Terry Maxon who is the regular reporter for all things airline related at the Dallas Morning News and the primary contributor for the Dallas Morning News Aviation Blog has created an uproar among American Airlines pilots by suggesting that AA either suddenly has a vast number of its fleet experiencing serious maintenance problems all at once or something is up among the pilots and/or mechanics.

As a result, he’s gotten many emails from AA pilots contending that maintenance is the real issue  and that pilots are simply going by AA’s own book when it comes to dealing with those issues.

AA’s fleet is old by any standard and, yes, maintenance issues should be pretty common particularly among the MD-80 fleet.   Let me point out that the MD-80 fleet is only 191 strong now and is getting replaced rapidly by new build 737-800s.

AA has the following fleet count:

• MD-80:  191
• 737-800:  186
• 757-200:  105
• 767-200:  14 (and to be replaced by A321NEO aircraft)
• 767-300:  58
• 777-200:  47

205 aircraft in AA’s fleet could be categorized as “very old”.  These are the MD-80s and 767-200s.   Most of the 767-300 aircraft are actually not that old as aircraft go and should be categorized as “appropriate” and that accounts for 58.  The same is true for the 757 fleet and that gives us another 105 aircraft in the “appropriate” category with an average age of just 17 years.  For the relatively low cycles the 757 fleet has, that’s perfectly acceptable.  The 767-300 aircraft tell a story similar to that of the 757 fleet and total 58 aircraft.   The remaining aircraft (737/777) total 233 aircraft.

Now, please remember that fleets change and my counts may be off by a few aircraft but how I’m categorizing them isn’t.  So, let’s look at what is old vs new in the AA fleet:

• Very Old Aircraft (MD-80 and 767):  205  (34% of the fleet)
• Old But Appropriate (757 & 767-300):  163 (27% of the fleet)
• Young Aircraft:  233 (39% of the fleet)

I think the pilots are overplaying their story of age and poor maintenance.  Furthermore, I’ll point out that other airlines run similarly old or even older sub-fleets with nary a problem.  Airlines such as Delta, for instance.

And despite how old those MD-80s are, they are also by all accounts some of the most durable aircraft around and very capable of flying with deferred issues.

Sorry AA pilots, I think you’re right in that some stuff has been deferred, some maintenance not done as regularly but I also think you are still playing “the game” with the company too.  If you think I’m wrong, contact me and give me real evidence that you aren’t.

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These days, it seems as though American Airlines and the Allied Pilots Association are in a contest to see who can be more dysfunctional.   After asking for a return to negotiations, American Airlines has made threats to seek a court injunction against the pilots for the work slow downs occurring among some pilots.

The Allied Pilots Association is doing its union thing saying “What, us?  No way!” and then refusing to return to negotiations because its feelings are hurt.  But then also publicly cautioning its pilots that if they are engaging in a work slow down, they really should cut it out.

A curse on both their houses.

AA should have kept its silence and gotten to the table to get a deal in place.  Instead, they lost confidence and sent their new HR VP to threaten and already furious labor group.  That isn’t leadership.  That’s accounting people doing the accounting thing.  Do readers think that someone such as Gordon Bethune would have made such a move?

The APA should have shown it was in control of its pilots and gotten the word out quietly to cut it out as this is a chance to get a deal in place.  Instead, they did their usual song and dance.  The APA board is particularly dysfunctional since its run really by pilots who act in self interest instead of the better interest of the entire group.  The union’s president, Keith Wilson, is doing his best imitation of Laura Glading at this point which may get him re-elected but won’t get his group a deal.  Do you think David Bates would have advocated for these silly moves?

Like I said:   A curse on both their houses.

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The Fort Worth Star Telegram’s Sky Talk blog has a story about how Maxim Group analyst Ray Neidl sees a similarity in the behavior of American Airlines pilots and how Eastern Airlines pilots managed to drive their own company into the ground 20+ years ago.

While I agree with Neidl seeing similar behaviors that are similarly irrational, I don’t necessarily agree that the same outcome is likely.  Eastern Airlines pilots did what they did, in part, because it was very hard for airline labor not to believe that an airline such as Eastern would be allowed to go bankrupt and effectively liquidate itself.  This, despite seeing Braniff vanish just a few years before.  There was a belief, at that time, that management would cave in to labor or that Congress would intervene.  Neither happened.

Today, I think that AA pilots know a little better.  That said, things are already getting out of hand.  What pilots don’t appreciate is that their small individual actions have a massive combined effect.  The press on this issue is already exposing just how far this has gone and just how little room there is for it to go further.  Furthermore, I think we would have to see a greater indicator of irrational behavior on the part of the APA board and leadership before determining that the risk is realized and the threat of demise imminent.

I will, however, reserve my right to change my opinion based on union behaviors over the next few weeks.  If we see union leadership fail to reign in these behaviors, I’ll fully acknowledge the likelihood that the airline starts a downward spiral financially.

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It’s no surprise to anyone who lives in the Dallas / Fort Worth area that the local newspapers are awfully friendly towards its local airlines.  Both the Dallas Morning News and the Fort Worth Star Telegram tend to be very forgiving of American Airlines in particular but even Southwest Airlines gets a pass on occasion.   The area is dependent upon this industry in many ways and, to some degree, it’s OK.

One local reporter working for the Dallas Observer, Jim Schutze, is a man I respect quite a bit.  He worked for the Dallas Times Herald when it was in operation and then moved on to working as the Dallas bureau chief of the Houston Chronicle and writes for the Dallas Observer as well.  Schutze is a liberal and, in this town, liberals don’t get much play.  Balance between liberal and conservative viewpoints in the DFW area is a myth.  That said, Schutze is first and foremost a balanced reporter who exemplifies what journalism once was and rarely is today.

Schutze wrote THIS entry on his Dallas Observer blog regarding American Airlines and, curiously enough, Mitch Schnurman, a reporter for the Dallas Morning News and, until recently, the Fort Worth Star Telegram.  It was Schnurman who wrote scathing attacks on American Airlines management through the summer for the Star Telegram and caught national attention.

Schutze takes issue with the fact that in a recent Dallas Morning News column Schnurman took pilots to task this time for the AA operational slowdown without taking note that the pilot’s deed have resulted in a new development:  AA wants to go back to the bargaining table with the pilots.  He’s not wrong:  that is news.

Both are right.  The greater news was that AA is taking a beating and needs to come to a better agreement with its pilots.  But the pilots are, in fact, driving their company to the wall and that can only happen for so long before real and permanent damage gets done.

As I keep pointing out:  The pilots didn’t get their attitude today because they were treated appropriately by management.  Management didn’t lead them well at all.  However, you can only beat your own company up so long before not only does the board and creditors lose faith in the management, the public will lose faith in the airline.  When the public loses faith in the airline, that is a very, very dangerous thing.

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American Airlines has made a formal request of the Allied Pilots Association to return to the negotiating table.  We believe this is entirely due to the “work to rules” action that pilots are engaging in over the past few weeks at American Airlines.  Hey, when your on-time record plunges more than 20 percentage points in a month’s time, you’ve got to do something.

Frankly, I’m ambivalent about this.  On the one hand, it’s rewarding atrocious behavior designed to directly impact customers and thereby directly impact a company that continues to issue paychecks to these same pilots.

On the other hand, I  would point a finger at American Airlines and point out that while the company did try to make a deal, it wasn’t done out of sheer anger.  No one at AA understands that the rage among labor needs to be cooled.  This is a mistake that gets repeated over and over and over again in the airline world and I do not understand it.

Both parties have done very badly for their constituents and both need to clean up their behavior.  Neither will.

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Over the weekend, I was contacted by several people about the American Airlines “pilot strike”.  Yes, everyone was talking about the pilot “strike”.  No, I’m not kidding.

There is no pilot strike.  There is no APA union sanctionized work action going on right now.

But . . . there does appear to be an informal “work to rules” campaign going on right now if anecdotal reports are to be believed.   It appears to be focused on maintenance items and most particularly oriented towards equipment that nominally can be “MEL’d” (Minimum Equipment List) for continuing a flight.

It would appear that the mechanics are cooperating as well.  By that I mean the mechanics are dutifully investigating and writing up problems in a meticulous manner.  All of this is resulting in big delays within the American Airlines network and it appears to include American Eagle labor as well.

While it may not be organized by the union, I would expect AA to go to court and ask for a court order to the union to stop these actions.  US Airways suffered similar actions in Charlotte and Philadelphia about a year ago when US Airways (EAST) pilots decided to throw a temper tantrum at that airline.  US Airways went to court and got a court order issued to the union to stop that behavior.

In other news, another American Eagle flight was delayed for 4 hours when two flight attendants decided to have a public spat with each other and the captain of that flight decided the two couldn’t work together.  Whether or not the pilot was smiling as it all went on, we do not know.   It appears that one flight attendant called for their colleague to stop using their phone during taxi and everything went down hill from there.

This stuff is going to get worse, much worse, before it gets better.  Expect American Airlines to suffer increasing delays and cancelled flights over the next 2 to 3 months at the least.  Labor is unhappy and labor is making its unhappiness known in very troublesome ways.

This isn’t just because of bankruptcy or reduced benefits, it has much more to do with the open loathing labor has for AA executive staff with CEO Tom Horton being at the top of that list.  The hostility is raw and angry and unlikely to fade any time soon.

And I repeat again:  This is why I do not believe that American Airlines has its revenue problem solved for exiting bankruptcy.  All the corner strategies and alliances in the world cannot stop labor from sabotaging the company’s reputation.

Customers are getting angrier by the day and voicing that anger in very public ways.  I think we will see traffic erode on American Airlines over the next 3 to 4 months at minimum and possibly longer.  Once you lose those customers, it will be very, very hard to convince them to come back.  They are already abandoning AA as a travel option wherever possible according to anecdotal reports.

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Spirit Airlines has launched two daily non-stop flights between Dallas / Fort Worth (DFW) and Houston (IAH) starting today.  The flights from DFW to IAH are an early morning and a early evening flight and I can see how those would be satisfying enough for the casual traveler that is Spirit’s target customer.  From IAH to DFW, there is a mid-morning and mid-evening flight that also appear to be fairly satisfying at this time.  Prices show to be Spirit’s typical ultra-low cost fares with some showing to be as little as $30 each way (without fees).

I think Spirit is targeting opportunity it sees in this market pretty smart.  Some of this is aimed at Southwest and it’s original customers who have seen SWA prices rise considerably over the past several years.  This won’t hurt Southwest because that airline is selling frequency and value now that earns a revenue that is consistent with its needs.

It’s more of a strike at American Airlines.  It hits at their airport and with times that actually fit OK into the day trippers that exist between those two airports but who don’t find Love Field (DAL) or Houston Hobby (HOU) convenient.

I expect we’ll see more and more flights from DFW to other Spirit destinations over the next 12 months and most will be aimed squarely at AA routes.

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Scott McCartney, Wall Street Journal blogger, is now advising readers to book away from American Airlines citing the fact that their operations are in a shambles and can’t be trusted.  American Airlines is reducing its schedule voluntarily for the next 2 months because pilots are retiring in higher than expected numbers and others are calling in sick at higher than expected rates.

Is there a sickout going on?  I suspect not.  I don’t even think there is a “work to rules” effort going on right now.  I think that pilots are just kind of *done* with their employer right now.  There is no reason to make the extra effort for their job at this point.  If someone feels like they may be about to get a cold, I think they’re just calling in sick as opposed to hoping for the best and making the flight anyway.

I think other pilots see the writing on the wall and realize that their retirement is going to be improved by hanging around this airline.  If they’re eligible, they’re leaving in many cases.

This is what I meant by American Airlines still having many, many problems with their service and operations in light of the rather hostile actions that have gone on between the company and its unions.  You can force the issues, fight in the court room and win the battles during bankruptcy but . . .

What do you have to succeed with even upon bankruptcy exit?  Not much.  Hostile workforces don’t help retain existing customers and attract new ones.   This is the revenue side many have spoken about and I continue to question AA’s premise that it can operate successfully on the revenue side upon bankruptcy exit.

All of the employees who are directly involved in serving AA customers are now royally pissed off at the company and its management and do not feel motivated to do anything to help this company succeed.  And I can’t say that that attitude is undeserved.

This isn’t all about what American Airlines has done over the past 10 months either.  It’s about how American has treated its employees for as many as 7 years.  It hasn’t negotiated in good faith and it hasn’t really tried to achieve equitable contracts and if it had, quite frankly, I’m not sure we would see American Airlines in bankruptcy today.

Yes, I think the unions have, over the years, made unrealistic demands and have even been led by contentious people but leadership starts at the executive level, not at the union leadership level.  It’s an executive team’s job to make that side of the company work and to preserve a harmonious and productive relationship with its work force.  That just hasn’t happened at all.

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Emirates CEO Tim Clark has revealed that Emirates is in talks with American Airlines to establish codeshares on flights and extend reciprocal frequent flier benefits.

And now I understand why QANTAS had the comfort level to do so itself.

For those of you wondering if this is a precursor to Emirates joining Oneworld, I think not.  Emirates does enjoy codesharing with many airlines and it will continue to do so with both legacy and newer full service airlines.  I do not believe they see value in joining an alliance because that would be more limiting to an airline with aspirations to be a truly global airline itself.

These codeshares are about providing feed to Emirates flights and providing follow-on connecting flights to its own customers.

The real question, in my mind, is this:  Will IAG (British Airways and Iberia) see this as inspiration to do a deal itself with someone like Emirates if not Emirates itself or will Willie Walsh (CEO of IAG) resist this to the end?  I suspect the latter will be true but I think the former would be better for IAG in the long run.

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Change or divorce in marriages is a traumatic time for all sides.  The relationship between AA pilots and AA management has been a classic co-dependent and hostile relationship for a pretty long time now.  Both sides have been doing the same thing over and over again expecting a different result.

What’s a good deal look like to AA pilots?

I think it’s divorce.  Right or wrong, I think the pilots see a relationship with their management that is so toxic that they just simply want out.  Since there is more of them than there are management, the pilots want management gone.  They want a fresh slate with someone new.

Its not entirely unreasonable for them to want this.  It has been a toxic relationship but . . . change doesn’t mean things get better either.  The desire to see someone, anyone else in leadership at AA could lead to driving change that is worse.

It seems to me that the leadership at the AA pilots union, the Allied Pilots Association, needs as much restructuring and change as the executive leadership at AA.

Frankly, not only am I not a fan of AA executive leadership, I’m in violent agreement that it needs to change.  It’s mediocre at best and pretty awful at its worst.

But it got there, in part, with help.  Unions at American Airlines drive their points with a baseline from the 1980s.  Sadly, the airline industry doesn’t operate in the 1980s and, frankly, the 1980s were not a healthy time for airlines anyway.

We think that everyone just wants more money.  I suspect that that isn’t entirely true.  For instance, I suspect that AA pilots would like to see less stagnancy in their positions at the airline.  I think they would like to see a better quality of life that allows them to work hard but also experience a life outside AA.  I think they would like to experience some new challenges and get to expand their world view as much as anyone else.

But it won’t happen without  a fundamental change in the leadership at the union.  That leadership has been so focused on taking power and using it to ding the AA executive leadership that it has lost sight of what is truly good for its membership.  There are no self-examining conversations about how to work in a change industry and achieve job satisfaction and reward.  I think David Bates, former APA President, tried to start that conversation but I think the structure of leadership at the APA made it impossible to do.  There was and is more reward for the Board of Directors to second guess and undermine the president of that union.

This isn’t just true for the APA.  I believe the APFA needs a similar change in structure and a similar conversation about how to achieve more job satisfaction and reward in a changed industry.

Until those conversations happen, it’s unlikely that anyone is going to be happy with any of the choices in leadership for AA at this point.

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American Airlines’ bankrtupcy judge has decided that AA can abrogate its agreement with its pilots and impose terms upon them.  Based on what I’ve read, AA could choose to impose its original Section 1113 terms or better terms, if it so chooses.  At this point, the pilots are left to the whims of American Airlines.  American Airlines has said it will announce its intentions in the near future.

On a related note, a spokesperson for the unsecured creditors committee has said that the creditors see it as absolutely necessary to have a long term pilot agreement in place to exit bankruptcy.  This makes things tricky for AA since it means that simply imposing terms and moving on isn’t satisfactory to the creditors.  A real, negotiated agreement is necessary.  AA doesn’t have much maneuvering room with its pilot union since they’ve rejected the last, best offer.

In addition, the pilots have strongly indicated that they simply do not wish to do a deal with the AA executive team at all.  Their vote on the last, best offer made that clear.  Enter US Airways.

US Airways probably can get an agreement in place in short order.   At least enough of an agreement to satisfy creditors.  Once again, US Airways is in a strong(er) position to negotiate a merger ultimately.  I think the only way the pilots will agree to something is if the company’s exit from bankruptcy doesn’t see CEO Tom Horton and his team in charge.

Why?  Because these pilots gave up 13.5% of the equity stake available in the reorganized company to make their disapproval vocally known.  That equity stake was a big deal politically and financially.  We’re also talking about a group of people who, in many respects, can afford to draw this out to AA’s disadvantage.

American Airlines can’t afford to be delayed in anything. It needs deals in place and a firm plan drawn up in order to exit bankruptcy.  It doesn’t have all the deals it needs and therefore can’t offer a firm plan either.

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The APA and American Airlines are facing off in bankruptcy court in New York City today.  The APA contends that the last, best final offer should be the baseline of the Section 1113 terms whereas AA thinks that the judge already addressed everything but 2 terms that are being revisited.

The judge did acknowledge that AA needed its savings in his last ruling and did seem to indicate that if AA fixed two minor issues, he would rule in their favor for Section 1113 terms.  Smart money says that AA will get what it wants this time.

But I am not so sure.  This judge hasn’t been inclined to be punitive in his rulings thus far and worked extra hard to see if AA could come to an agreement with all its unions.  If anything, he’s bent over backward trying to see to it that agreements with unions are in place and reasonable for both parties.

No doubt he may have been annoyed at the APA voting down the last, best offer but annoyance doesn’t have a place in the courtroom when it comes to judges and this judge seems to avoid it quite a bit.

The bankruptcy judge is also there to see to it that creditors are protected.  Reasonable union agreements protect creditors when an airline exits bankruptcy.  Unreasonable union agreements offer the potential for labor strife that adds risk to the exit.

I think there is a chance that the judge may try to see to it that the baseline of the pilot Section 1113 terms is, in fact, the last best offer.  Or something closely approximating that.

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US Airways has signed American Airlines Non-Disclosure Agreement and plans to engage in reviewing sensitive American Airlines information with AA in order to make a better determination if a merger can be done and, if so, how it should be done.

Expect both airlines to go pretty radio silent on this issue for many weeks now.  It takes time to review data and it takes time to do an analysis on that data.  US Airways has until December, more or less, to formulate a plan and have it ready for presentation.

If we hear of anything from AA about this process, especially from Tom Horton, expect this to become a much more ugly fight.

AA goes into this with the public thinking that it is already improving its situation with respect to reported profits for the past 2 months.  Those reported profits aren’t “real”.  Bankruptcy has allowed AA to stop paying many creditors and to reduce payments to others.  Its operating costs are artificially low presently and combine that with the summer season and you get what appears to be “profit”.  It’s a nice publicity announcement and can certainly go a long way towards confusing public perception but analysts know better.

Also of interest is the fact that AA has revealed it has signed NDAs with other parties as well.  These may not be airlines and, in fact, they may be investment companies interested in participating in a stand-alone exit where the equity they would hold is quite likely to see a considerable gain in the first year.

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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.

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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.

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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.

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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.

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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.

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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.

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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)

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