Skyway Robbery- US Airways and United Management Lead Savage Industry Restructuring

US Airways and United Management Lead Savage Industry Restructuring
Several weeks into bankruptcy, United Airlines gave mechanics the Christmas present of 560 layoffs. At a meeting with management in San Francisco mechanics asked if they should expect more layoffs. The station's general manager laughed and said this was just the beginning.

The maintenance facility in San Francisco was once United's premier maintenance hub, in its heyday employing over 25,000. Today, most hangars sit empty, the shelves so bare not long ago mechanics ran out of grease.

Though heavily unionized, the airline industry today is the site of some of the most savage contract concessions in the U.S. For the past year and a half, airline management has used the events of September 11 to slash labor costs and weaken union contracts and solidarity. Since the attacks over 150,000 workers have been laid off despite a $15 billion industry bailout.

Pat Friend, president of the Association of Flight Attendants (AFA), explains that "we have a lot of airline managements taking advantage of the industry's economic crisis to attack collective bargaining agreements, defined benefit pension plans, health care benefits and worker rights."

Leading the restructuring and concessions drive have been US Airways and United Airlines. While United Airlines is the second largest carrier in the world and filed the biggest bankruptcy in the industry ever, US Airways is leading the way in restructuring through Chapter 11 bankruptcy. Severe restructuring moves are in preparation at American, Northwest, Continental, Delta and other major carriers.

THIS CUT IS "LABOR FRIENDLY"

In the summer of 2002, US Airways management kicked off what it termed "labor-friendly" restructuring. To make the point, management threatened a bankruptcy filing if unions didn't cough up $6.5 billion in concessions over the next seven years. Pilots and flight attendants agreed to concessions under duress, but management filed for bankruptcy anyway. Mechanics in the Machinists and customer service agents in the Communication Workers quickly agreed to the concessions after the Chapter 11 filing, under threat of judicially voided contracts. All of the new agreements contained letters committing management to refrain from asking for any more.

Right before Thanksgiving 2002, management returned for more givebacks. Another $1.4 billion was needed over the next seven years or else investors would liquidate the company. With the liquidation gun pointed at workers' heads management got their new cuts. An additional clause maintains that if war breaks out with Iraq, all employees must defer 5% of their wages for up to 18 months.

Resistance to these concessions has been scattered and disorganized. But some union leaders set aside the fear of liquidation and opposed the concessions. Arguing that "these guys are union busters" AFA Pittsburgh base local president Teddy Xidas opposed concessions from the beginning. With her leadership, the Pittsburgh base vote opposed the second round of concessions 787 to 524. Despite such resistance concessions passed narrowly.

On January 28, management pulled the trigger to start the process to terminate the pilot pension plan, promising to replace it with a 401K style plan. In the meantime a showdown is brewing. Air Line Pilots Association spokesman, Roy Freundlich, described it as "the bridge way to far" for management.

ALPA considers unilateral termination to be a major contractual violation and has activated its Strike Preparedness Committee. It's likely that President Bush would order pilots back to work, but a major showdown is brewing.

Defined benefit retirement plans in the airlines are presently underfunded by about $18 billion due to low interest rates and a flagging stock market. In 1999, these funds showed a $1 billion surplus. Though interest rates and stock markets are likely to recover, US Airways management appears to be seizing the current situation as an opportunity to wipe billions in liabilities from its ledger. Spokesperson Roy Freundlich reports that ALPA estimates that after terminating the pension plan, the company would reap a windfall of $800 million over the next six years when funds recover and the Pension Benefit Guarantee Corporation (which has its own financial troubles) will also reap huge gains. Watch these developments closely. If defined benefit plans are rolled back at US Airways, such plans will certainly come under attack throughout the airline industry and beyond.

UNITED -- FROM "PROUD OWNERS" TO "POOR OWNERS"

As wrenching as the restructuring at US Airways has been for workers there, the situation at United Airlines has repercussions far greater for the national economy, the airline industry and airline unions as a whole by virtue of its sheer size and its history as one of the world's largest unionized carrier. United is currently the second largest airline in the world with $22 billion dollars worth of assets with a workforce that is 85% unionized.

From the workers' perspective, the root of United's problems with labor stem from the 1994-2000 contracts with its pilots and machinists.

ALPA and the IAM agreed to a $4.5 billion concessionary pact in exchange for the Employee Stock Ownership Plan (ESOP), a majority stake in the airline, and a seat United's board of directors. While pilots overwhelmingly ratified the agreement, machinists narrowly ratified the agreement. The AFA refused to participate-the only work group at United to do so.

During contract negotiations early in 1994, United's then-CEO Stephen Wolf sold off the company's profitable flight kitchens. Close to 5,000 workers lost their jobs. Wolf threatened to sell the company off piece by piece unless workers agreed to concessions.

The unions had successfully organized work slowdowns during negotiations to pressure the company back. However, the ESOP was ALPA's idea, and one that the IAM came to champion as well. The unions believed that employees owning stock and the unions having a seat on the board of directors would usher in an era of cooperation and labor peace with management. For the company it insured massive concessions from labor, huge tax breaks and kept corporate raiders at bay.

Two things happened that underscored the fallacy of the ESOP: United Airlines made $8 billion in net profit during the economic boom of the late 90s while employees struggled to survive under concessions and the economic bubble burst. For the major airlines the problems stemmed not from Enron-like fake profit reports, but from over-capacity and competition from small carriers like Southwest.

Under the rules of the ESOP, employees could not sell their stock unless they separated from the company. The stock functioned as a de facto retirement fund and since the company was making record profits, employees could not diversify their investments in United's 401K program. During the ESOP negotiations United's stock was trading at well over $100 per share. In bankruptcy the stock employees now "own" has become essentially worthless.

BACK TO THE FUTURE

Finally, when contracts became amendable in 2000 and the pilots organized and won the best labor contract in aviation history with a well-organized overtime boycott, mechanics and other IAM members were ready to fight for the "seamless, industry-leading" contract the company and the union had promised during the ESOP. When mechanics began the ritual of work slowdowns and sickouts, the company slapped the union with a Temporary Restraining Order and began summarily firing any mechanic who generated aircraft write ups it deemed "excessive." For over a year, mechanics patiently waited as the union negotiated.

Then September 11 happened. Within a month and a half, 20,000 employees lost their jobs. Work rules changed overnight and the company flagrantly violated contracts using "force majeure" as its legal justification for doing so.

Finally, after an intervention by President Bush, and numerous cooling off periods, the Bush-appointed Presidential Emergency Board issued its recommendation calling for parity in pay for United's mechanics. There was a hitch, however. In lieu of filing for bankruptcy, the company could declare a "severe financial condition" and mechanics would have to renegotiate their contract.

Help Put the Movement Back in the Labor Movement

Become a Labor Notes Monthly Sustaining Donor

Monthly donors receive a free "Fight the Boss, Build the Union" T-shirt and a subscription to our magazine. Donate Now. »

In March, 2002 mechanics signed on to the new agreement at the IAM's behest. The IAM leadership called on workers to ratify the agreement and then vote concessions down.

BEATING THE BANKRUPTCY DRUM

When the company started beating the bankruptcy drum in the summer of 2002, many rank-and-file employees were skeptical. Then when the company posted an $850 million loss in the fall of 2002, all of United's unions jumped on board and urged their members to renegotiate their contracts.

Every employee group-with the exception of the mechanics--voted to participate in concessionary agreements with United to help secure a $1.8 billion loan guarantee from the Air Transportation Stabilization Board (ATSB) and stave off a bankruptcy filing. On November 27, 2002, mechanics rejected participation in a $5.2 billion concessionary agreement with United Airlines by 57%.

For mechanics the agreement would have included massive pay cuts and outsourcing of as much work as the company wanted. More sinister was language that stipulated should there be a bankruptcy filing and a war with Iraq or a "threat" of terrorism, the contract would be null and void. All the other agreements the company had with union employees hinged on the participation of mechanics in concessions. Since mechanics voted concessions down, none of the other agreements were binding.

When the IAM tried to organize a second vote for mechanics (as they had at US Airways and before that at Boeing), the ATSB intervened. In a tactical retreat, the ATSB issued a statement severely critical of United's management for failing to secure the loan guarantee. The board laid blame on the company for not having a viable business plan, being overly optimistic in its revenue projections and having a severely under funded pension program.

On December 9, 2002 United Airlines filed for bankruptcy protection. Employees then learned the company was actually losing over $20 million a day. Employee concessions would have done little to save the company from such huge losses.

Within a month, the company got Bankruptcy Judge Eugene Wedoff to agree to unilaterally cut IAM members' wages by 14%, that is until a permanent agreement could be reached. In a strange twist, the IAM refused to negotiate this time saying they were against the cuts. However, in the absence of demanding a vote then mobilizing its members against cuts, the union handed the company exactly what it wanted.

MILITANT MACHINISTS?

When the press talked about "militant machinists" at United in 2002, most IAM members scoff. The fact that airline workers have endured the worst attacks in the industry this past year at IAM-represented companies (Boeing, US Airways, United), is something not lost on mechanics.

Most workers see the IAM acting in the interests of the company, not its membership. This stems from the fact that the IAM has had a seat on United's Board of Directors. From this seat, the union has essentially rubberstamped every bad business deal, every bad CEO and at times even directly voted against the desires of its membership (for example, the US Airways/United merger).

United workers are keenly attuned to what is happening at US Airways, knowing full well what plays out there will effect what happens at United. When US Airways filed for bankruptcy and then wanted to give management $6 million in bonuses, the IAM consented. Also at US Airways, the company agreed to give the union a $1.5 million "administration fee" should the union successfully lobby its members to ratify concessions.

Dissatisfaction with the IAM at United has lead to an ongoing organizing drive to decertify the union. Some 80 percent of mechanics and a smaller percentage of utility workers have signed cards at United calling for an election between the Aircraft Mechanics Fraternal Association (AMFA) and the IAM.

AMFA is a small, independent craft union unaffiliated with the AFL-CIO. AMFA attracts the more militant elements in the mechanic classification. Rank-and-file leaders in fighting concessions at United have been typically drawn from AMFA ranks. AMFA currently represents workers at Northwest Airlines, Alaska Airlines and several other smaller carriers. Just last month AMFA won an election against the Teamsters at Southwest.

A group of mechanics at United plan to petition the bankruptcy court on their own behalf to call for an investigation into possible company corruption and the establishment of a "workers committee" to represent the interests of the rank and file. Mechanics are also planning to spearhead a campaign to end the dues check off.

THE BREWING STORM

While an ending to this story has yet to be written, what is clear is that the government, Wall Street and airline executives are working in concert to restructure the airlines hammered by over-capacity, an ailing economy and competition from low-cost upstarts like Southwest Airlines.

American Airlines has called for $1.8 billion per year in labor cost cutting, is engaging in systematic harassment of employees for "abuse of sick leave" and executed multiple waves of layoffs. The proposed wage, benefit and work-rules cuts would amount to about $13,600 per flight attendant per year. Delta unilaterally converted non-union defined benefit pension plans into defined contribution (401K style) plans, has frozen wages, and closed five flight attendant bases. NWA has demanded similar cuts and the restructuring goes well beyond the US borders, with the Brazilian airline industry consolidating and Air Canada threatening 10,000 layoffs and major wage cuts or bankruptcy.

While management continually points to Southwest Airlines as the competition that is driving their concession demands, it is important to note that Southwest Airlines is actually the most unionized carrier in the industry. In fact, Southwest has wages comparable to or better than many of the other major airlines.

Despite the rhetoric of competition, two months before United filed for bankruptcy the Air Transport Association met to discuss restructuring the industry. In their summary report they cite concessions, layoffs, outsourcing and the "RLA debate" as the bright spots for the industry. The ATA represents all the major carriers in the United States.

The ATA has been lobbying heavily in recent months for changes to the RLA. Currently, Senator John McCain is sponsoring the Airline Labor Dispute Resolution Act, which would ban the airline workers' right to strike.

Fear of job loss, bankruptcy and liquidation is driving many union members to think desperately in terms of what they can give up to save their company, muting any serious resistance and protest. "Fear is paralyzing, but we have to go beyond that fear. With that kind of mentality we'd never have any of the rights we have today," Teddy Xidas reminds us.

Echoing the sentiment of many airline workers, she adds, "We need to point out that a company that cannot afford to pay a livable wage to its employees doesn't deserve to exist."

Jennifer Biddle is a United mechanic in San Francisco. Rodney Ward is a member of the AFA, currently laid-off from US Airways.