BY MALIK MIAH
& JENNIFER BIDDLE
SAN FRANCISCO — How could the biggest airline in the world, with the most enviable route structure, largest and most diverse fleet, employing over 100,000 workers — an airline that made US$8 billion in net profit during the boom years of the 1990s — go broke in the space of two years? United Airlines (UA) was no Enron. It made lots of cold, hard cash.
UA is the oldest commercial airline in the country, a company that survived the Great Depression and several major wars. It lost its place as the number one airline to American Airlines when AA bought the remnants of TWA in 2001.
On December 9, UA filed for bankruptcy protection ("Chapter 11"). Given that two of UA's planes were lost in the 9/11 terrorist attacks, it is an irony that the "war on terrorism" is the pretext the industry is using to break the backs of its workers' unions.
In an interview with a New York Times reporter on December 10, UA's new CEO and chairperson Glenn Tilton, a former executive at Chevron/Texaco and former chair of Dynergy (which is being scrutinised for securities fraud) had this to say: "Let me offer you two scenarios. One is the prospect of my vision and my leadership and robust employment and a competitive United. That's door number one. Door number 2 is Chapter 7 [liquidation]."
Comforting words from a man who secured a $3 million signing bonus, a $4.5 million pension trust, and a $1 million salary up front.
The threat of liquidation is not simply corporate bluster — although liquidation isn't as simple as Tilton implies. UA is now the second largest airline in the world, with more than $22 billion in assets, and a major employer in the US. Its shutdown would tremendously impact the US economy, financially devastating its 80,000 employees, the airports where they work and the communities in which they live.
UA has some 30,000 creditors, including large banks and aircraft manufacturers Boeing and Airbus. Air transportation is an integral part of the country's infrastructure and the closure of a major player like UA would require intense planning. If restructuring does fail, UA will have to sell its assets to prepare for final liquidation. In aviation, this can take years.
Since 1978, when the airline industry deregulated, nearly 200 carriers have gone under. However, the only majors to fail were Pan Am, Eastern, TWA and Braniff. All took years to downsize before their demise. Once the largest US international carrier, Pan Am took nearly 10 years to disappear. Talk of liquidation so early in the process is simply a scare tactic to wring massive concessions from labour.
Concessions rejected
On November 27, to the shock of union officials, company executives and the media, UA mechanics voted overwhelmingly to reject participation in a $5.2 billion concessionary pact — the only employee group to do so. Since participation by each employee group hinged on participation by all, the mechanics' veto meant none of the other agreements were binding. The company and the unions wanted employees to make concessions so UA could successfully bid for a $1.8 billion federal loan guarantee.
As it had done at US Airways several months previously, when mechanics initially voted down concessions, the International Association of Machinists (IAM) agreed to have UA mechanics vote again on the proposal.
Perhaps sensing a need for a tactical retreat, the Air Transportation Stabilisation Board (ATSB), which oversees the federal loan guarantee program, announced the day before the second vote that UA would not get the loan guarantee — for the time being. In a stinging rebuke, the ATSB laid the blame on UA management for their failure to secure its backing, citing "unreasonably optimistic" revenue projections — especially as low-cost carriers continue to impinge on UA's market share — as well as a too-high cost structure, even with concessions from labour and an under-funded pension plan.
Rank and file IAM members of course were not shocked at all by the mechanics' rejection. Mechanics understand that the crisis has little to do with wages and benefits, which are on par with industry standards. Perhaps most onerous to mechanics was the bankruptcy language that would have put them at the mercy of the company in the event of a war with Iraq or a threat of terrorism.
It is a tribute to the militancy of mechanics to have voted down this agreement despite the intense pressure of not knowing whether or not the company would really go belly up. Mechanics recognise that the financial picture is bleak but feel that the company has no viable business plan to turn the company around and protect their jobs and incomes.
As it turns out, UA was losing much more than the $7 million per day it reported when the mechanics vetoed the concessions. On the company's first day in bankruptcy court, employees learned that UA was losing up to $22 million per day. It appears bankruptcy is all but inevitable.
Who pays?
UA's fall into bankruptcy was not a surprise by the time it occurred. Management had made a series of decisions that compounded a structural problem facing all the mainline carriers: how to increase revenues while competing with lower-cost airlines and at the same time remain profitable.
The 9/11 attacks gave the airline industry a golden opportunity to correct its mistakes. Within months, the airlines hacked more than 140,000 jobs and parked 577 aircraft in the desert due to overcapacity.
But the structural problems were evident long before 9/11. UA lost $605 million in the first half of 2001, in large part due to bad business deals (its attempt to buy US Airways, the purchase of an internet company and the creation of a still-born business airline) and a slumping economy.
The restructuring at UA and the other airlines was inevitable. The only question is who will pay for it?
Deregulation in 1978 broke the old customs and set labour and management on a 25-year cycle that exposed how weak the unions had become and how vulnerable workers in the industry were when hit by frontal attacks.
The consumer was the only winner. Ticket prices came down and many working-class Americans, who had never flown before, began travelling by air. This added new pressures on the main carriers.
The first response of the traditional airline executives was to try and run the new airlines out of business by taking big losses on common routes. That generally worked as most upstarts failed within a few years.
The wringing of concessions from airline workers in a crisis did not begin with deregulation, but it took off with a vengeance in the unregulated industry.
In 1985, UA pilots went on strike. Afterwards, they developed a new strategy to protect their jobs: seeking direct ownership of the company. The Employee Stock Ownership Plan (ESOP) came about because the Airline Pilots Association (ALPA) believed employee ownership would end conflict with management and give workers control.
It was a false belief that Wall Street and banks would finance an "employee ownership" scheme that would give workers real power. Owning stock is not the same as controlling a corporation. For the financiers, employee ownership really meant massive tax breaks and concessions from labour in exchange for limited influence on the board of directors.
Signed in 1994, the UA ESOP was a six-year, $4.5 billion concessionary pact that gave employees a 55% stake in the company and a seat on the board. The CEO walked away with $37 million.
Why did workers vote for the ESOP? Some believed they would have more of a say in the way the company was run. Most were just scared.
The 1994 ESOP, which now faces elimination under bankruptcy, was sold to the workers as the economy was about to enter a mini-boom. Workers took massive wage reductions for stock that could not be sold unless they quit or retired.
Worse, the IAM and ALPA saw this new partnership as the equivalent to real control of the company. They invited the CEO and other executives to union meetings and functions. The IAM even gave them space in union publications.
The balance sheet of the ESOP is betrayal and failure. Yet IAM officials and ALPA leaders still defend the ESOP and are fighting to keep it alive during and coming out of bankruptcy.
War against workers
On December 14, the IAM posted the company's first concessionary request to the bankruptcy judge. The new terms for mechanics, if accepted, would include a reduction in pay and benefits equalling $161,000 over the term of the agreement, including a 20% cut in health care coverage and unfettered ability for the airline to outsource maintenance.
The pilots and flight attendants immediately agreed to "temporary" wage cuts (29% for pilots and 9% for flight attendants) retroactive to January 1. CEO Tilton is demanding $2.4 billion in labour concessions to restructure the airline and come out of bankruptcy. The judge imposed a "temporary" wage reduction of 13% on IAM members.
The fact that the three major unions are on the Creditor Committee is not a good sign for rank and file workers. Union leaders have all made clear that they are willing to give concessions to "save" the company.
To slow down the attack, and possibly win, will require taking steps outside the business as usual approach of the official labour movement.
While mechanics, particularly those supporting a rival group seeking to replace the IAM as their union at UA, have taken the lead in attempting to slow down the worst aspects of the company's restructuring plans, it will take independent, rank and file initiative from all airline employees to win.
Organised resistance can influence bankruptcy courts and judges. Laid-off Enron employees who had no union were able to get the bankruptcy court to force Enron to pay them a severance package after the company filed for Chapter 11 protection.
[Malik Miah and Jennifer Biddle work as a mechanics at United Airlines' San Francisco maintenance centre.]
From Green Left Weekly, January 22, 2003.
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