It’s been a bumpy ride for the US airline industry over the past several years – one that has cost tens of thousands of jobs, wiped out hundreds of millions of dollars in capital and forced a financial reckoning still underway.
At American, we’ve marked the five-year anniversary of our remarkable journey from the brink of bankruptcy – finding a different path back to financial stability while many of our competitors took the Chapter 11 route.
Recently, the spotlight has been on the auto industry and the struggles of the former “Big Three” as they come to terms with some of the same fierce competition, soaring costs and burdened business models that plague the nation’s airlines.
Comparisons between the two industries don’t stop there:
- As Detroit’s saga demonstrates, cash matters. So does good management. One reason Ford is now much better positioned than Chrysler and GM is because Ford’s leadership team succeeded in preserving a cash cushion, bringing down costs and improving productivity, providing Ford some protection from the credit crisis that helped cripple the other Detroit automakers.
That same strategy has helped AA manage through record-breaking peaks in fuel costs and similarly challenging credit markets and competitive threats, while still managing to keep jobs in house and preserve pension benefits that some of our competitors abandoned.
- Bankruptcy should be the recovery option of last resort. The UAW knows this, and how much bankruptcy could hurt its members. That’s why its leaders are backing the massive infusion of federal funds for Detroit. Without it, bankruptcy would be all but certain, with all the associated risk to workers’ contracts, wage rates and retirement benefits.
That story already has played out here, where AA workers all have benefitted from our company’s success in avoiding bankruptcy, particularly in comparison to employees of the airlines that used Chapter 11 to drive down costs and rewrite labor contracts.
- “Legacy costs” like retiree health care coverage remain a huge challenge for U.S. automakers and airlines alike, where those that provide these benefits are at a huge competitive disadvantage compared to those companies that don’t.
Congress has set a hard deadline for GM and Chrysler to come to terms with their unions on cost reductions and a “viability plan” as a condition of keeping their $17 billion rescue package. Retiree medical benefits could be a major barrier to getting that deal done in such short order. In 2007, the UAW signed a deal to take over responsibility for those plans, with funding provided by the Companies, but now, that funding is in jeopardy, and the issue still remains looming on the horizon.
Only time will tell if unions in the auto industry will be making a mistake in resisting any further role in supporting their companies’ financial recovery through wage and work rule concessions, because the ongoing viability of the companies depend on it. At American, some labor leaders continue to promote the notion that employees alone are due credit for American’s turnaround from near bankruptcy in 2003 to achieving a much firmer financial foundation today. No one discounts or underestimates the direct contribution employees made through restructuring that accounted for $1.8 billion of the company’s total $5 billion cost reductions. While the employee share was critical to the company’s overall turnaround plan, credit also goes to continuous search for cost reduction in other areas, thoughtful financial planning and strong leadership.
Some of our unions’ leaders have stated that the economic reforms accomplished since 2003 are loans due back to employees in the next round of collective bargaining agreements. While many of the changes we made during restructuring have been difficult for employees, the reality is that they were necessary for us to create a more competitive cost structure without which we might not have survived. A return to the wages and work rules of 2002 will have a predictable result – we will be back in the same situation we faced before we restructured.
In fact, labor savings are just one of the many changes we have made to operate more efficiently and cost-effectively. Even with the reductions in 2003 our employee costs are at or near the top of the industry in every workgroup. As a company and as an industry, we can’t pay beyond what the market will bear and expect to move forward with a sustained financial recovery which will result in a stronger company to the benefit of all our stakeholders.
There’s a long list of troubled industries lining up for federal bailout money, and it’s pretty clear airlines won’t be anywhere near the front of the line. We at American need to continue our efforts to rebuild the company to compete and succeed for the long term in a very competitive industry and a challenging economic environment.
