlines and at entry level salaries. When the bankruptcy occurred, I remember many pilots stating private (and some publicly) that they never thought the airline would actually stop flying and cease to exist. They believed they were calling a bluff on the part of Braniff management. Many deny it now but that wasn’t true at the time.
AA pilots are a very similar breed. These men and women are going to eliminate their jobs to spite CEO Tom Horton and other AA executives. The thing is, those people will find other jobs and they’ll go on to succeed elsewhere and earn great salaries in industries that pay far better than airlines do. (Airlines are notorious for underpaying executives relative to businesses with similar revenues.) But the pilots are going to end up earning an industry low or moving on to new jobs at new airlines at entry level salaries. That 15 year MD-80 first officer is going to go back to earning $40K a year at some new airline. So is that 20 year 767 captain. And they’ll be bitter people until their retirement.
So, I’ll say this to David Bates: You did well. You presented facts and dealt with reality. You can’t help people who don’t want help and your membership is intent on throwing a temper tantrum at exactly the wrong moment. No good deed goes unpunished and I feel for you because I think you really did work towards productive and rewarding change among your membership.
American Airlines, as a part of its commitment to investigate merger partners during their bankruptcy, has sent out its Non-Disclosure Agreement to all parties interested and confirms that US Airways is one of those parties. The NDA was crafted by American Airlines and, supposedly, in consultation with creditors.
It’s the last part that has me wondering if US Airways CEO Doug Parker knew something about the NDA coming his way before it showed up. Parker seemed to qualify what he thought US Airways support would be for the AA bankruptcy process based on what US Airways perceived the merger process to be at AA. Parker indicated that he thought the NDA would be an indicator of just how “real” and fair AA would approach a merger.
And the fact that he was spinning that NDA 2 weeks ago makes me think that some parties on the unsecured creditors committee leaked details of that NDA to US Airways. Details that might indicate that the merger process at AA is window dressing rather than real.
I suspect that there might be some kind of gag written into that NDA that prohibits anyone from talking about AA in any way. and I’m not certain that that is going to fly with US Airways or anyone else for that matter.
A number of people have found a disconnect in the idea that American Airlines unions would encourage their membership to vote for the recently negotiated terms as a result of bankruptcy court mediation. Particularly so after signing agreements with US Airways in support of a merger.
The answer is that it is a calculated bet on the part of the unions. The terms are better than the term sheets offered by AA to the court for imposing upon the unions. They increase AA’s costs although the terms are less than what is being offered by US Airways. This boxes in AA when it comes to making its case for a stand-alone exit strategy. Once those costs are fixed by a vote, US Airways can better those terms and advance its own business case.
This is why AA and Tom Horton are working so furiously to push away US Airways. It is putting pressure on them to make a better and better business case and that means they have to find an argument for the revenue side of their business. Unfortunately, that argument is increasingly not a very compelling one.
Bondholders have formed an ad hoc committee to try to gain more leverage in the bankruptcy process and US Airways CEO is reportedly directly negotiating with bondholders and offering a better deal.
The walls are closing in on AA management. To succeed in a stand-alone strategy, they must:
Make a cost savings argument that supports a viable business plan going forward. Their costs are now being forced upon them by unions and US Airways which doesn’t make creditors feel like the management has control of the situation.
Make a revenue argument based on the Corners Strategy. This argument is becoming more and more difficult to make since American Airlines still cannot point to revenue improvements that impress anyone. No financial analyst feels confident about AA’s revenue strategy and many are expressing that lack of confidence very publicly. US Airways, on the other hand, is able to point to its own revenue strategies and their unequivocal success: US Airways is earning signficant profits and growing its revenue very successfully despite the inherent weaknesses of its own network. This shows that US Airways management knows how to run an airline today and puts pressure on AA executives again.
AA must convince its creditors that their fortunes are better in a stand-alone strategy than a merger. The argument here is that an exit from bankruptcy will result in those creditors owning shares of a company that is thought to be worth about $6 Billion upon exit. Unfortunately, US Airways is forcing cuts into that pie for creditors outside the company by maneuvering AA into offering pilots a very, very significant portion of that pie.
And that’s why the fight is on. We’ve seem a significant ramp up in PR activities by both airlines and already AA appears to be lashing out wildly in hopes of gaining maneuvering room. Doug Parker and US Airways is applying pressure both externally and internally and has maneuvering room as a function of their financial results.
I expect this fight to get increasingly dirty. AA’s disadvantage in this fight is that AA unions aren’t particularly fond of their executive management and just aren’t interested in supporting them. The DFW area has not, so far, really put forth any strong movement to keep American Airlines a stand-alone company. Why should they? US Airways made the guarantee that the merged airlines would retain both the name and headquarters location in the DFW area.
American has lost public support in its Corners Strategy markets of Chicago where it has to contend with the fact that both United and Southwest Airlines are competing with it. The New York market is being dominated by Delta and United Airlines. There is no groundswell of public support for American’s current management.
Comair, a wholly owned subsidiary of Delta Airlines, is going to cease operations on September 29th of this year. This comes as no surprise to anyone.
Comair has been for sale for some time and even when Delta was able to shed other subsidiary regional airlines, there were no takers for Comair. Delta says the need for 50 seat jets is going to diminish and therefore doesn’t need this airline. While that is certain to be a part of it, there is more to the story.
Comair has some of the highest costs going in the regional airline industry and a labor force that is not just unionized but militant. Strikes have hit Comair crippling Delta services and Comair has also had some of the worst on-time stats in the Delta family of regional airlines. It’s been kept on life support to meet needs due to scope clauses and the like but with Delta’s new agreement with the pilots . . . it’s just not needed anymore.
Comair was/is headquartered in Cincinnatti, a Delta hub that has seen significant reductions in schedule as well. While it remains more a hub than a focus city, it’s glory days as a hub are over. Delta can better serve its network with other hubs.
It’s unfortunate for the employees of Comair as many are very senior there and will be re-starting careers elsewhere far lower on the rungs of the seniority ladder. They have my empathy given our economic times in the airline industry.
As for Delta’s flying . . . this isn’t a capacity reduction. No doubt Delta will be adjusting its schedules, changing aircraft on routes and re-shuffling duties to its other regional airline affiliates.
American Airlines is launching a PR campaign with the tagline of “I believe in American”. You watch the video here:
I see a Keep Delta My Delta campaign being stirred up by American Airlines. There is a problem with this. Delta employees didn’t absolutely loath and despise their leadership. They had taken hits but they hadn’t taken hit after hit after hit and certainly hadn’t seen contract negotiations drag on for 5 years. They had not signed agreements with US Airways either. This is a mistake on American Airlines’ part and I think they’ll be dangerously close to driving their union employees even farther away from the current leadership. No one likes hypocrisy.
Tom Horton is now going even farther than claiming credit for the idea of an AA/US Airways merger. In addition to all of that, Tom Horton is also bashing US Airways as the airline who needs a merger more desperately than American Airlines. It is his contention that US Airways is desperate, has always been desperate and that he’ll be in charge of any merger decisions at American Airlines.
This is getting personal real fast.
US Airways isn’t wrong when it contends that its a viable airline without a merger. They’ve proved that over and over again over the past 4 years. They earn money, they earn a lot of profit relative to their revenues and they do it consistently. American Airlines hasn’t earned profits, hasn’t even mitigated their losses very well relative to their revenues and has lost roughly $11 Billion over the past decade.
US Airways has been pretty smart in seeking merger partners. Even if it hasn’t been able to engage in one since the America West / US Airways merger, it has pushed industry consolidation very hard. Over and over again, US Airways has been the catalyst for mergers. And each merger has benefited US Airways with industry consolidation.
The thing that I find arrogant (again) is Tom Horton’s statements about who’ll be in charge of deciding mergers at American Airlines. Increasingly, his public comments remind me of a certain Secretary of State for Ronald Reagan in 1981. It’s notable that that man was ultimately asked to leave government.
I’m also finding the political intrigue going on at AA to be distressing. Instead of engaging in a real merger examination process, the executive leadership and its attorneys are running around trying to find ways to derail that examination while publicly appearing to embrace it. Not good. It begs the question: What are you so damn afraid of if you think you are so damn good at your jobs.
Members of the UCC and the bankruptcy court judge should consider having a frank discussion with the executive leadership to level set expectations and, perhaps, indicate that egos needed to get put away for now.
I found a rather odd story on the Seattle Post Intelligencer aviation related blog (found HERE) referring to American Airlines indication of interest in possibly having Alaska Airlines as a merger partner. There were two things of interest in this story but before I go on, I’ll just comment that I found it amusing that Alaska Airlines basically replied with a polite response that amounted to “Yeah, we’re happy with where we are today.” And they should be since their own market cap is an order of magnitude greater than AA’s is presently.
The other item is odd. It mentions AA showing interest in Southwest Airlines as a merger candidate. First, I hope Herb Kelleher didn’t choke too hard from laughing. He’s a nice guy and I wouldn’t want to think of him hurting himself. Second, that isn’t a merger, that would for damn sure be SWA taking over *everything*. Third, SWA is much smarter than that and knows how to responsibly represent its shareholders interests in the marketplace.
I hope that the reference to SWA was a mistake on the journalists part. If it wasn’t, then if I were a financial analyst, shareholder or member of the unsecured creditors committee, I would start questioning just what the hell the company leadership is thinking.
