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Written For The March 2003 Issue of Labor Notes

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 to come.

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.

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 beyond.]

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 the least.

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 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 bubble burst.

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 essentially worthless.

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 leading contract.

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.

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 contracts.

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 pension program.

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 huge losses.

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 check off.

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?

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 seats.

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 reminds us.

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.]

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