Written For The March 2003 Issue of Labor Notes
SKYWAY ROBBERY: US AIRWAYS AND UNITED LEAD SAVAGE INDUSTRY RESTRUCTURING
By Jennifer Biddle and Rodney Ward
SEVERAL WEEKS INTO bankruptcy, United Airlines gave mechanics a Christmas
present: 560 pink slips. At a meeting with management in San Francisco
mechanics asked if they should expect more layoffs. The stationıs General
Manager laughed and said this was just the beginning.
The maintenance facility in San Francisco was once Unitedıs premier
maintenance hub, in its heyday a decade ago employing over 25,000. Today,
almost half its hangars sit empty, the shelves so bare not long ago
mechanics ran out of grease.
With the announcement of new furloughs came rumors that a mechanic in
Indianapolis committed suicide after receiving his layoff notice. Similar
rumors surfaced at US Airways--already several months into bankruptcy
proceedings--as employees there struggled with the harsh conditions creditors
placed upon that airline. Though the rumors remain unsubstantiated, the
collective psyche of workers at both companies appears to be in sync.
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 9/11 to slash labor costs and weaken union
contracts and solidarity. Already, over 150,000 workers have been laid off
amidst a $15 billion industry bailout. And the viciousness of an already
extremely competitive industry has deepened as pressures have intensified.
"(The airlines are) taking advantage of the industryıs economic crisis to
attack collective bargaining agreements, defined benefit pension plans,
health care benefits and worker rights," says Association of Flight
Attendants (AFA) International President, Pat Friend.
Leading the restructuring and concessions drive have been US Airways and
United Airlines. Severe restructuring moves are in preparation at American,
Northwest, Continental, Delta and other major carriers with more certainly
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.
US AIRıS "LABOR FRIENDLY" CUTS
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 7 years. Pilots and flight attendants agreed to concessions under
duress, but management filed Chapter 11 anyway. Mechanics (IAM) and
Customer Service Agents (CWA) quickly agreed to the concessions after the
Chapter 11 filing, under threat of judicially voided contracts. The
mechanics had to vote twice to get it right in managementıs brave new
"labor-friendly" world. All of the new agreements contained letters
committing management to refrain from asking for any more.
But it didnıt take long before they asked for more. Right before
Thanksgiving 2002, management returned, hat in one hand, big stick in the
other. Another $1.4 billion was needed over the next 7 years or else
investors would liquidate the company. With the liquidation gun pointed at
workers' heads management got their new cuts and CEO David Siegel earned the
new nickname "LiquiDave." Though most cuts were work productivity
enhancements--which will mean more layoffs--management got the following
prize: If war breaks out with Iraq, all employees defer 5% of their wages
for up to 18 months, at the end of which it presumably would be paid back.
Resistance to these concessions has been scattered and disorganized. But
some courageous union leaders set aside the paralyzing fear of threatened
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 2nd round of concessions 787 to 524. The concessions
passed, but only by 55.4%. The Customer Service Agents vote was even
closer: 1938 Yes to 1933 No. The message shouldıve been clear to
management: this well is dry.
But back they came again. In early January, US Airways management declared
they might have to terminate the pilots pension plan. US Airways employee
pension plans are under funded by $3.1 billion and the bulk of this is for
pilot pensions. On January 28th, management pulled the trigger to start the
process to terminate the pilot pension plan (promising to replace it with
some sort of 401K style plan). It will take 60 days for that bullet to
leave the chamber. In the meantime a showdown is brewing. ALPA spokesman,
Roy Freundlich, described it as "the bridge way too far" for management.
ALPA considers unilateral termination to be a major contractual violation
and has activated its Strike Preparedness Committee. Itıs likely that
President Bush would order pilots back to work should they strike, but a
major showdown is brewing.
[Defined benefit retirement plans in the airlines are presently
under funded 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 6 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
PATCO, EASTERN, UNITED?
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 and the airline industry as a whole if only by virtue of
its sheer size.
United was the largest carrier in the world until last year when American
bought what remained of TWA. Though now it is the second largest carrier, it
still has $22 billion dollars worth of assets and major hubs in Chicago,
Denver and San Francisco. The impact of bankruptcy and perhaps liquidation
for airline workers and the communities they live in will be severe to say
In an industry never short on symbols, it is critically important as well to
point out that Unitedıs workforce is eighty-five percent unionized. Surely
everyone remembers the "summer from hell" in 2000 when Unitedıs pilots
smartly organized an overtime boycott, creating havoc at airports across the
country and winning themselves the richest contract in aviation history.
Conversely, PATCO and Eastern Airlines standout as struggles best
representing organized laborıs recent decline.
FROM "PROUD OWNERS" TO "POOR OWNERS"
From the workersı perspective (and particularly for mechanics) the root of
Unitedıs problems with labor stem from the 1994-2000 contracts with its
pilots and machinists.
Both the Air Line Pilots Association (ALPA) and the International
Association of Machinists (IAM) agreed to a $4.5 billion concessionary pact
in exchange for a majority stake in the airline and a seat on the Board of
Directors. The Association of Flight Attendants refused to participate - the
only work group to do so.
While pilots overwhelmingly ratified the agreement, machinists were more
split. Though some had illusions in "employee ownership" most IAM members
voted for the Employee Stock Ownership Plan (ESOP) out of fear.
During contract negotiations early in 1994, Unitedıs then-CEO Stephen Wolf
sold off the companyıs profitable flight kitchens. Five thousand 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 ALPAıs and the IAMıs idea.
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
In the airlines the problems stemmed not from fake profit reports, but from
overcapacity 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 Unitedıs 401K program.
During the ESOP negotiations Unitedıs stock was trading at well over $100
per share. In bankruptcy the stock employees now "own" has become
BACK TO THE FUTURE
Finally, when contracts became amendable in 2000 and the pilots organized
and won the best labor contract in aviation history, 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.
While the political terrain had changed, mechanics were as determined as
ever to get what they felt they were justified in having: an industry
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 Unitedıs 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.
In March, 2002 mechanics signed on to the new agreement at the IAMıs behest.
The unionıs position? Ratify the agreement, then vote concessions down.
SEPTEMBER 11 AND BEYOND
The aftershocks of September 11 of course have little to do with the changes
United Airlines is pushing through. In the first half of 2001, United had
already lost $605 million.
Big airlines like United genuinely face a need to restructure to survive.
However, much of the money the airline lost from the profitable ESOP years
was due more to bad business deals, big bonuses and perks for management,
and golden parachutes for the quick succession of CEOs who flitted through
World Headquarters in Elk Grove, Illinois. The company expanded rapidly as
well. United grew from 73,000 employees to over 100,000, bought up new
international and domestic routes, and built a state-of-the-art maintenance
facility in Indianapolis.
When the company started beating the bankruptcy drum in the summer of 2002,
employees were justifiably skeptical.
The Air Transportation Stabilizaton Board (ATSB) offered the political cover
for United to go after its union contracts and at the same time secure a
$1.8 billion loan guarantee.
Then when the company posted an $850 million loss in the fall of 2002, all
the unions jumped on board and urged their members to renegotiate their
Every employee group voted to participate in concessionary agreements with
United to help secure the loan guarantee and stave off a bankruptcy filing.
That is, except mechanics.
On November 27, 2002, mechanics rejected participation in a $5.2 billion
concessionary agreement with United Airlines by 57%. At the time, the
company said it was losing $7 million a day.
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
Unitedıs 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
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
Within a month, the company got Bankruptcy Judge Eugene Wedoff to agree to
unilaterally cut IAM membersı 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.
When the press talks about "militant machinists" at United, 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 Unitedıs
Board of Directors. From this seat, the union has 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 $1.25 million "administration fee" should the
union successfully lobby its members to ratify concessions.
The IAM is so hated for its treachery at United that mechanics are in the
midst of organizing a decertification election.
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. The
leaders in fighting concessions at United have been AMFA supporters. These
mechanics genuinely want to protect their craft.
Mechanics also are pulled towards AMFA because AMFA is a much more
democratic union than the IAM. For example, AMFA contract negotiations are
open to its membership and there is instant recall of any union
representative, including the National Director, per AMFAıs Constitution.
AMFA represents workers at Northwest Airlines, Alaska Airlines and several
other smaller carriers. Just last month AMFA won an election against the
Teamsters at Southwest.
While having AMFA represent workers at United would be an excellent
change--and many mechanics feel the most important change right now--the
bankruptcy court and the company have their own agenda and timetable.
The IAM, the press and the company have reported that should workers not
voluntarily accept more concessions in the coming month, United will
petition the bankruptcy court to abrogate its unionsı contracts.
Many workers believe should the court dissolve union contracts workers
should strike. However the IAM says workers can accept the terms the company
lays out, or quit and find another job.
In small ways, rank and file workers are beginning to see it another way. In
lieu of AMFA winning a representational election, mechanics for instance
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 IAM dues
A GATHERING 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 tandem to
restructure the airlines hammered by overcapacity, an ailing economy and
competition from low cost upstarts like Southwest Airlines.
American 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 nonunion defined benefit pension plans into
defined contribution (401K style) plans, has frozen wages, closed five
flight attendant bases and dropped all pretense of benevolence since the
defeat of a union drive amongst flight attendants. Northwest Airlines 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 and posted a $42.2 million profit in its last quarter. This
doesnıt mean Southwest is an airline workerıs paradise: flight attendants
and pilots are paid by the mile and most of its maintenance is outsourced.
But it begs the question for workers: Why is management pointing its guns at
labor instead of getting its own house in order?
UNIONSı WEAKNESSES ARE AIRLINESı STRENGTH
The unionsı failure to organize resistance to the changes occurring in the
airline industry will ensure the continued trajectory of layoffs,
concessions and outsourcing jobs.
Even if one believed in the concept of Employee Ownership, workers no longer
have a majority stake in United Airlines. Late last year employee shares
bought under the ESOP were mostly sold - without the consent or prior
knowledge of the workers who supposedly owned them. United is now only 21%
"employee owned". One percent less and the unions will lose their board
While the rank and file may say good riddance to the concept of employee
ownership, the unions involved in promoting the idea have not.
The flight attendants union has traditionally been more militant.
Nevertheless, Teddy Xidas has pointed out that in the initial waves of
concessions "the company took us by surprise. The leadership in the unions
was not prepared for these union busters."
Yet the gross inequity of what is happening to workers is plain to see.
At United, thousands of workers get pink slips while management gets
shuffled around. The company petitions the court for $107 million in bonuses
to go to the management team who put United in bankruptcy - and workers get
court-imposed pay cuts.
Minus the $67 million it spent in bankruptcy fees, US Airways would have
posted a $20 million profit in October of last year. United Airlines is
spending $13,000 an hour in bankruptcy-related costs.
The business of bankruptcy is obscene.
And despite all the rhetoric of competition, two months before United filed
for bankruptcy the Air Transport Association (ATA) 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 US.
The ATA is lobbying very heavily for changes to the RLA. Currently, Senator
John McCain is sponsoring the Airline Labor Dispute Resolution Act, which
would ban the airline workersı 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 weıd never have any of the rights we have today," Teddy Xidas
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
doesnıt 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.]