Bankrupt US Airways Gives $6 Million in Bonuses to Management While Taking Billions in Concessions from Workers
US Airways wanted big cuts and it’s getting them! In spite of extremely full flights and a wage structure comparable to the rest of the airline industry, US Airways is in tough shape. Though it was management decisions that made US Airways vulnerable to the economic shock waves of recession and September 11, the airline is getting its employees to bail it out. It looks like other airlines will follow suit, with United in the lead and concessions demands likely to roll throughout the industry.
New CEO David Siegel came on the scene in the spring of 2002, presenting a new way of doing things. He goes by “Dave” and has described his restructuring mission as “labor-friendly.” Dave’s “labor-friendly” restructuring plan includes three parts: (1) $6.65 billion in concessions from union employees (as well as a smaller amount from creditors, lessors, and lenders); (2) flexibility to outsource tremendous amounts of work to subsidiary and outsourced low-wage regional jet operations; and (3) a green light to integrate operations with another airline via a “code-share” alliance.
Dave has gotten about 85% of the wage, benefits, and work rules concessions he wanted. The new contracts are generally six-and-a-half years long (management wanted seven), with some provisions for “snapbacks” to restore lost wage levels and time-off accrual.
All eight union groups have ratified givebacks. ALPA (pilots) and AFA (flight attendants) agreed to much of what was being demanded as of early August. ALPA members ratified a package worth $465 million/year by a margin of 76% and AFA members accepted $75.8 million/year in concessions, also by 73% in an 80% turnout. Three other smaller Transport Workers Union units (representing flight instructors, simulator operators, and dispatchers) also agreed to cuts. This left 12,000 Machinists (IAM) members and 7,100 customer service reps (Communications Workers) members.
A Labor-Friendly Big Stick
Two days after the flight attendants ratified their agreement, the company turned up the heat and filed Chapter 11 bankruptcy, August 11. Calling it a “labor-friendly” reorganization, the company scheduled hearings to wipe out CWA and IAM contracts if agreements didn’t come quickly. Chapter 11 gave the company both protection from hungry creditors and another method to bully CWA and IAM members into accepting the proposed cuts. Under this “labor-friendly” gun, CWA members voted yes by a 3-1 margin, and the Fleet Services and Mechanics divisions of the IAM split their decision: Fleet Services ratifying and Mechanics voting the offer down.
Mechanics cited mistrust of both the company and the IAM as reasons for voting the offer down 57%-43%. Four key issues sent the offer down to defeat: (1) anger at $6 million in bonuses for management in the midst of this “sharing of the pain”; (2) mistrust of the $1.2 million company payout to the IAM to cover negotiation expenses-seen as a bribe by the rank and file; (3) significant loss of vacation and sick time under the new agreement; and (4) huge layoffs in the mechanics group. Also in the mix is a growing sentiment to dump the IAM in favor of independent AMFA (Airline Mechanics Fraternal Association).
IAM local leadership responded by sending the offer back to members for a second vote with no changes, on the grounds that members didn’t understand the proposal the first time around. Rank and file members questioned whether this second try violated IAM bylaws. IAM leaders claimed they were not endorsing the agreement, but kept explaining that the members didn’t understand the ramifications of a “No” vote the first time around. On their second try, members voted yes by 57%-43%.
Bankruptcy Bonuses for Bumbling Bosses?
You heard that right. US Airways got permission from the courts to dole out $6 million in bonuses for 500 management-level positions. The bonuses will range from $7,440 to $156,000/year. The company claims this is to retain the management talent needed to safely make it through reorganization. Of course, much of this management played a role in getting US Airways into the position it’s in now. After years of clumsy mergers and reckless debt growth, the company was leveraged to the slats on the wings of its fleet and particularly vulnerable to the recession that started in spring 2001 and even more so to the economic shockwaves that followed September 11.
For example, the merger with Pacific Southwest Airlines in the 1980s was designed to give US Airways a west coast route structure, but the company quickly squandered that by shutting all the newly acquired west coast bases and telling former PSA employees they would have to move to the east coast. Mergers left the company with a crazy-quilt fleet structure and also contributed to enormous debt. Interestingly, the company’s reported liabilities have been shifty of late. Listed at $7.83 billion in the original Chapter 11 filing, they were later reported at $10.65 billion and then revised to $17.15 billion. Is there an accountant in the house?
To be fair, top management is sharing in the pain. Vice presidents will reportedly take 13.5%. paycuts, and “Dave” is cutting $150,000 from his salary and will have to make do on $600,000 a year.
Uncle Sam to the Rescue?
To understand this whole concession campaign, one must look back at the airline bailout of last year. Criticized at the time as offering nothing to airline workers, the bailout contained provisions that made it even worse than nothing for workers. The loan guarantee program, part of the $15 billion airline bailout from last fall, requires that airlines get massive cuts from employees. Thanks, Uncle Sam!
All in all, it’s been a pretty brutal year for airline workers. After losing 29 of our own in last year’s hijackings, we found another 140,000 of our number tossed out on the streets when U.S. airlines parked over 2,000 airplanes in the Mojave desert. Already working under the stress of fear and the uncertainty surrounding massive layoffs, airline workers have been under tremendous pressure to give staggering wage, benefits, and work rules concessions.
It is in this atmosphere that most US Airways employees have agreed to such massive cuts. Under the very plausible fear of total job loss through liquidation, US Airways workers have opted for what they perceive as the lesser evil. Both rank and file and union leaderships lack confidence to challenge these cuts, and prefer instead to attempt to manage them. Once this came to pass, all labor solidarity went out the door as unions and workers pointed fingers at others in hopes that someone else would foot the bill.
There are strong signs that concessions will spread through the rest of the airline industry. American, United, Continental, and others are all downsizing and planning restructuring. How will airline workers and their unions respond? Can we find ways to successfully resist the concession drive? Is bailing out our companies for their past mistakes the only alternative to losing our jobs? One thing is certain: if airline workers and their unions do not consider these questions, the same blade which has cut US Airways employees in such a labor-friendly fashion will be coming for the rest of us.