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There Are No Guarantees In Life–Especially When You Work for an Airline

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If you read the news at all, you may have read several articles recently about the sorry state of the airline industry. Even before the war started, airlines were hemorrhaging money left and right, and now airline travel is down significantly due to safety concerns. See USA Today article.) So guess who’s bearing the brunt of this economic decline? That’s right, airline employees–not the CEOs who in many cases have guided the airlines into their respective messes. Almost daily, there’s a new report of wage concessions made by airline employees and/or massive layoffs affecting thousands of workers. Here’s some of the latest news:

American Airlines: Yesterday (3/25), the union representing pilots at American Airlines, the Allied Pilots Association, said that its board would likely vote by the end of this month on a wage-concession deal the union was hammering out with management at American. (See Reuters article.) While no specifics are forthcoming, the union has said it was working to strike a deal that would help the airline avoid bankruptcy, and its rank and file would have final say on any agreement. AMR, American’s parent corporation, has said it needed to cut structural costs by about $4 billion a year to keep flying. It is in talks with all three of its major unions over a call it made last month for $1.8 billion in annual wage concessions. However, today (3/23) it has been reported that these talks have hit a major snag, due to the airline’s intention to fire nearly 1,000 pilots immediately, before allowing the union to present a plan to cut costs by other means, including changes in work rules. (See Associated Press article.)

Continental Airlines: Continental Airlines CEO Gordon Bethune says the nation’s fifth-largest carrier must cut 1,200 more jobs and eliminate $500 million more in annualized costs by year’s end to ensure its survival. Some of the cost cuts did start at the top, with this week’s departure of five senior executives, including C.D. McLean, chief operating officer and the airline’s No. 3 executive. Bethune said management, including those leaving, determined that a 25% cut in executive staff was appropriate. (See USA Today article.) The 1,200+ jobs to be cut by year’s end include 125 pilots, 500 reservations agents, 350 airport agents and 250 others. At this point, Continental plans to achieve the job cuts through voluntary programs, rather than from union concessions. Since September 11, 2001, Continental has already trimmed its costs, service and ranks by about 20%, and more than 4,300 Continental workers remain laid off or on unpaid leaves.

Delta Air Lines: Delta Air Lines, said Monday (3/24) that it will cut about 12% of its flights, but refuses to say just how that will affect Delta employees. (See Reuters article.) A Delta spokesperson refused to say whether the carrier plans to get rid of planes or whether the cutbacks will result in job cuts for some of its more than 60,000 employees, responding that the carrier was “still evaluating the effect on our staffing, but [] would discuss any decisions we would make with our employees first.” Delta also just released details of Chairman and Chief Executive Leo Mullin’s compensation package. Even though Delta posted a $1.27 billion net loss in 2002, Mullin’s pay package was worth about $13 million last year, more than twice what he received in 2001. (I’d hate to see what would have happened if Delta had actually done well!) Mullin says that he has reduced his salary by 10 percent effective March 1 “to demonstrate his commitment to share the burden of Delta’s cost reduction goals.” (Mighty generous of him…) The carrier also released news that its executives got cash bonuses totaling $17.3 million last year, as the company posted huge losses, slashed thousands of jobs and sought millions of dollars in federal aid, and that it had used another $25.5 million in cash to create special funds guaranteeing certain executives’ pensions in the event of a bankruptcy, according to a filing the Atlanta-based airline made Tuesday (3/25) with the Securities and Exchange Commission. (See Atlanta Journal-Constitution article.) It was probably wise from a PR perspective that Delta did not announce employee pay cuts and/or layoffs at the same time they announced the doubling of its CEO’s pay and huge executive bonuses, but watch this one closely, because we can all see what’s coming.

Northwest Airlines: Northwest Airlines said Friday (3/21) that it will cut 4,900 jobs and reduce its flight schedule by 12%. The airline says it will use layoffs, attrition, voluntary leaves and leave open positions unfilled to make the job cuts, and will offer affected employees a relief package including pay, medical coverage and flight privileges. The cuts include 2,000 mechanics, 1,400 flight attendants, 630 baggage handlers and customer service agents, 250 pilots, 125 cleaners, 300 management and 150 clerical positions, and 40 stock clerks, and come after Northwest has already had laid off about 12,000 employees due to the slump in the airline industry. (See Associated Press article.)

United Airlines: The carrier is using its status in bankruptcy to extract all kinds of wage concessions from its employees. And where that has failed, it has tried to invoke the power of the bankruptcy court to override existing labor contracts. On March 17, United Airlines’ parent, the UAL Corporation, asked a federal bankruptcy court judge yesterday to set aside its labor agreements as it seeks deep wage and benefit cuts for its employees. The motion proposed a series of agreements that would permanently reduce wages and benefits by $2.56 billion a year and make changes in schedules for flight crews; pension plans; job security; and various clauses that govern staffing levels and job duties. UAL also wants to create a low-fare airline–a move strongly opposed by its employee unions. The unions affected by United’s move include the Air Line Pilots Association, the Association of Flight Attendants; the International Association of Machinists and Aerospace Workers, which represents mechanics and other airport workers; and the Professional Airline Flight Control Association, representing traffic controllers. (See New York Times article.)

United’s pilots reacted strongly to the court filing: “Our contract is the product of 52 years of good-faith collective bargaining conducted under federal labor law,” said Paul Whiteford, chairman of the Air Line Pilots Association’s master executive council at United and one of the union members on the airline’s board. “To seek to wipe out this contract by the stroke of a judge’s pen is disheartening.” One expert commented that the abrogation of a contract is “like the voiding of a sacred oath. It’s asking for cooperation under threat, [and is] going to greatly embitter relations between labor and management.” The bankruptcy court has not yet responded to United’s filing.

US Airways: US Air, in bankruptcy proceedings like its code-share partner United, recently announced that 5% of workers’ pay would be deferred 18 months because of war. (See USA Today article.) US Airways also just announced that it had reached a deal with its pilots on a new pension plan, which was considered the last major obstacle to the airline’s emergence from bankruptcy. (See Associated Press article.). The pension conversion, which requires the approval of the federal Pension Benefits Guaranty Corporation (PBGC), will change the pilots’ pension from a defined-benefit plan to a defined contribution plan. (For more information about the significance of this difference, see March 11 blog entry.)

Pretty disheartening, isn’t it? And it’s not likely to get any better soon. There has been some talk of another federal bailout, but the Bush administration seems to think that all these bankruptcies and wage cuts are what the airline industry needs. (See USA Today article.) According to one senior administration official, bankruptcy is a “healthy” process to deal with the drop in demand and high labor costs that the industry faces, and that the administration plans to avoid “getting in the way” of what’s seen as a necessary restructuring of the industry. Bush may have a fight with Congress over this one, however; Senate Majority Leader Bill Frist said that he expected Congress to approve airline relief as lawmakers requested a meeting with the administration to discuss whether to add the aid to a special war funding request from the White House. (See Reuters story.)

Even after workers and the airlines agree on something, one cannot be certain that the deal will ultimately be honored. Former TWA employees have seen it all: bankruptcy, a buyout by American Airlines, a loss in seniority compared to American employees, and ultimately massive layoffs as American consolidated its workforce on the basis of seniority. Some employees of TWA even faced a little extra difficulty when working for the airline: pregnancy discrimination. In the mid-1970s, the EEOC and several TWA employees filed a class action lawsuit against the airline, claiming that TWA’s former maternity leave of absence policy for flight attendants, which required female flight attendants to go on leave immediately upon becoming pregnant, violated the law. (For more information, see our page on pregnancy discrimination. Nearly two decades later, in 1995, the lawsuit was settled. One of the terms of the deal was that each class member would receive ten travel vouchers for each covered pregnancy, which could be used by the class member or her family at any time during her life. Many class members therefore decided to hang onto the vouchers rather than use them immediately, since in their retirement years, they would have more time to travel and were likely to receive better tax treatment when using the vouchers. That was their undoing, as a bankruptcy court recently ruled that American Airlines purchase of TWA’s assets did not create a continuing obligation for American to honor the TWA coupons. (See In re: Trans World Airlines, Inc., decided by the 3rd Circuit Court of Appeals on March 13, 2003.) The court ruled that the claims were general unsecured claims and, as such, were accorded low priority, rather than higher-priority claims that might have caused American to back out of the sale. (See St. Louis Post-Dispatch article.) So after discriminatory forced leave, and nearly two decades of litigation, many of the flight attendants were left with nothing but useless coupons.

This case is a sad but timely reminder to employees and unions who are considering buyouts and early retirement packages–don’t accept anything that will only benefit you in the future. Given all the current flux in the industry and the lack of sympathy at the top, your airline just might not be around to honor any so-called promises. And if that happens, let’s hope your CEO is mostly compensated in stock options, so that he pays a significant price as well.

Other good sources of information about the airline industry and its current woes:

JoeSentMe.com: Joe Brancatelli’s home page for business travelers

Today In the Sky: Ben Mutzenbaugh’s travel blog on USA Today


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