The Allied Pilots Association board of directors voted 9-7 to accept a tentative agreement and send it to members for a vote. One of those that voted against it has told his members why they shouldn’t vote for it.

Washington, D.C., base chairman William Gary wrote:

“The bottom line:

“The AMR LBFO is well below industry standard and is industry bottom in many areas.

“The USAir offer to buy AMR might not succeed.

“We must retain our right to negotiate under the RLA.

“We must therefore not sign a deal with AMR.”

 

It’s a long discussion of the contract’s pros and cons, most of it cons. Keep reading if you’re interested.

 Fellow Washington Pilots,

Sorry for the length.  I’ve tried to be brief.

Signing a deal with AMR strengthens their Plan of Reorganization and puts AMR at an advantage over USAir in bankruptcy.

By voting down the contract proposal, we might lose our claim but we retain our rights under the RLA.

We must retain our rights to negotiate a contract should AMR avoid being acquired by USAir in bankruptcy. That’s a very real possibility.

We’ve often criticized AMR management for its failure to see value, often stepping over a dollar to save a dime. AMR has put a shiny claim on the floor hoping we’ll overlook the billions we’d lose with their contract proposal.

The company proposal is an outline of contract changes rather than a final document in contract language. We learned the hard way in 2003 that the contract must be in final language in order to prevent the company from interpreting the contact as they wish. The APA leadership put procedures in to our Policy Manual to prevent this mistake in the future. We are not listening to OUR OWN ADIVCE! Fool me once, shame on you, fool me twice, shame on me.

If we vote yes and USAir does not buy AMR in bankruptcy, we are locked in to AMR’s LBFO for 6-10 years.  This would be the “next generation contract” that Brundage and AMR have long sought.   It would drag on all other pilots downward even more than B-scale did in 1983.

Our advisors have not provided specifics on how signing an agreement promotes the USAir Plan of Reorganization, except to say that signing an agreement completes a step in the BK process.

The same advisors are now telling us that contracts may not be necessary for AMR to exit bankruptcy because AMR has over $5.5 billion in cash and probably won’t need exit financing.

USAir already has contracts with AMR labor.

If contracts are helpful or necessary for exiting bankruptcy, the UCC can quickly move to end exclusivity and accept the USAir POR.

Below, in italics, are some of the arguments you may hear in the coming weeks along with my rebuttal and commentary.

This is the best contract any pilot group has achieved in bankruptcy.

The proposal is still an industry low and the 6-year duration is far longer than any other contract.

If we reject the company’s proposal, won’t we lose our entire contract?

According to our in house counsel, the most likely outcome is that the company would impose its April 19th 1113 terms.   The company proposed to keep many sections of our contract intact, including for example, Section 21, Discipline. There is no cost advantage for AMR if these protective processes are removed and no reason to think that AMR will.

The APA bankruptcy advisors told us that locking in the Unsecured Claim would keep us on the Unsecured Creditors Committee (UCC) and give us substantial input into the direction of the reorganization process—stand-alone or merger.

First, it’s uncertain that we’d be removed from the UCC. Have input, yes. “Substantial” input, doubtful.   Control, never.

Second, the 6 non-labor members of the UCC formed a sub-committee of the UCC that’s called the “Labor” Committee. The Labor Committee has already “sidelined” the APA and the other labor members of the UCC. You can guess what the Labor Committee wants to do to labor.

AMR has proven to be unreliable and less than truthful. The APA will have a voice and input to the UCC in any event.  Once we sign a contract, we’re no longer an issue for the UCC and they can truly ignores us.

The APA cannot ever dominate or control the UCC.   We are 1 of 9 on the UCC. With the APFA and the TWU we are 3 of 9. The PBGC might join us on certain issues but labor will never have a majority of the votes on the UCC.

A Plan Of Reorganization must pass the UCC by a majority (5 of 9 members) vote and pass the General Unsecured Creditors by a 2/3rd vote.

The General Unsecured Creditors are all creditors and the 9 members of the UCC. Our 13.5% claim gives approximately 13.5% of the general UC votes.   We must have 33.4% of the votes to block a POR and 66.8% of the votes to pass a POR. We must have an additional 19.5% of the votes to block and 53.5% of the votes to pass.

The creditors will do what’s in their best interest.   Labor is labor. The creditors are not our friends. The creditors simply want our money. We have no means of convincing the creditors to do something that’s not in their best interest. If a particular plan is going to pass, or fail, it will on it’s own merits and labor cannot change that.

We will not have the votes needed to force an action such as ending exclusivity or accepting the USAir POR. The best we could do is block actions. This would probably result in a stalemate, which could result in AMR exiting bankruptcy with its standalone plan. That’s a result we truly want to avoid.

Our financial advisors told us that the potential value of our 13.5% Unsecured Claim could increase in the event of a synergistic merger.

Yes, it could. But the value of our claim could also fall, especially if AMR exits with a standalone plan. The value of AMR’s debt rose dramatically when USAir’s plans to buy AMR became public.   Likewise, we can expect the value of AMR to fall if it exits bankruptcy alone.

Our Scope Committee emphasized the drastically inferior small-jet and code sharing language in the term sheet

Drastically? No. Inferior?  Yes, but to what effect? The latest proposed commuter flying and code sharing limits are so weak that the company had no problem agreeing to them. Under the latest proposal the company can codeshare with Hawaiian, Alaskan, JetBlue and USAir. That’s the equivalent of anther American Airlines! Your jobs outsourced to the competition.

Our Pension Committee highlighted the improved pension provisions in the LBFO.

Yes, we would receive 14% vs 13.5%.

Important safety programs—ASAP and FOQA—would be preserved, if we accept the company’s offer.

These programs have significant safety and political value for the company. The company has no desire to end these programs and ending them is of no economic benefit to the company. The FAA would not be pleased, to say the least. Further, termination of these programs is not in the 1113 term sheet.

If we vote no, we’ll we lose our Unsecured Claim?

This is not certain. If the judge denies our claim, we will appeal. That would hold up the payment of claims to the other creditors. Partial payments could be made but final payment of claims must wait until the courts decide if we receive our claim and the value of our claim. This process could take years. Creditors might want our claim to proceed rather than wait years to get their claims.

AMR senior VP Jim Ream recently estimated the value of AMR to be $3-4 million at bankruptcy exit.   The value of our claim is then $50k to $67k dollars per pilot. Excluding the pension losses, our claim is less than 1/10th of what each pilot will lose in the proposed contract. While we’d all like to have the claim, signing this enormously concessionary proposal in order to gain a claim is truly stepping over a dollar to save a dime.

Won’t rejecting the LBFO show the court and the creditors that we are uncooperative and we can’t work with anyone?

Three labor unions have rejected the AMR 1113 terms. This has never happened before. AMR is ranked as one of worst place to work in America. 95% of the pilot group signed a no confidence petition.   Rejection of the contracts demonstrates that management is the problem.

AMR could end up in liquidation under Chapter 7 if we do not sign a contract.

Unlike the Eastern Airlines situation, the UCC already has an alternative (the USAir POR) that will bring greater value than liquidation. Liquidation is the absolute last resort and extremely unlikely.

If we accept the AMR contract proposal, we can reopen contract talks after 4 years.

That’s an empty bag. The company opened over a year and half early in this contract and we got nowhere during that period.

Why sign a contract because we can open negotiations in four years when we can reject the contract and begin negotiations immediately after we exit bankruptcy. Rejecting the proposal would allow us to “open” 4 years earlier than signing it.

We have very limited leverage–especially with an unhelpful NMB—and no ability to exercise self-help under status quo restrictions.

Yes, the NMB has been of little help to us lately. But, the courts have produced nothing but backwards movement for us. The company’s offer is another huge step backward. It’s time to get out of the court system and under the RLA. It’s worked for us for 80 years. It’s all we really have for moving the profession forward and it’s all we’ll ever have. Either way, when AMR exits bankruptcy or if we reopen talks in the 5th year of this contract, we’re negotiating under the RLA. Why wait several years to get there?

In 2008, the company convinced the NMB that the “survival of the enterprise” would be in doubt if they released us to self-help. The economic conditions of the last 4 years did not help us.

Why might the NMB be willing to help us this time?

The US and world economies are improving.

The US stock market has recovered.

The price of oil has stabilized.

AMR’s yield is improving and AMR has over $5.5  billion in cash.

AMR will exit bankruptcy will less debt and lower  lease payments.

AMR has begun a fleet renewal plan that will make us more fuel efficient.

The housing market has bottomed and is recovering in some areas.

Other airlines have negotiated improved contracts for pilots. The only airline with lower labor costs is USAir.   A merger with USAir means the combined airline will have the lowest pilot costs in the industry by a wide margin.

If we sign the LBFO, we will not participate in the recovery of our airline.

Relying on DAL and UAL or others to make contract gains and then piggyback on them will not get us where we should be. Rather than carrying our share of the load to move forward, we will be a drag on the profession. Signing the LBFO would set a new low for all pilots. When we negotiate a new agreement years from now, we will have reduced the industry comparators as we did in 1983 and in 2003.  We’d “recover” to a lower industry standard than exists today.

Management betrayed us 2003. In Supplement T, the company promised that they would not file or support an 1113 motion against us if they had to go in to bankruptcy. They then gave themselves bonuses for successfully fooling us. The company’s proposal stipulates that we cannot object to their new bonus plan. We expect them to reward themselves with $300 to $600 million in AMR stock and other compensation. Fool me once, shame on you, fool me twice, shame on me.

AMR management has mismanaged our airline. They want us to pay for their mistakes. Jeff Brundage said to the APA BOD, “we have an alternate means of dispute resolution that was not previously available to us”. That means is bankruptcy. This 1113 proposal is an attack on your compensation, your career and your family.

AMR has been touting their improving yield. This begs the question of whether bankruptcy reorganization was ever necessary and why the company did not make changes before they declared bankruptcy. The answer is clear; it’s all about crushing labor.

AMR will play up the value of our claim and the value of staying on the UCC. IMO, it pales in comparison to what we’d surrender and we’d have no chance to recoup the loss. That’s why AMR agreed to a claim of 13.5% of equity. AMR is hoping we’ll go for the dime and overlook the dollars.

Summary.

This is about the “next generation contract” for AMR. It’s about AMR executives achieving what Frank Lorenzo could not; industry low labor costs for the world’s largest airline network. That network will consist of numerous codeshare and commuter partners, your jobs.

The other airlines will be forced to react by reducing or eliminating improvements in their pilots’ contracts. Another downward cycle in pilot compensation will result.

AMR is currently at a disadvantage to USAir presenting a competing POR due the fact that USAir has labor contracts.  If we sign this deal with AMR, we are contradicting our no confidence vote while strengthening AMR’s Plan of Reorganization.

Let’s not forget that the judge can rule in our favor and reject the company’s 1113, if we vote this proposal down. We could retain our current contract.   AMR most likely submit a new 1113, possibly one we could accept.

The bottom line:

The AMR LBFO is well below industry standard and is industry bottom in many areas.

The USAir offer to buy AMR might not succeed.

We must retain our right to negotiate under the RLA.

We must therefore not sign a deal with AMR.

Fly Safe,

Bill

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