Note From Holly – 6.25.12

Reprinted With Permission By Holly Hegeman
June 25, 2012
Plane Business Banter
Holly Hegeman, Editor

"You may recall that last week I said that I thought we would hear that a deal had been agreed to between the pilots at American and the airline — although it might not happen last week. When we wrote last week’s issue, the Allied Pilots Association had already formally requested that U.S. Bankruptcy Judge Sean Lane postpone his ruling that was scheduled for last Friday concerning the labor contracts at the airline.

Since our last issue, two major things happened.

One, the APA Board of Directors voted 11-5 not to send the airline’s last best offer out to a vote.

Secondly, Judge Lane did, indeed, postpone his ruling for one week.

That’s the public news.

Now, here is what has been going on behind the scenes.

First, we have to remember the mantra: Just because the pilots agree to a contract, this does not mean, in any way, that they are walking away from the endorsement of a merger with US Airways.

I can’t tell you how many times I have said this over the last week to both AMR employees and non-employees.

Second, if the pilots can come to terms with the airline on a contract, this contract would then be used to "set the framework" for any potential deal with US Airways. If the Unsecured Creditors Committee does what it is supposed to do and reviews both the proposed merger plan, any other plans that may pop up, and the airline’s proposed "Standalone Plan", then this should work to the advantage of the pilots.

I think it is safe to assume that if there are portions of the contract that are agreed upon between the pilots and American that are "better" than the current TA that has been agreed upon between US Airways and the pilots, obviously, US Airways will have to match and/or better those terms when they put the final touches on a formal offer, and formal TAs.

So what do we know about the last, best contract that was put before the pilots?

You can read the term sheet for yourself. No question it’s a far better contract than had been dangled in front of the pilots previously.

There is also no question that this situation is something we have not seen before with a major airline. From the pilots’ perspective, they are, in effect, negotiating not only a contract with American, they are also negotiating things they would like to see in a contract with US Airways.

But they are doing so assuming that the Unsecured Creditors Committee will do their due diligence and find the US Airways plan more acceptable.

Meanwhile, a little background on the drama from last week that is not a part of the headlined stories you’ve probably already read.

Yes, there was an equity option put on the table last week.

And yes, at the last minute, American apparently attempted to get APA to agree to a deal that had a condition. That condition was that the APA not endorse or support a deal withUS Airways.

I found this tidbit particularly interesting.

One, it says to me that management at American is clueless.

It would appear that by trying to shove that condition in at the last minute, management was assuming that perhaps the pilots were using the US Airways deal as "leverage" in an attempt to get a better deal. That the unions have, all this time, just been bluffing.

Wrong.

While there is no question that there could be a "leverage" play here to a certain extent on the part of the unions, given the situation, that is not the primary influence here — particularly in terms of pay rates. The recently agreed-upon TA between Delta Air Lines and its pilots is now the benchmark pilot contract in the industry. I can assure you this contract is being used as such in the intensive negotiations now going on between UnitedAirlines and its pilot groups, and it is the case here.

Oh, and by the way, after the "condition" was put on the table, it didn’t stay there very long. Management pulled it. Was DOA the minute it hit the table.

This move also dovetails with reports we’ve heard from officials of all three unions in regard to threats that continue to be made concerning their position on the Unsecured Creditors Committee. This has been going on for some time. In other words, from what we’ve been told, there have been comments made to the union leaders that if they continue to support a merger with US Airways, their seats on the UCC could be in jeopardy.

Empty threats. I’ve talked to three different legal eagles concerning this, and the answer is no, the airline can not have the union leaders removed from the UCC merely because they have come out in support of a merger with US Airways. Because all the union leaders have said is, "We support the examination of an alternative plan that has been proposed by another airline."

Nothing wrong with this. They are simply asking that the alternative plan be considered by the court and the UCC.

For those following closely, you may note that this differs markedly from comments made recently by American Airlines CEO Tom Horton at a recent employee meeting, which we talked about here previously. According to several reports we received from folks who were in attendance, at that meeting Horton told employees that American Airlines was going to choose whom it was going to merge with, and it would decide which business plan was best for the airline.

Big difference. Mainly because American Airlines and Tom Horton do not get to decide either of those — that is the job of the bankruptcy court and the UCC.

The union leaders have merely said they support an alternative plan and they want the court and the UCC to consider it.

So, what should we see happen this coming week?

I still think we should see the announcement Wednesday that APA has voted to send the latest tentative agreement between the pilots and the airline to its members for a vote. Although I suspect a lot of the board members are going to hold their nose when they vote.

We did receive reports over the weekend indicating that the "offer" language from the airline that was presented to the APA last week was woefully inadequate. So if a deal is going to be reached, it means the company worked overtime this weekend to present a much more complete, detailed offer, than it did last week.

Could we also see a deal announced between the TWU and the airline? Could happen, but I think the chances are much less. As for the flight attendants — as I said last week — they are never going to agree to a contract as part of this process.

We are now scheduled to hear a decision by Judge Lane on Friday –unless another request for a delay is granted as a result of a scheduled APA vote.

However, with the July 4th holiday week coming up after that, it would then be probably at least another week after that before a decision could be announced.

So, we really don’t know what is going to happen this week. All of this is unchartered territory.

But at some point — the next chapter will begin.

We’ll have more to say about all that in our next issue. Short and sweet? If you love drama, I would suggest you not go on vacation in July."

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This excerpt comes from PlaneBusiness Banter. Holly Hegeman is Editor and Publisher. Hegeman founded PlaneBusiness Banter in 1997. It is currently the most widely read weekly publication covering the U.S. airline industry. Hegeman is often called upon by members of the media to comment on the industry, and most recently was on ABC World News Tonight, commenting on the potential US Airways/American Airlines merger.

Holly is a former senior contributing editor for TheStreet.com in New York, where she analyzed the airline industry for four years. Holly also created the airline industry research area of the Motley Fool Investment website in 1995. She covered the industry for the Fool until 1997.

Prior to her founding PlaneBusiness, Holly served as senior vice-president at two Wall Street investment firms.

Hegeman also served as a consultant to then-Chairman and CEO of American Airlines, Robert Crandall from 1994 to 1995, where she worked on a number of communications management projects. She also authored the 1994 AMR Annual Report along with Crandall.

Holly is a graduate of Loyola University in New Orleans, and completed graduate level work at Griffith University, Brisbane, Australia, University of New Orleans-Innsbruck, and the University of Tennessee.

Holly was the recipient of a Rotary International Journalism Award, and is a past president of the New York chapter of the International Association of Business Communicators. She retains her membership in PRS:NY, a select group of New York-based communications professionals, and is a member of SABEW, the Society of American Business Editors and Writers.

You can follow Holly on twitter at @planebusiness or on her blog, http://www.planebuzz.com. Subscriptions to PlaneBusiness Banter are $197/year. For more information, contact [email protected]