American Bankruptcy Institute
Washington DC, Field Hearing
March 14, 2013
Association of Flight Attendants - CWA, AFL-CIO
Testimony
By
Debora Sutor
American Eagle Bankruptcy Negotiations Chair
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Good afternoon and thank you to the Commission for holding this hearing. I am
speaking as a 24-year flight attendant with American Eagle and a member of the
Association of Flight Attendants – CWA, AFL-CIO (AFA). AFA represents nearly
60,000 flight attendants at 20 airlines. Through my extensive experience in the
industry, I have observed a sad truth that has become all too common -- airline
management routinely uses bankruptcy laws to undermine their contractual
obligations to the workers who have built the industry.
The major US airlines have become skilled experts at the art of navigating the laws
to their advantage. Bankruptcy is not new to the airline industry. There have been
more than 150 airline bankruptcies since the industry was deregulated in 1978.
More than half of the airlines where AFA represents flight attendants have used the
laws to shred negotiated contracts in order to gain a small or slight advantage
against their competitors. Airline management has used these laws to shed pension
obligations, slash pay, and cut benefits such as healthcare and vacation, of the hardworking employees who help build these companies. Currently there are two AFArepresented carriers in the bankruptcy process.
On behalf of the flight attendant profession, I am here to call on Congress to keep
management from using bankruptcy laws as a substitute for responsible corporate
governance. Bankruptcy should only be used as a last resort. Instead, the
companies that form an integral part of our nation’s infrastructure are routinely
placed in bankruptcy solely as a means to escape obligations and reward top
executives and middle managers for simply executing the bankruptcy plan.
For example, Tom Horton, who has been CEO of AMR for only 15 months, is slated to
receive $20 million as the airline emerges from bankruptcy.
I am also here to talk about my personal experiences in one of the most recent
airline bankruptcy filings, that of AMR which owns American Airlines and the
wholly owned subsidiary American Eagle (Eagle). Since 1992, I have been at the
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bargaining table representing flight attendants through airline contract, merger and
bankruptcy negotiations. I have received extensive training in these areas from my
union and the National Mediation Board, and I have in turn trained my flight
attendant peers. I have served in elected union office at the local level and at the
airline level, representing all flight attendants at my company as a leader in my
union. As I sit before you I can report that we are still awaiting approval of a final
business plan for my company to emerge from bankruptcy. Because of events that
unfolded during bankruptcy, a new business plan was created allowing the merger
of American and US Airways. If approved, this plan will create the largest carrier in
North America. What’s not as certain is the future of my carrier, American Eagle,
and the two US Airways wholly-owned carriers, Piedmont and PSA.
Eagle has been a successful subsidiary for the corporation and is a mature regional
carrier. Eagle has been operating as a wholly owned American brand carrier since
the late 1980s.
In September of 2009, we entered into Section 6 negotiations. As Eagle was a
profitable component of AMR, we anticipated a significant cost-plus contract for our
members. This sentiment was echoed by management who acknowledged that
many portions of our agreement were below par. As talks progressed, we had
signed off on all but three sections of a new contract. Because Eagle was such a
successful and well managed entity, plans were readied to spin Eagle off as its own
company. We accelerated talks to meet that deadline and management and labor
were of the same mind that a cost-plus agreement would be quickly reached.
Without warning on November 29, 2011, AMR filed for Chapter 11 bankruptcy
protection, simultaneously dragging the profitable Eagle subsidiary into the process.
The AMR bankruptcy filing halted our negotiations and sent us into immediate
concessionary bargaining. If Eagle had been spun off as planned, we would have
never been part of the AMR bankruptcy and would now be enjoying a significant
cost plus agreement.
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It became clear that management was planning to take advantage of the situation to
extract pay and benefit concessions under the protections of the Bankruptcy Code.
AMR management repeatedly threatened to leverage the laws to abrogate our
contract as allowed by Section 1113 of the Bankruptcy Code. In March of 2012, we
were presented with management’s concessionary demands: their Term Sheet. I
must tell you that as the management representative indifferently listed the
plethora of concessions, I had a visceral physical reaction. I had spent 23 years as an
involved union member and leader negotiating those improvements. I felt like I was
watching the last 23 years of my hard work and history being flushed down the
toilet.
Obviously, all the improvements we had already cemented from regular
negotiations were off the table. This management now demanded deep cuts in our
pay, work rules and benefits. Additionally, management opportunistically sought to
change negotiated provisions that had no cost associated whatsoever – they were
just annoying to middle managers. It was as though they had taken a shopping cart
through the inflight department and middle managers threw in any provision of our
contract that they just didn’t like or had been trying to change for years.
Eagle management hired Bain Consulting to make a case that our airline’s labor
costs were higher than other “similar” sized regional carriers through a skewed
benchmarking process that compared us to Pinnacle and Republic Airlines. AFA
argued that SkyWest Airlines, a very comparable airline to Eagle, be added in the
mix. Management refused and gave no credible reason despite the fact that, in past
years, SkyWest had been included in Eagle benchmarking exercises.
We were found to be $9.2 million higher in cost than those carriers primarily due to
the longevity of our flight attendant group. Salaries and work rules were not all that
different. Management maintained that they needed to close the cost gap in wages
and work rules due only to longevity, and not higher pay scales and benefits.
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The flight attendant group was forced to give up $9.2 million annually in
concessions for the next eight years. In contrast, as a reward for putting the screws
to labor, upper management and managerial-level personnel will be rewarded in
tens of millions of dollars in compensation.
Like most employee groups at airlines that have used the bankruptcy process as a
business strategy, we have now seen our wages frozen, and changes in work rules
that force us to work more hours in order to qualify for full-time benefits. By
contrast, management allegedly met their cost-reduction target by not filling vacant
positions.
It’s important to note that AMR, in a November 29, 2011 press release, stated that
they had more than $4.1 billion in unrestricted cash and short-term investments1.
Since the filing, American has been profitably operating under the protection of the
bankruptcy courts and in recent filings had increased their cash on hand by nearly
$600 million2.
To add insult to injury, in addition to all of the concessions, our members now face
new threats – downsizing and outsourcing.
All throughout bankruptcy negotiations, management pressured us to accept cuts to
lower our costs in order to retain American’s feeder flying. They insisted this was
the only way that Eagle could continue to win American’s regional feed contracts.
We accepted this premise, agreed to $9.2 million annually in concessions and our
members ratified this agreement in September 2012. So far, this has turned out to
be an empty promise.
1 http://www.star-telegram.com/2012/02/29/3774077/amr-adds-to-cash-on-hand.html#storylink=cpy
2 http://www.star-telegram.com/2013/01/16/4553382/american-airlines-posts-262-million.html
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Prior to the bankruptcy proceedings, Eagle did the bulk of American’s regional
flying. AMR recently put out a bid and solicited contracts to fly a large percentage of
our flying.
AMR contracted with SkyWest Airlines to replace a majority of Eagle’s flying on the
West Coast. This service began November of 2012 and our LAX base closed soon
after. Isn’t it ironic that the carrier AMR refused to consider in their benchmarking
process is now the carrier contracted to outsource our jobs in Los Angeles?
In February 2013, AMR hired another regional carrier, ExpressJet which also was
not part of the benchmarking process, to do some regional flying out of our Dallas
domicile.
In March of 2012, Eagle closed our San Juan domicile.
A similar arrangement will be awarded to Republic Airlines in Chicago. In January
of this year the company announced a capacity purchase agreement with Republic
Airlines in which 53 large regional jets would move into ORD to perform flying. This
represents nearly half of our current fleet of aircraft in ORD.
So, not only do Eagle flight attendants face millions of dollars annually in
concessions, we may also now be laid off or furloughed.
This is yet another example of how bankruptcy has devastated this industry. At
several of the airlines represented by AFA-CWA, union jobs were slashed
dramatically as part of the bankruptcy process.
The painful cuts endured by the flight attendants were repeated, numerous and
extended over several devastating years of uncertainty. US Airways went through
bankruptcy twice, with multiple rounds of concessionary bargaining each time.
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The bottom line is that the law allowed opportunism and overreaching by
management. The bankruptcy court gives its blessing to almost each and every
management request in court. A law designed to provide extra protection has been
turned on its head and is now another weapon in what has become management’s
arsenal.
Finally, no consideration of the fairness of the current bankruptcy process would be
complete without scrutinizing management bonuses and compensation.
If the current system had any element of fairness it would prohibit excessive bonus
and compensation packages for the very executives who took these companies into
bankruptcy in the first place, and who inflicted massive compensation and workrule
cuts on the workers under the cloak of the bankruptcy law.
But, that is exactly what happens. Bankruptcy law allows executives of bankrupt
corporations to extract huge bonuses, as enormous sacrifices are imposed on the
workers. This is not only unethical; it is bad for the economy. The industry often
gives lip service to the concept of pay for performance, but the reality is quite the
opposite. Management typically demands that the workers’ concessions be locked in
for five or even six years and, in our case, eight years. Management employees
escape those harsh terms. When we no longer have legal recourse to protest, there
will be no assurances that the cuts management took in the form of leaving
positions vacant will not be filled upon emergence from bankruptcy – their upfront
“sacrifices” seem to disappear quickly after serving their function of giving the
appearance of fairness.
While airline employees have shouldered the heavy financial burden of the
bankruptcy process, sacrifice by airline management has been almost nonexistent.
In the beginning of most bankruptcy filings, airline management talks a good game
about their intention to protect and treat fairly all employees in the process.
Unfortunately, the record reflects an entirely different reality. In every instance,
employees have been forced to make life-changing sacrifices while executives are
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richly rewarded. In light of the sacrifices made by the dedicated front-line workers
whose commitment has been critical to the success of these airlines, these snatchand-grab schemes by management not only evidence poor judgment, but also reflect
downright avarice.
I am mad. My negotiating committee was outraged sitting across from a
management demanding concessions when the same management only nine
months prior was agreeing to significant benefit and work rule improvements. Why
the sudden change? They gained the ability to demand deep concessions through
the bankruptcy laws -- laws that invite opportunism and injustice. This is how the
bankruptcy courts have been allowed to distort the law.
Bankruptcy laws in the United States are unfair to workers. Continued abuse of
these laws has led to the elimination of good middle class jobs. The only way to right
this wrong is for Congress to enact new legislation to clarify and make these laws
fair.
As the Association of Flight Attendants has warned in the past, the cycle of
bankruptcy was destined to be repeated. Now, our sisters and brothers at Pinnacle
Airlines, one of the airlines used in benchmarking to drive our wages and work rules
lower, is also navigating the mine field of the bankruptcy process.
When will this stop? When will Congress have the courage to stop those hired to
manage our companies from misusing the bankruptcy process to extract wealth
from them? It’s time to correct the laws so that they ensure a system of fairness -- a
system that values workers and the contributions we make to our companies; a
system that stops rewarding executives for using bankruptcy as a business strategy.
Thank you for the opportunity to testify today. I look forward to answering any
questions you may have.
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