Letter to United

[yankeeclipper747]

Here's another letter I thought might be interesting:
Subj: Pilot to Tilton...United Airline's Leader...




Subject: Retired Pilot's letter to Mr. Tilton



Letter to Tilton,

4-Oct-2005



Mr. Tilton -



For the longest time I've been wondering, "How can Glenn Tilton look at himself in the mirror every morning?" as I view the cruel, heartless actions you've taken against retirees and employees. We met last December when I welcomed you aboard the B-777 I was flying from Denver to Chicago. On one level I had been hoping you would turn out to be a real bastard - that would explain everything - but you are obviously a very intelligent, charismatic, and outwardly pleasant person.



Recently all my questions were answered. You see, I came upon the book The Sociopath Next Door, by Dr. Martha Stout, and everything snapped into sharp focus. A sociopath is someone who has no conscience, who is incapable of feeling empathy or sorrow. It's not a truly evil trait, it's simply a genetic disorder, like being color-blind. An alarming number of people (1 in 25) are sociopaths. You are one of them. You, sir, are a sociopath. The reason you can do unconscionable things is you have no conscience. And when I realized that, I stopped being angry at you.



Now I see it wasn't personal, just business, when you destroyed the pensions of the retirees; pensions that had been bought and paid for, while still accepting your own bonuses and outrageous salary. I see how you could not even comprehend my suggestion, sent to you in two separate e-mails (which you refused to acknowledge or answer) that you forego your salary and work for $1 per year. It sure would have galvanized the entire employee group into pulling on the same end of the rope. And by the way, it wouldn't have been such a bad idea from a financial perspective. After working for free, your 2007 memoir Rising: the True Story of How Glenn Tilton Rescued United would have netted you a hefty seven-figure advance that would have eclipsed your current United salary. Too bad for you, Glenn. By now the whole world has already seen what you're really made of.



You had your chance to really be a historic leader, and instead you will simply be a footnote in the case studies that will examine United Airlines, such as the one I am researching for the Doctor of Business Administration degree I am currently pursuing. The working title is Rolling in their Graves: How the Legacy Of Pat Patterson and Eddie Carlson Was Destroyed by Greed and Incompetence at United Airlines.



While you appear to be an adequate manager, you're a failure as a leader, because you are unable to inspire people to want to follow you. United Airlines was once truly great, where the company really cared about the employees. Now, it's simply a place where the employees come to work. They know they're not valued; they're considered a liability.



During the 27 years I worked at United, I've had some difficult times: I went unpaid during a strike, was furloughed, took more than a 25 percent pay cut for the ill-fated ESOP, watched my pay decrease by more than 50 percent during my last three years, and grieved the loss of friends and coworkers. Through all of those difficult times United was a family. We supported each other during the tough times. We pulled together. With you as the father figure, United is now truly a dysfunctional family.



But at least you've kept your salary, your bonuses and your retirement. United has picked up the tab for your penthouse apartment, a total amount that would equal the entire mortgage on the home of the average retiree. Yes, I know it was promised to you in your contract. But wait: my pension was promised to me in my contract.



The sad thing - I'm sorry, I just used a term you can't comprehend - is that you lack the trait that makes us humans, well, human. No longer angry, I truly feel sorry for you. I still wish this letter would hurt your feelings, but I know that's not possible.



With all DUE respect,



George E. Nolly B-777 Captain, retired

[Brian Abraham]

We had a documentary run on telly recently on the subject of corporations and their ethos. They used the United Nations mental health checklist and ran it over your "normal" company and came up with the following,
1. Failure to conform to social norms with respect to lawful behaviours

2. Incapacity to experience guilt

3. Reckless disregard for the safety of others

4. Callous unconcern for the feelings of others

5. Incapacity to maintain enduring relationships

6. Deceitfulness: Repeated lying and conning others for profit

Diagnosis: Psychopath
Having worked for a multi national I have to say its spot on.

[Airbubba]

Somewhat ironically, George Nolly wrote an article in the 1970's that inspired many of us seeking an airline career.

It was about his success with his United interview. The title was "The Road to Victory: My First Airline Interview":

http://www.avweb.com/news/careers/182742-1.html

This latest literary work is a pretty typical rant to the CEO from a disgruntled former employee of a OGA (Once Great Airline). I've been there, done that <g>...

[N380UA]

I had trained with UAL in the mid 90's in terms of an intern whilst studying at ERAU in DAB. I was truly impressed with the organization and training I had received there. As a foreign student I wouldn’t have been able to actually find employment with United or any other US carrier. I also wanted to go back home. But given the choice UAL would have been my preference. I sure hope they'll get back out of chapter 11 soon.

Although I have not worked in the US, I would assume that management between Europe and the US is very similar as it would be around the world. As such we find bean counters on the carpet floors of our industry. In their realms, aviation is just another industry, comparable to the automotive or IT industry. Its all interchangeable – or so they believe. Very seldom we find folks running organizations like UAL that have actually grown from within. Folks that started as FO or line engineer actually understanding from within how it all works together and after 20 or 30 years making it to CEO.

Another problem, I feel, has been the deregulation of our industry. I know that would be a pretty un-American thing to say but as a result we find ourselves devouring each other. Undercutting prices on routs which are of little significance in the first place only to please the share holder. In order to acquire even more, sometimes way beyond that what is healthy for a company, we employ those bean counters to run the show for us – we surrendered our own profession to people who don’t know what aviation is!

They then will tell you that they are in the hot seat. They have to increase share holder value, SRM, fleet, routs etc. to a given set of predefined values. All of which is accomplished at and on the cost of employees, and material. If they don’t meet these expectations they will be fired, whilst getting a golden handshake of course. Employees get sacked or a reduction or salary, the share holder sells his paper and the company is virtually out of business.

Sad, but that’s the way it is. Aviation wont ever be what it once was. Its just another business.

[Dani]

And what else than a sociopath is a retired captain, having earned millions of $ during his career, much more than his ground staff and above the industry average, getting mio's in his retirement plan, and now complaining about someone who tries to save this dinosaur company?

Of course he looses lots of money, but maybe somewhen during his (active) career it should have gone through his mind that it's not possible to sustain an organization like that.

Dani

[Snoopy]

Dani, that's a fairly feeble response. His job wasn't to manage the company but to fly a plane, for which he was paid the going rate at the time. His t&C included a pension plan on which he planned his retirement, just as most of us do. Had he gone to his employer and said that he would work for half so that the company had a long term future it would probably have been spent on management bonuses for achieving such great cost savings!

I can certainly understand his bitterness at having the rug pulled out from under his feet and he is just as entitled to feel that bitterness as the guy who was loading his plane with bags...

[N380UA]

Dani
What some senior fleet Capt. of renowned airline i.e. Delta, United, Swissair or Lufthansa makes is or may have been a bit too much, I agree. But no company has gone out of business because they paid too high of a salary. It is and always has been the arrogance of the management believing that growth ad-infinitum is the only way (I don’t have to show you this example on the Swissair case do I?). Pride will have a fall! And it is always the management that is not falling far and will always land softly. As Snoopy said, I certainly also appreciate Capt. Nollys position.

[Sunfish]

Not psychopath - Narcissistic Personality Disorder.

[411A]

Good 'ole Capt'n George sounds just like a typical ALPA guy, cry'n the blues.
Oh, boo hoo..:{ :{ :{
Maybe, instead of relying on the company for his retirement (always dicey) perhaps he should have saved just a little for same.
'Ole Capt'n George sure knows how the REAL world operates now.

Not making excuses for Tilton...just the way it is.
Younger guys/gals forwarned.

[aviator]

And here is the discription of a Delta Airlines uniform placed for sale on eBay. It didn't stay up very long, but the text is making the rounds.

aviator


AUTHENTIC Delta Air Lines Captain Pilot Uniform

This uniform was worn by a dedicated Delta Pilot for many years. Now retired and robbed of part, or all, of promised pension, uniform is now offered for sale to supplement income.

Suit is worn and empty but filled with memories and honor. Suit has been across many miles and many experiences. Suit was once filled with pride and service getting thousands of passengers to their destination safely. Suit has been through rain, snow, ice, and wind without a single tear or scratch. Suit once controlled multi-million dollar assets, flown throughout the world, with billions of dollars of liability to the company. Suit has never cost company one (1) cent in accident or injury.

Although the suit is worn and has been discarded by the company, it can be yours. Suit is clean but used. Coat may be soiled from hydraulic fluid or grease as plane was inspected. Shirt may be soiled from mad dashes through the airport in a rush to the next plane in an effort to get back on schedule. Tie may have stains from fast food meals that were hurriedly eaten while at the controls. Tie comes with you choice of pins, Air Line Pilots Association, Air Force, or Airplane. Pants may show signs of wear from may hours spent strapped into a seat, hip shows some signs of wear from firearm used to protect you and your passengers from harm. Shoes are shiny but worn. Suit comes with choice of Old Delta or New Delta emblems. Many prefer the Old Delta.

Suit is thought by many to have APHRODISIAC qualities, although this cannot be confirmed or denied.

BEWARE putting on this suit can have adverse effects on you life. It can cause you to miss your childrens birth. It can cause you to miss holiday reunions, family times, and weekends. You may miss your Daughters prom and your Sons graduation. Your family may think Christmas is not always on December 25th. Your wife will have to learn to be a single parent when you are gone for days. The suit can cause you to miss entire nights of sleep or get up at 3 AM to meet your next schedule. Your neighbors may be jealous of you and think you do not deserve to wear the uniform or be compensated for your work.

Originally suit required a four year college degree and an internship of 5-10 years in the military, and another 10-15 years for the fourth stripe. Suit comes with a promise of a pension if you provide years of dedication and service. THE PROMISE MAY BE AS EMPTY AS THE SUIT. Now it can be had for the highest bid. Good Luck bidding.

[JustAnothrWindScreen]

The pension benefit is nothing more than delayed compensation that the employee has already earned and worked for. Just because inept management by the top boys or inept stewarship by the fund managers causes a complete meltdown does not mean the employee has not already earned that money. Contracts are two way streets, both parties agree to them. When the top "boys" completely screw up, only the employee and shareholders are hurt, never the ones causing the problem. It seems their massive paychecks and bonuses along with guaranteed pensions in BK or out always seem to get paid.

[sevenfoursharer]

The sad stories of all these retired or nearly retired airline employees seeing their pensions evaporate is almost unreal. What surprises me most is the link between these chapter 11 airlines and the pension funds of their employees. In the company I fly for, both the employee and the company deposit a pension fund contribution on a monthly basis. The pension fund that is created this way is managed independently by a major financial organization. A dedicated group of democratically elected pilots and the secretary of the pension fund have a limited say in how the pension fund is managed. This is usually done in a conservative manner and the financial organization actually guarantees a pension pay out at the end of a 31 year career of 70% of your median income, adjusted for inflation. The financial organization is fully re-insured should any problems arise there. Despite their contributions, the employer - by law - can never exert any influence over the funds. Once a contribution is made it is out of their reach.
What exactly has gone wrong in the US?
Are laws or pension plans being adjusted as a result of the present short falls?

[bafanguy]

I've seen impassioned letters like this one written over the years to what we laughingly referred to as our CEOs. Now that we are in the process of loosing a sizeable part of our pensions, I've seen a number of new editions.

All these letters have an understandable element of truth: the CEOs will NEVER be in a postion to be accountable. That's just the way it is and no one should spend any valuable adrenalin on it. They aren't going to listen or care anyway.

The one thing of value said here is that the junior birdmen had better take heed. If they don't pick up on what history is teaching them, they aren't smart enough to be flying an airplane for a living.

YOU...HAVE...BEEN...WARNED !! All life-altering, personal financial errors from this point forward are YOURS.

[JustAnothrWindScreen]

sevenfoursharer, it sounds like you work for an honest and reputable company. All pilots or airline employees for that matter that I have talked with would love to have the set up you describe. Get your money out of the hands of the MBA trash that will certainly squander it on their own ego's. As I said earlier a pension is nothing more than delayed compensation for work already performed. That compensation should be in honest hands in conservative investments that the current crop of airline "boys" (some like to call them ceo's) cannot touch.

[Ignition Override]

This is not an attempt to improve on the excellent reamrks posted by most of you. But to supplement, and rock the boat: Many elements of the US Congress and many leaders in the White House, for decades, have had nearly total disregard for the working people of this country, giving corporations carte blanche, i.e. "let the free market operate...". To them, flightcrews only serve a function as very over-paid, semi-skilled labor. Let's perhaps reflect back upon what that ignoramous Senator John McCain (Arizona) claimed about airline pilots. I respect his guts and mental/physical stamina for attacking fiercely- defended enemy targets and then somehow surviving the tortuous Hanoi Hilton, but as for his remarks a few years ago about an industry of which he has little comprehension, he appeared to perfectly fit the common US airline corporate mold of "let's sneer, publicly criticize, somehow lie and deceive, steal from those pilots (aw, anybody can fly those planes...training, experience, whatever dude...), so that we can fatten our already over-bloated permanent pensions, which are guaranteed, no matter whether we set a bold example, show strong leadership, or not [Arbeit macht frei]" :cool:. Never mind the fact that at many airlines relatively few have the opportunity to be widebody Captains at the highest salaries)...but this was part of the mantra "US free market", so often touted in our history books and present media. Maybe civilian pilots should expect nothing from the GOP. Except for some moderates, many are in the pockets of corporate lobby groups. PAC money? And they have recently lost lots of pilots who voted GOP for years.

If you don't have an upper mgmt. title by your name, then many (but not quite all) in the US airline industry consider your contracted retirement to be a spoil for the creditors or corporate goons (how over-priced are the jackals [attorneys] who administer the Chapter 11?; United has reportedly paid about $10,000,000 per month) when the company is in Chapter 11. See what can happen to your contracted retirement if a company is liquidated

But this makes one GIANT assumption.

That your upper mgmt, as stated before, was bound by a contract and FULLY funded the pensions-as another Ppruner stated. But the government did not require them to be fully funded, even a major fraction, and now, ironically, they can not be, in order to help the major airlines survive. And the airlines pay enormous amounts in government taxes and security fees. If your ticket costs $200, $50 can consist of federal government secrity fees and other taxes. The US Congress seems to have allowed banks, finance and credit card companies to create, over about six years, these wonderful new Chapter 11 laws, which make it much more difficult for an airline, or anyone else, to survive this process after October 17, thereby forcing many Chap. 11 filings before that date. Check out how many personal bankruptcies have been declared compared to this time last year! Let the US taxpayers bail out the PBGC. Among the three people who manage the PBGC, two of them ALSO run the ATSB-which loans airlines money at low rates. Is that a conflict of interest?

Incidentally, the US regional and many jet cargo airlines (i.e. 727, B-747...) airlines have no fund for you, none at all. You save out of those modest salaries-First Officers at the US minimum wage. Their company negotiators refuse to settle if any retirement contributions are to be put in by anybody except the employee/staff .:E

The western European countries often tax the heck out of staff and everyone else, but some allow a more secure retirement: but at least some governments take an ethical view (rarely found in the US government) of their dedicated career civilian employees.

[Algy]

...and here's (http://msnbc.msn.com/id/9622990/site/newsweek/) another twist on the sad things going on just now regardless of who's to blame...

[big fraidy cat]

The CEO's share-dumping sounds like insider trading to me. Anyone know if this is being investigated? Would be nice to get the money back and put it in the pension fund, where it belongs!!

[Konkordski]

Nice to know someone's prepared to write a letter which is all problem and no solution.

[MrBernoulli]

I-FORD

"Then you can work up to 65 (or later) without being worried, crying for lost revenues etc..."

......except that the Italians, among others in Europe, won't allow skippers over the age of 60 in their airspace. How archaic is that idea? People are hell bent on the idea that a 'united Europe' is somehow a good thing. 4rse, is what it is!

[Bigmouth]

Though I agree with most everything said here, I also think it's fair to say that greed spilled over into the ranks of employees incl. pilots in the late 90's. I remember one pilot group after another threatening strike to obtain ever increasing pay deals, each one demanding to be "industry leading".
And then there was the supposed quote from the MEC at UAL (they had part ownership and a seat on the board, remember?), something about "we aren't going to kill the golden goose, just wring its neck untill every last egg..."

[Airbubba]

The infamous golden goose quote was from Rick "Mad Dog" Dubinsky. As many have observed, the goose ran out of eggs long ago.

United has actually started recalling furloughed pilots with classes to begin in January. Maybe they will be able to morph into a low cost carrier and survive. They have certainly led the industry in reducing wages and benefits over the past couple of years.

[airship]

Compared to some big companies in other industries, it strikes me that the United Airlines saga could someday become an outstanding example portraying "a company's struggle for survival in adversity". Where everyone involved: employees, unions, management, shareholders, bankers, government (and why not loyal passengers?) made varying sacrifices with the honest objective to keep the company intact as far as possible and the jets flying?!

That'll be small consolation for those who will have to rely on the PBGC (http://www.pbgc.gov/media/news-archive/2005/pr05-61.html) for their retirement income though. (http://www.pbgc.gov/media/key-resources-for-the-press/content/page13542.html) :sad:

At least United have not been doing anything illegal, just using measures already available to any corporation in difficulties. Both United Express and Ted appear to be serious efforts at trying to meet the competition at their own level, with a view of delaying the eventual hardship on the parents of all airlines with "legacy costs". But as a matter of interest, which "United Airlines" company actually holds the rights United took over from TWA and PanAm under Bermuda II?

And if you'd like to take a few minutes off to read about the measures some big companies in other industries might have taken recently in order to reduce their own "legacy costs", I offer Rhodiagate. (http://www.businessweek.com/magazine/content/05_19/b3932086_mz054.htm) It has all the ingredients of an Arthur Hailey novel, allegedly involving a conspiracy of:

- several EU governments in order to create a world-dominating pharmaceuticals giant,
- the off-loading of the "legacy liabilities" of at least one of the parties, whose operations included very "dirty" chemical plants operating in the developing / 3rd world with huge liabilities which were covered up and the new entity "spun-off",
- some of the biggest names in high-finance being "strung along",
- a Frenchman, member of the supervisory board at the time, who goes on to become the Finance Minister for his country,
- the "unexpected" death of a well-known financier whose family invested over $80 million in the spin-off, shortly after launching legal proceedings...

I might have said too much... :uhoh:

[Brian Abraham]

Konkordski
"Nice to know someone's prepared to write a letter which is all problem and no solution"

A little unfair i think. If he had a solution he would be running the company perhaps and not be a mere bus driver. We can all tell there is a pot hole in the rode that needs fixing but few of us have the necessary skill to do much about it other than make a phone call.

[20driver]

There is a lesson in this sad state of affairs to all of us.
For years airline pilots in NA carried on that is did not matter what the company did - we are irreplaceable and I'm all right jack. I'm no Bob Crandall fan but he pointed out that at one stretch over three years what AA paid it's pilot's in "profit" sharing was equal to the companies earnings for that period.
When the employess say "screw the shareholders" - you have to say what goes around.......... I know one AA driver who used this "profit" share to but a time share at a ski resort - told me he figured it was found money.
As Herb said - look after the employees - they look after the customers - and they look after the shareholders. Goes all the way round - but the shareholders need to be taken care of as well. Funny thing was 2-3 years back the Southwest MEC suggested voting against the company offer. The pilots were not quite so stupid (or full of themselves) and accepted. They end up being the best paid pilots in the US. Poetic justice?

[aviator]

<<<They end up being the best paid pilots in the US. Poetic justice?>>>


Maybe so.

Keep in mind that all these years the Southwest pilots have asked for "industry average" wages and chose to not ask for a pension to undercut the majors, thus giving their company a cost advantage and rapid advancement to Captain.

The trend they set was one of the factors in many (soon most) airlines ending up without a pension, and they are becoming the high cost provider of pilot services. Are they ready to "carry the water" for the ones that did it before them?

Southwest does run a good and efficient airline, but the labour cost advantage is vanishing. The fuel hedges are also, so the playing field is leveling.

What does it mean? I do not have all the answers, but it seems like labour cost can only provide so much of cost reductions. At the large airlines the pilot pay has been cut up to 50%, in addition to retirements being nearly eliminated.

It gives me no joy to see the glee ( schadenfreude) from my fellow pilots on this subject. Lets hope for better times ahead. And for the brotherhood of aviators to materialize.

[Ignition Override]

Bigmouth-the situation at United might have included those factors (possibly among many others?), but United's pilots' MEC only spoke for United's pilots. Their situation and style back then has nothing to do with those who bargained for at least average pay and benefits. Delta was also in a very unique situation-they had received almost no cost of living increases for many years. Therefore, United and Delta pilots had significant pay raises, but not so at the other US majors.
ALPA does not operate like the powerful IG-Metall in Germany, which bargains for much of the country's industrial workers (not pilots). As for their "Vereinigung C0ckp1t", I know not. But over here, each company had, in the old days, and still has a unique situation. You might not believe that the ALPA regional JET pay for First Officers, is little above US minimum wage. You might research this well-kept secret among laymen.
As the most successful US airline, Southwest has been heavily unionized for many years. As has ben stated often on this august forum, Southwest's pilots are about the highest-paid 737 aviators in the world. But the airline was one of the few to have created mostly highly-productive crew duty days, from the first day. The pilots don't have ALPA (SWAPA), but nevertheless, many of the staff are unionized, and for a long time. Without some sort of valid union, history seems to indicate that no labor group will ever earn enough respect from an airline management, allowing a job to become a true career, without both sides having the power to negotiate. Handshakes are not effective with most companies. And it is very doubtful that the airline can become successful, in the mid to long term, without flightcrews' ability to point to a written contract and have something to look forward to-in writing. What if your wife, son or daughter develops a serious medical condition and your company, having no contract for your pilots, decides to "let" you now pay a large fraction of the now-exploding insurance premiums? There must be an agreement signed by both parties (in good faith) for certain mis-interpretations to go to arbitration. Otherwise, their (your?) management will never be able to do anything except make promises and half-truths. Many companies will pay you about the salary of a large truck/lorry driver to fly a large jet, but can you count on it as a career?

And safety will probably never be a priority, unless your company is committed to spending the necessary money, canceling any flight if need be. Safety is from the top down, with support for a Captain's decisions on whether to accept an aircraft or require repairs to be made (or MELs applied: if any Pprune reader does not understand what an MEL is, then he/she knows nothing about airline flight operations). US airline history is being written at this moment, and it would be quite a turnaround if my comments can all one day be contradicted.

Aviator: Interesting observation you made about other pilots enjoying the turmoil, and even some of them see no reason why ethics, implied by contracts, which were ALL accomplished by US managements' (oft-vigorously denied) "pattern bargaining", should compel them to honor their signed, legally-binding agreements ;)

Some of those who sneer at any negative changes for the US industry either have never worked in the US industry (other than at the Bolivar, Cotton Belt, UND or Vero Beach schools etc), or are pilots from the United States who spent most of their careers flying under contracts in other lands, enjoying the benefits and apparently competitive pay (let's not name nicknames...:D ). But NOW, 'they' somehow have no sympathy that US pilots, who are still active and struggling through the industry's "flak-filled skies" ("so thick you could walk on it!"), should be able to plan on anything in our contracts, which unfortunately require mangement integrity, even though we hold up our side of the bargain under circumstances which threaten unpredictable fractions of our pay (not to mention family medical/dental benefits) and careers. Many on "Rumours and News" are not even pilots, but foreign mgmt. types who were probably denied their so-called US green (white) cards or work visas years ago. Such types are only self-centered, due to short-term professional goals (stock share price and profit-sharing gains, at others' painful expense), or see themselves as simply above the unlettered serfs and other yokels who train intensely (often must also focus intensely on the job) in order to prevent their multi-million dollar machines from having major pieces (or passengers) pulverized.

For those who are pilots here but not with a major, any glee (Schadenfreude) in their views about all this is quite ironic, because the US industry's major disruptions will have both a direct and many indirect influences on where their careers can go, due to furloughed pilots who bounce over to former corporate, charter companies (even jobs with the FAA), or already after 9/11 filled up flying slots with ANG, Air Force Reserve etc, even active duty military slots. Some are hired directly into F-27 Captain jobs and many others, allowing the companies to hold back their own experienced FOs from upgrading, due to their cost-saving ability to hire a Captain at first-year pay rates. Some of the overseas types are always angry that the US will not let them work here, but there is nothing that anybody here, outside of the govt., can do about it. Personally, I wish them all good luck, wherever they find a decent flying job, or possible career opportunity.

Our industry, along with certain British airlines, should also consider outsourcing both upper and middle managements (except for very good marketing people). Not the meek, but CPAs and lawyers seem to have 'inherited the earth'. :yuk: . Cost is the mantra. Are such types 'over there' often like the condescending, sniveling, yuppie Director on the English show, "Waiting for God"?
Imagine how much overhead expense they will save via outsourcing!

[Brian Abraham]

The following is an item from Aviation Week & Space Technology 3 Oct 2005 which I think germane to the discussion.

“ENDANGERED SPECIES by PIERRE SPARACO

Europe’s financial analysts and aviation experts are increasingly puzzled by the U.S. airline industry’s dire straits. They don’t understand why legacy carriers can’t adapt to a new environment, maintain workable yields and restore profitability. Moreover, Europeans are concerned to see icons like Delta Air Lines lengthening the list of airlines operating under Chapter 11 protection.

The U.S. carriers that paved the way for mature air transportation were long admired in Europe. In the aftermath of World War 11, all European flag carriers dreamed about evolving into highly respected players like Juan Trippe’s Pan American World Airways. Tiny operators tried hard to replicate Pacific Southwest Airline’s Californian success story under Kenneth Friedkins’s leadership. In the same vein, Europeans familiar with the so-called northeast corridor were impressed by Eastern Airlines’ shuttle, the ultimate progress in shorthaul travel. Much later Air Inter and British Airways adopted the same path on their busiest domestic routes.

Today, however, the unthinkable is happening and Europeans are perplexed by the course of events. U.S. rules of the game provide significantly greater freedom of action than in other regions of the world, especially Europe. Jobs can be cut as needed in the absence of political interference, labour costs are lower in the U.S. than in Europe (including pension programs) and enthusiasm for the French born shortened work week has not yet crossed the Atlantic.

U.S. carriers are currently expected to post a combined $8 – 10 billion in losses this year. High fuel prices are further worsening the outlook, as is increasingly painful air traffic congestion.

Are U.S. majors an endangered species? Are we watching them draw near the vanishing point? Since the late 1940s, air transportation’s growth has justified a constant need for additional capacity – fleets expanded and operator’s overall size increased, in accordance with good management practices. Moreover, the U.S. Airline Deregulation Act of 1978 was signed by President Jimmy Carter at the right time to bring down remaining barriers and phase out the economic regulation of the airlines by the Civil Aeronautics Board.

Operating in a nearly ideal context, the U.S. airline industry evolved into a global model and inexhaustible source of inspiration. Deregulation, initially a strictly American way of running air transportation, soon extended to the rest of the world, including the long-reluctant European Union.

Now, in sharp contrast to such great achievements, the emerging feeling is that we are, perhaps, waking up from an American dream. However, the economic reality we are facing is, as always, complex.

The airline industry, in the U.S. and elsewhere, is not and has never been consistently profitable. Costs are high and revenues usually too low, while all players suffer the effects of factors such as economic downturns, political crises and oil shocks. Giovanni Bisignani, the International Air Transport Assn.’s chief executive, likes to stress that losses in the last few years have far exceeded profits accumulated since the Wright brother’s first flight. And he is not overstating the case.

Today, however, most experts unconsciously adopt the narrow view and display a surprising lack of memory. Furthermore, the emergence of low-fare carriers in a deregulated market has exacerbated the major’s difficulties, but wakeup calls, such as Pam Am’s dramatic liquidation in 1991, have gone unheeded.

In 1993, Robert Crandall, then American Airline’s CEO, said “There is no secret about how bad the airline business is, very bad indeed. The idea that American Airlines could ultimately disappear is no longer (far -) fetched.” He made this pessimistic statement in an era when Southwest Airlines was still one of a kind, long before the appearance of aggressive new entrants like Jet-Blue Airways.

An unemotional top-to-bottom review of the airline industry could well show that the Europeans are proving more resilient because they had the opportunity to monitor U.S. experiments and developments, and so could avoid repeating the errors of Pan Am and its peers. For example, Air France-KLM is now the biggest carrier in the world and achieves superior profitability despite the low-fare carriers’ irresistible growth.

Of course, Europe is not without its lame ducks, such as Alitalia and Olympic Airlines. EasyJet, Ryanair and their imitators in the last 10 years have made forecasts obsolete, reminding us that the future in unpredictable. But that’s no consolation.

Indeed, sooner or later, a reality check will be needed. It is ironic to see that Europeans – including former flag carriers – are now largely employing the corporate structure that U.S. airlines used for decades. If the U.S. model doesn’t survive in an evolving environment, European carriers could eventually find themselves at the same crossroad.”

[AirRabbit]

Please don’t anyone take this post as anything other than what it is – purely my observation. I am not intending or attempting to “lecture” anyone. I’ve been there, done that. I’ve got both the tee shirt and the coffee cup – and I also have dollars off coupons for another ride. I’ve elected to sit –out a second opportunity, thank you.

Airlines (and almost every other legitimate enterprise – I say “legitimate” because there are some that operate under, or with, subsidies from other corporations or a government – and I’m not talking about those enterprises) operate according to the bathtub rule. By that, I mean that every business is like a bathtub. Every bathtub has a method of filling it (the spout) and emptying it (the drain). Every business has a method of “filling the bathtub” (i.e., income) and a method of “emptying the bathtub” (i.e., expenses). Each expense can be considered to be yet another “drain” to help empty the bathtub. Every source of income can be considered to be yet another “spout” to help fill the bathtub.

So, what are the potential sources of “drain,” or expenses, of an airline? Well, you and I both know that I’m not going to be able list all of those sources. However, consider the following …
1. Airplane purchase (or lease),
2. Airplane parts (like radios, radar units, engines, etc.),
3. Fuel (ahemm…) and associated delivery, storage, and disbursement fees, etc.,
4. Airport leases and fees (landing fees and lease fees for ramps, hangars, ticket counter space, baggage areas, etc.),
5. Physical facilities (other than those under airport leases),
6. Utility fees (telephone, power, water, sewage, etc.),
7. Equipment (like tables, chairs, baggage carts, computers, wrenches, hammers, airplane tugs, etc.),
8. Advertising,
9. Training (flight crewmembers, flight attendants, dispatchers, mechanics, reservationists, baggage loaders, gate agents, sales and marketing, etc.)
10. Personnel (salary and benefits – and usually the benefits cost somewhere between 80% and 150% of the individual’s salary; plus any retirement contributions)
Please, feel free to add any items to this list that I’ve overlooked.

And, what are the potential sources of “fill,” or income, of an airline? Well, how about the following …
1. Ticket sales.
Please, feel free to add any items to this list that I’ve overlooked.

The primary point of the game is to keep the bathtub full (in this analogy, the bathtub content would be MONEY – cash or other viable monetary instruments). If the level in the tub begins to get too full (has anyone ever seen that happen?) you could always increase the size of any one of the existing “drains,” or you could get artful and create any number of new “drains,” like sponsoring the annual LETS KILL CANCER telethon (which, certainly, no one could or would criticize). On the other hand if the level in the tub begins to get a bit shallow, you have one of two things you can do. Increase the “fill” or decrease the “drain.” It would be nice if you could do both at the same time. Any one who operates a business or has a family that is dependant upon the “drain” from the airline being their own bathtub “filler” is going to squawk when the airline decreases its outflow –forcing them to do the same sort of re-alignment for their own bathtub. I'll let anyone else decide if any given airline has a better shot of increasing the "fill" or decreasing one, some, all of their current "drains."

Overly simplistic? Probably. But I think you get the picture.

What can you, as an individual, do to help keep your own bathtub “liquid?” (Sorry, had to use that play-on-words) The only thing you CAN do is the very best you can at the job you were hired to do, and do it as consistently and as well as you possibly can. You can go around poking into other jobs and criticizing other folks’ job productivity or capability – but that will be to the detriment of your own job – leaving you vulnerable to the same type of criticism from still others who are poking around just like you. You can control only what you can control. If you cannot control it, all you can do is make noise about it. Of course, doing so is your right and I am certainly not going to tell you not to do that. But if you truly cannot control the decisions that are made above you in the “chain of command” (and not very many of us do) my counsel would be to watch those decisions being made, offer your input if you desire (and I wish you well with that) but, if that input falls on deaf ears, you have but three choices; continue as you have; buckle down and work harder; or seek employment elsewhere.

Believe me – I do NOT have the answer. If I did, I wouldn’t necessarily explain it in detail here, I’d run out and buy United or Delta and put my answer into action. And by the mere fact that I’m still here typing, you should recognize that I DO NOT have such a secret plan.
________
AirRabbit

[arewenearlythereyet?]

Airabbit, and your point is.... apart from the bleedin' obvious?

Thanks for the Economics 101 lecture but as you say, you don't have the answer or even a plan. Suffice it to say that we, as pilots, do buckle down, do work hard and some do even leave. :rolleyes:

Perhaps the answer is in getting the 'sociopaths' at the helm to be more liable for the results of their decision making. Not just by denying them their bonuses but by making them as liable as most hard working small businesses with their own assets such as their homes being liable to surrender or even, shock horror, their pension funds being decimated in order to make up the losses. I'm pretty sure that'd make them think things through a bit more thoroughly. :hmm:

[20driver]

I should have made my point clear - if you want a long-term future your company needs to be making money. That has not being the case for most of the airline industry for years and the chickens have come home to roost. Southwest has always made money and the pilots and all the staff are reaping the benefits. Ironic as they were looked down on as a group by a lot of the legacy pilots.

The lack of pensions has become a general trend in the US - the long-term implications are not good for anyone. My IR examiner was headed back to work at the FAA as his US Air pension was getting wiped out. He is an outstanding guy and I really feel for him.

However as a group I think pilots swallowed too much of their own PR. I used to shake my head when I read the various pilot group newsletters etc. Rick "Mad Dog" Dubinsky was not unique in his attitude. Many seemed to share it.

Unfortunately the industry really seems to suffer from useless management. I think mentally they simply cannot break away from being a regulated industry. The real success of Southwest has being decent management. They service a niche – don’t suffer from delusions of grandeur and stick to the bottom line. Decisions get made strictly on the basis of will this make us money. They run an airborne Greyhound service and have no problems with it. JetBlue has a different image but I think they are crafting a great identity and developing a real following.

I really cannot understand how the industry can continue to loose money like it does and yet seems to be unable to fix itself.

[AirRabbit]

arewenearlythereyet? wrote:

Airabbit, and your point is.... apart from the bleedin' obvious?
Thanks for the Economics 101 lecture but as you say, you don't have the answer or even a plan. Suffice it to say that we, as pilots, do buckle down, do work hard and some do even leave.
Perhaps the answer is in getting the 'sociopaths' at the helm to be more liable for the results of their decision making. Not just by denying them their bonuses but by making them as liable as most hard working small businesses with their own assets such as their homes being liable to surrender or even, shock horror, their pension funds being decimated in order to make up the losses. I'm pretty sure that'd make them think things through a bit more thoroughly.
…and you want what from me? An apology? A viable solution? Sorry, don’t hold your breath.

You have every right to squawk if your salary is reduced; for whatever reason: poor decisions by management; skyrocketing fuel prices; China and India getting industrialized and fighting (and paying) more for available oil; whatever the reason. What grates on the feelings of many however, are the stories about the occasional airline pilot who melancholically laments that he is going to have to “sell the ski lodge in Aspen and the ski boat docked at the lake house, in order for him to keep the three race horses he has on his ranch.” However, before you start taking pot shots at that comment, everyone recognizes that this is far from every pilot out there. But you have to admit that being an airline pilot, has, for a number of years, been a rather lucrative “job” that allowed a comfortable income and several valuable perks of the job – time off, free (or cheap) transportation and discounts on hotels, rental cars, and the like. Recently, this has been less so, of course. But still, flying for one of the “majors,” up until 2001, still had its benefits. Times have, indeed, changed.

I also recognize that some of the impacted persons do, as you say, buckle down and work hard. If that is enough, great! If it is not – it is not, regardless of the reasons. If the “outflow” in the bathtub has not been stemmed or the “inflow” has not increased to the extent that it overcomes the increasing “outflow” – something has to change; or the bathtub will become dry and leave employees the same way.

If you have an idea as to do it differently, spring it on us, friend. We’ll all be in your debt. You say you would “get sociopaths at the helm to be more liable for the results of their decision making.” Perhaps that would work. All you have to do is find those who are willing to take the helm under those agreements. I’m quite sure there are some out there who would. Identifying them first and reaching an agreement with them next seems to be the universal stumbling block. An airline (or any other business) finds just “the right” mix of circumstances and everything is bliss. But let any one of the factors change and bliss becomes broke. Whose fault is that? Mine? The CEOs? Yours? I would also suggest that in many (perhaps most) of those situations, the CEO does, just as you say, loose his/her job. But, as is true in many instances, that CEO probably had his/her head screwed on straight and had a “golden parachute” written into their contract. That is nothing new – it is just more publicized today. Should we outlaw such contract contents? Perhaps we should. Would that reduce the potential population of interested CEO candidates? Perhaps. What then?

I know that the aviation business has its share of predators – as does the rest of the economic world. But I might suggest that the decisions that are usually made in aviation Board Rooms are made with the information available at the moment – as guided by instinct, experience, and goals; either personal, professional, or corporate -- or a mix of the three. It would probably be a better place if well-intended CEO’s could exert appropriate influence on the factors that impact their own businesses – but that sort of influence is very limited (and what there is of it just may not be ethical at all). Sometimes I think the general public, in the US anyway, is so pent up on correcting such “ills” that we wind up sending Martha Stewart to prison – while OJ and Robert Blake go free.

Hmmm… OK. I’ve regained some control. Sorry. Got carried away just a bit.

Back to your point of “… making them (“helm holders”) as liable as most hard working small businesses with their own assets such as their homes being liable to surrender or even, shock horror, their pension funds being decimated in order to make up the losses…”: that sounds like a logical approach, but I would ask how you might feel if someone approached you to take a job under similar circumstances. Imagine the job offer: “Sir (or Madam), we would very much like you to lead our company, but if you make bad decisions, you will be fired, you will loose your house and we will take away your pension fund as well, and whatever else we may think is appropriate at that time. But we have big hopes for you and our company. What do you say, sir (or madam)?” Would you take the job? I don’t think I would - at least not without some sort of different guarantee.

So, we’ve gone ‘round and ‘round Robin Hood’s barn. And we keep winding up at the same point. What’s the answer? As I said, I don’t have one. And, I guess, for that, you jumped on me for the “economics lecture.” Sorry, but the facts and the circumstances haven’t changed.
________
AirRabbit

[aviator]

AirRabid wrote:

<<OK. I’ve regained some control. Sorry. Got carried away just a bit.>>


I am glad that you are feeling better now. Let me make a few comments on your previous postings.

First, most airline pilots are pretty well aware of the "bath tub" of which you elaborate. It is also knows by most as Economics 101.

Secondly, I am not sure that you are really trying to be helpful here, so maybe it is time to let it go. After all, it is not your retirement that is gone. Rationalizing why it should happen to others adds little comfort to those that have seen their life savings (deferred earnings) gone with little or no chance to make it up.

Peace...

[JustAnothrWindScreen]

"That has not being the case for most of the airline industry for years and the chickens have come home to roost. Southwest has always made money and the pilots and all the staff are reaping the benefits. Ironic as they were looked down on as a group by a lot of the legacy pilots."

20driver,

Hmmm... First that is really the first I have heard about legacy pilots looking down at SW. As for Southwest having always made money, that is true, however currently it is in the markets that SW is making money not as an airline. Correct me if I am wrong, but from what I read and the SouthWest pilots I have spoken with, if it were not for the fuel hedges, SouthWest as an airline actually lost big time. Now that says that the management that hedged the fuel and the crack spread were spot on and should be congratulated. The legacys that eeked out a small profit last quarter did that with real market conditions. It will be interesting to see what the 3rd quarter reports are with the fuel going to astronomical highs and the crack spread going even higher.

[Ignition Override]

OK, I'll admit that outsourcing upper management is probably not a good idea, but it seems to have already happened in many corporate revolving doors. They just can't seem to save money, even hiring outsiders.

It takes lots of money to attract (a few good) people into this shaky business, and the Boards of Directors seems to have most of the power in this area.

Just how can airlines in Europe or Britain lose less money, not to mention make a profit-do they receive a major tax advantage or such regarding fuel prices?

Oh well, back to reviewing ac and dc cross-ties, fault protections (gen. or system?) and transformer rectifiers :( .

[water check]

Ignition Overide. The reason that Euro airlines make money are several:

1. Much better quality of management
2. They charge MORE than cost for their tickets (...gee, there's an idea...why didn't we think of that!).
3. MUCH better product (look at BA's business class product...brilliant)
4. MUCH better standard of service. No 'grimy grannies' and (usually) perky and friendly service (my last AA flight had a flight attendant telling me off for having the nerve to ask for a bottle of water!!).
5. Cross-pollination of management (an Australian heading BA for example, now an Irishman....see how that goes.) US airlines can't see beyond their own shores for management personnel

I could go on...but why bother. The US airline industry is doomed. The only survivors will be airlines like SW and JB. The legacy carriers have ruined themselves, and the industry is changing so fast they can't possibly adapt in time. Incidentally, the Euro carriers have survived and prospered since 2001 without destroying their employees salaries and pensions. The only thing that will save the US carriers is if they are allowed to be bought out and managed by foreigners. It's ironic that it is the unions that oppose this, considering it's their only hope of long-term survival. You Yanks don't always have the best way of doing things...and you certainly don't know your ars*s from a hole in the ground when it comes to how to run airlines. Will be interesting to see how quickly United goes back into BK again....

ps. the Euro airlines are incensed by the US carriers diverting their capacity onto the Atlantic. They don't pay their bills (unlike the Euro carriers), then they artifically lower the yield on the Atlantic. Great idea, screw up their own market, then try and do the same to the European carriers. I do wonder why the Yanks are not exactly the flavour of the month at the mo....:mad:

[aviator]

<<Oh well, back to reviewing .....>>

Not so fast, Ignition Override,

Although it takes a bit of effort to read your postings (read: lack of punctuation :p), they are some of the more seasoned and balanced ones on this forum.

Stay with it please.

Tailwinds always,

aviator

[Bigmouth]

Ignition O., I'm with you. Did you miss the first part of my first sentence? But the "industry leading" mantra turned into a spiral, being repeated by the next pilot group as soon as the previous one had signed their deal. Heck, even the SW guys started bitching about their -relatively- crummy pay.
And as for "You might not believe that the ALPA regional JET pay for First Officers, is little above US minimum wage.": I do believe because I do know. Been there, done that.

water check: Just a few years back the situation was pretty much reversed and you could have used virtually the same points to argue that case then.

[Huck]

you certainly don't know your ars*s from a hole in the ground when it comes to how to run airlines.

Yank bashing! On PPrune! How strikingly original!

[boofhead]

Watercheck, your point about fares in Europe is not correct; in fact there are fares well below what would be paid in the US: Fly from Dublin to Edinburgh for One Euro plus taxes and no blockout dates, saturday night stays or advance purchases etc. Of course the taxes are sixty to seventy Euros for the same ticket, which shows a lot about just who is making the money here.
Another example is fares around $150 one-way from LA to Edinburgh, while it costs more than that just to fly from LA to SFO, given the same conditions applying to the reservation with respect to date, times and so on. If I want to fly from Anchorage to Seattle it costs me around $250 return if I book weeks ahead and leave at 0100 or later. If I want to leave at a more civilised time the cost shoots up three or four times. The 1 Euro ticket is available any time of the day, and the fare goes up only on weekends, even then it is still way less than what I have to pay in the US for a comparable ticket based on distance.
Its called supply and demand isn't it?

[AirRabbit]

aviator wrote:

I am not sure that you are really trying to be helpful here, so maybe it is time to let it go. After all, it is not your retirement that is gone. Rationalizing why it should happen to others adds little comfort to those that have seen their life savings (deferred earnings) gone with little or no chance to make it up.
My retirement? For the most part of my eventual retirement, you are correct, sir, it is not gone. However, that part of my retirement that was to come from my years of airline employment most assuredly is – gone that is. So, please, don’t be so quick to stuff me (or anyone else for that matter) into a conveniently labeled cubbyhole and dismiss everything that follows.

As for my posts or my intent being “helpful” – I guess I’ll leave that to be considered by those who read and determine it on their own. While I would very much like to have it be true, I would indeed be quite surprised if every one of my posts were “helpful” to everyone, all the time – as I would assume you feel about the posts you provide. The purpose of my postings was to provide merely another perspective in addition to those already offered – the primary point being that not all business failures can, nor should be, laid at the feet of the company CEO – whether or not s/he escapes from that failure with the proverbial “golden parachute.” Often times it has to do with the state of the economy and the proclivities of those who “used to” purchase the goods or services that are some how now found to be wanting. Perhaps you don’t recall or were never aware but Drive-In movie theaters “used to be” a thriving business across the US. Was it the CEOs of the large chain drive-ins that caused their demise? I doubt it. In fact, movie theaters in general are feeling the impact of VCR and DVD rentals. Is that due to the operating procedures of movie theaters? I doubt that also. What used to be a very large market in long distance telephone service is being overtaken not so slowly by the no-roaming, no-long-distance-charge plans available from virtually every cell phone service provider out there. Is that the fault of Ma Bell’s or AT&T’s CEOs? Same answer.

Yes, there are airlines that have gone out of business. Others have been bought up by larger organizations. Others are struggling mightily. Some would say that there are only two types of airlines – those that have experienced devastating circumstances and those that will. I would wager that the instability in the airline business today is not over – not by a good margin. Back when airline de-regulation went into effect, its architect estimated that “in the end” there would likely be 2 major airlines and a dozen or so regional airlines still operating in the US. The longer the US airline business wallows around looking for a successful formula, the more prophetic Alfred Kahn’s statement seems to be.

First, most airline pilots are pretty well aware of the "bath tub" of which you elaborate. It is also knows by most as Economics 101.
I would agree with you that most airline pilots are aware of this analogy – regardless of what moniker you attach. That doesn’t necessarily mean that each remembers or pays much attention to those relationships when they are on the receiving end of a furlough or pay-cut notice. (Yes, been there. Done that.) And, the bottom line is still the bottom line. The bathtub analogy is still present and it will take its toll – whether you choose to berate me about it or not. And, please, I am not trying to “rationalize” why loosing your retirement should happen at all, to anyone. I’m just pointing out that it DOES happen. It has happened before; it continues to happen today; and, unfortunately, I believe it will continue to happen in the future. Certainly not every such circumstance is the fault of the company CEO.

And, I would be somewhat remiss if I didn’t address your choice of “word-morphing” in your last post salutation. Referencing a common dictionary – the way you chose to address me is referred to as either “extremely violent,” or as “going to extreme lengths in expressing or pursuing a feeling, interest, or opinion.” As I am sure you did not intend to imply that you felt that I am “extremely violent” – as you certainly do not know me at all - I will presume that your intent was the second option. I humbly accept your characterization of my desire to express my opinion.

I wish you the same peace you offered.

________
AirRabbit

[Rupert369]

Quote from Boofhead - "Fly from Dublin to Edinburgh for One Euro plus taxes and no blockout dates, saturday night stays or advance purchases etc. Of course the taxes are sixty to seventy Euros for the same ticket, which shows a lot about just who is making the money here."

Except, of course, only a very small percentage of the so called "taxes" are going to the government. For me to fly from Stansted to Dublin tommorow would cost £24.99 (cheapest fare.) The total I would have to pay would be £39.67, as there is a "taxes and charges" addition of £14.68. Of this, a mere £5 is a government imposed tax - the rest ends up with the airline (in this case, Ryanair) in one way or another, through "PSC, Ins and Wchr levy."

I recently travelled with a group of 36 people to Frankfurt Hahn, and was interested to see that we had been charged £81 as a wheelchair levy, despite none of us being disabled. Through such disguised "taxes" the airlines manage to make a substantial and quite stealthy additional income.

I think that the five points that Watercheck made to account for greater profitability amongst european airlines are valid. I also believe that the US administration is to blame for part of the current problem with the legacy carriers - it simply does not make long term economic sense to provide them with such a high level of bankruptcy protection, and this situation cannot persist indefinately. Part of the reason that many european airlines continue to be succesful post 9/11 is that we witnessed the demise of two major national airlines (Sabena and Swissair.) The need to rapidly cut capacity and otherwise adapt was quickly realised. In the US, the legacy carriers are too quick to jump under chapter 11 protection, and too slow to take real action to avoid a future crisis.

[Ignition Override]

Rupert 369-y'all made excellent observations. And airlines with extended time under Chapter 11 (as with United, USAirways twice: often better than poking your head to quickly out of the trenches...)seem to always attract financing, although I have no idea what collateral or equity can still be available to back up financing-is it often shares of stock?. For the foreigners who are still in the dark, US bankruptcy laws undergo dramatic changes October 17, no matter what type of industry is involved, and this has given airlines and many others incentive, to file Chapter 11 now, if in doubt. Executive pay is also worse after the date. Filings after Oct 17 will be, as of now, much more difficult to escape from, to avoid liquidation, though I know nothing about how the financial, banking and credit card lobbyists so successfully persuaded the US Congress to change this.

Do European or the British governments allow these lobbyists so much influence on laws and industry regulations?

AirRabbit (or whoever mentioned such an example): there have been stories, over the years, of pilots who have two homes, and maybe a boat or a small airplane. People tend to over-generalize. And some of those lucky pilots were hired in the huge hiring boom of the mid-60s. One guy made 727 Captain at age 25. Another supposedly had flown with the RAAF and bluffed his way into the interview. And got hired! Luck of the draw. On the other hand, VERY MANY of the same type of guys were flying for Uncle Sam and never made it home, many killed in training or normal operations. Very many shipped home in a plastic bag, or disappeared as military or (technically) civilian over SE Asia, possibly the wicked, very deadly Plain of Jars in Laos...only about 5% of those guys in uniform who were shot down were rescued. Capture in a civilian uniform was very bad luck.

As for opportunities and risks in the civilian world: unless they were very lucky selling houses during the right economic upturns, or had a second income (lots of days flying with the Air Force Reserve limit one's free time quite a bit; nowadays, you might be activated to full-time, lose big chunk of income and dodge stinger missiles), or a wife with a chunk of cash etc, those stories might be too easy to use in a stereotype. There have been more than at least a few periods since the first Arab Oil Embargo of 1973, when hundreds of pilots were laid off at each major airline. At TWA, some pilots were on the street two or even three times. This must have happened at not just TWA and American, but several others as well. Find out what has happened now to retirements. Can this widespread disaster easily erase any lucky gains in real estate etc?

Somebody mentioned Alfred Kahn, the so-called brains of deregulation. I doubt that this former academic type ever knew what he was talking about. I've read some of his convoluted, bizarre arguements, and what was HIS a i r l i ne background ? As he advised the former US Civil Aeronautics Board under the Carter admin., Kahn was already being courted by the original airline Cash Carnivore/airline destroyer (if someone does not believe so, then show us, on Pprune, his record), Frank Lorenzo: they called it "upstreaming" cash out of the airline's vital revenue. Lorenzo was reportedly quoted as saying "...some of my best friends are airline pilots-everybody should OWN one..." Kahn was given many shares of stock in New York Air, one of the first 'darlings' of deregulation, as he was advising the government about the huge advantages of dereg. Based just on what I've read, Senator Ted Kennedy was willing to turn the industry upside down, partly to help his local constituents in the tiny state of Massachusetts. Find out what rulings were made in Frank's favor by more than one Dept. of Transportation Admin. judges, right before they went to work at Frank's holding company TAC: you can find some of this in "Aviation Week & ST" in the late 80s or early 90s, and about the "alleged" cover-up in the FAA's Western region regarding the strike operations at Lorenzo's Continenta.As for the safety implications, I suggest just a glance at one of the excellent books by John Nance, "Blind Trust", about the myths of deregulation's effects upon safety, from the operational (pilot) side. He also wrote an intriguing book called "Splash of Colors", about Braniff Airlines. Find out why Nance's ENTIRE first edition NEVER made it to the bookstores. They made a backroom deal...Something to do with former American CEO Robert Crandall's approval of "allegedly" ;)
booking phantom passengers into Braniff's reservations computer software, "allegedly" done by American's Sabre computer personnel, in order to reduce Braniff's ticket revenue and market share. Woops! Might hear a knock on the door at 0400! Hello, County Sheriff here. I have a legal complaint from the nice folks at AMR.

Airline managements are still learning lessons and pointers from earlier years (decades) under US deregulation. Many of today's airline executives were nurtured under Lorenzo's "leadership". One of the tops guys at Airtran was one. He was "allegedly" forced out of another US major, not long ago, in a quiet deal with their MEC, unknown to the press, possibly as a contract side-letter :D .
Please pardon the boring length, I never plan on being a page hog. Next:) .

[Airbubba]

Following United's lead, the folks at Northwest get ready to grab their ankles and enjoy the ride:

________________________________________________


Northwest Seeks Sway Over Unions

By SUSAN CAREY

Staff Reporter of THE WALL STREET JOURNAL
October 13, 2005; Page A5

Northwest Airlines asked for judicial approval to void its labor contracts if its employees don't quickly agree to about $900 million in additional concessions the carrier says it needs to avoid liquidating.

Like UAL Corp.'s United Airlines and US Airways Group Inc. before it, Northwest is embarking on a power play afforded by the U.S. Bankruptcy Code: the ability to goad unions into voluntary givebacks by threatening them with potentially more onerous, court-imposed contract terms.

Northwest, the nation's fourth-largest airline by traffic and one of the most unionized, filed for Chapter 11 on Sept. 14, blaming high fuel costs, its inability to win concessions from most of its big unions and rising competition from discount carriers that are setting the pricing agenda in the domestic industry. No. 3 Delta Air Lines, which has only one major union, also sought bankruptcy protection that day. Both Northwest and Delta have said they will shrink, and Northwest in its court filing yesterday estimated its mainline capacity in next year's first quarter will be down 11% to 13% from the year before.

United, which remains in Chapter 11 after almost three years, and US Airways, which visited court protection twice since 2002, both used the threat of contract annulments to win huge savings from their employees. They and other airlines in Chapter 11 have cited a portion of the bankruptcy code known as Section 1113. That allows the carriers to make the case that the proposed contract rejections are necessary to permit their reorganizations. Northwest said it hopes it can reach agreement with its unions on new terms and didn't specify a deadline. The judge has discretion over timing, but the process could take less than two months.

United and US Airways ultimately jettisoned their underfunded pension plans, transferring the assets and liabilities to the Pension Benefit Guaranty Corp., a government pension insurer. Northwest, in its 171-page court submission yesterday, reiterated it wants to retain its pension plans, which also are deeply underfunded. But "if timely and adequate pension legislative relief is not obtained," the carrier said, "Northwest will be forced to seek termination of its...plans."

Northwest, based in Eagan, Minn., has said it needs a total of $1.4 billion in annual labor savings through a combination of pay cuts, new work rules, changes to medical coverage, reductions in holiday and vacation time and increased outsourcing. Retirees can expect to shoulder a larger share of their medical coverage, too, according to the court filing.

Northwest, which says it has the highest labor costs in the U.S. industry, already has shown how far it will go to reach that $1.4 billion target. In the aftermath of an Aug. 20 strike by its mechanics, the company imposed new contract terms on a smaller cadre of replacement workers now caring for its fleet, achieving the $203 million annual savings it had targeted from its mechanic work force.

With the economies wrung from the mechanics and with $300 million in annual givebacks already agreed by the pilots and salaried workers, Northwest needs about $900 million more. It envisions a second round of cuts from the pilots and salaried employees as well as deep givebacks from flight attendants, customer-service agents and ramp workers. In yesterday's court filing, Northwest also said it will ask most workers to take an extra 5% pay cut for the remainder of its time in Chapter 11.

A spokesman for the International Association of Machinists union, which represents 14,600 Northwest ramp workers, customer-service agents and clerical employees, said the union was prepared for the filing. "We're committed to reaching an agreement at the bargaining table," a union spokesman said. Capt. Mark McClain, chairman of the 5,100-member Air Line Pilots Association branch at Northwest, also said his group is ready to negotiate, having already agreed to 15% pay cuts. He said he would expect Northwest to want to reduce its costs, but some items it is asking for are "overreaching." The pilot added, "We don't feel like it's open-season on the contract."

[Otterman]

It is amazing and criminal to me that pensions represent such an uncertain benefit in the USA. The pension fund should be something totally separate from the company’s balance sheet. And it should represent a quantifiable amount to the person involved.

In Holland this is the case. Our pension fund is a separate entity. The company and employee together save for the employee’s pension. In our case you build up 2.25% of your annual pay for that year’s service. So after 30 years of service you have build up 67.5% of your average pay over your career. The pension that you have built up to any given point (say today) is completely separate from the company. If the company goes down the toilet your pension rights remain assured within this separate company. The pension fund does not become part of the bankruptcy. Of course your rights are frozen from that point onward. From that same point your final pension payments depend on the results of the pension fund, indexation can or can not take place. To me this seems so normal. How come Americans accept this ridiculous situation? How on earth can you make any sort of financial planning if a basic element of your planning is built on quicksand?

Of course a company can get into trouble and things might have to change. But the way things are run in the USA is beyond cruel.

I will leave all the jerks who are saying I told you so, or are jealous of not having made it into the majors for what they are. But the people at United, Northwest, Delta, and US airways have my sympathy, they are being robbed (and that is putting it mildly). I guess as long as the top 5% of the population controls 95% of the wealth things are unlikely to change.

Wishing you the best.
Regards, O.

[SR71]

Well you give the AirRabbit a hard time about Economics 101 but no-one else is putting up the solutions!

So which part of Economics 101 didn't we understand?

Is it the part about how revenues minus costs mustn't be a negative number?

Lets say, we halved the size of the fleets, got rid of even more staff, introduced some efficiencies and raised prices...

No-one likes to say it because we're in the business and its our colleagues we're talking about here but would that not work? Put it this way, would Michael O'Leary see it that way?

But the classic anecdote applies:

If I owe the bank $10K, I've got a problem. If I owe the bank $10billion, the bank has a problem.

The creditors are half the problem here. I can't see them in favour of abandoing Ch 11. In turn they're bank-rolled by who?

The whole thing is an almighty piss-take and that some people have got seriously rich out of it is criminal.

My $0.000000000001 ( = NPV of my pension).

:yuk:

[JustAnothrWindScreen]

"Somebody mentioned Alfred Kahn, the so-called brains of deregulation. I doubt that this former academic type ever knew what he was talking about."

When you see Alfred kahn on TV news programs now he is still defending his position. I would like to see old Alfred lose his job and tenure at his current Ivy Walled University, along with his pension, and then get a job down the street at a local jr. college at minium wage and then tell us what a great deal he has because he is going to save the students massive amounts of money in tuition.

Yeah right!!

[Ignition Override]

JustAWS: You might look up some of Kahn's nebulous arguements for deregulation. To me, they sounded quite abstract and deceptive.

Otterman: We can partly thank the US Congress for never requiring corporations to fully fund pensions. Who can translate the background into laymens' terms, as to why, historically, they were never created as separate accounts, like a bank saving's account?
Congress seems to have been hijacked in recent years by lobbyists and the PAC donations. Various industries give money to a politician's campaign, so he/she can afford to advertise, travel and become re-elected.

And which party is mostly to blame?

Could it be the same party which most pilots vote for := ? Does anyone have objective information?

[boofta]

I have some objective information.
Where do Americans get off allowing
companies to turn their noses up at
creditors under this chapter11 nonsense
in the first place.
The great land of free enterprise my ass.
But I guess a country that is itself in
effective chapter11 should allow this
sort of corporate behaviour.
If a business can't pay its debts, real
free enterprise says it should fail.
Where does that leave the USA?

[derekl]

boofta:

I think you're being unfair in describing Chapter 11 of the US bankruptcy code as nonsense.

IMHO, it's a more sensible version of the UK's "adminstration". It's more sensible in that it allows the management of the company to re-structure it (under legal supervision) to prevent bankruptcy.

With UK administration, the directors don't run the business with the object of recovery, but an administrator (who may know precisely zilch about the business/industry) does. Administration usually ends in liquidation. Chapter 11, more often than not, leads to recovery of the enterprise.

You may feel that Chapter 11 has been abused by companies that frankly should not survive -- and you may well be right.

But Chapter 11 is a sensible "intensive care" mechanism.

[SR71]

JustAWS: You might look up some of Kahn's nebulous arguements for deregulation. To me, they sounded quite abstract and deceptive.


Ignition,

Curious, because I cannot believe it if you are, but are you in favour of re-regulation?

There seems to be this lingering sentiment in the US that the success of de-regulation was going to be judged by how well it maintained the status quo!

I don't believe the country ever fully embraced de-regulation (although I don't claim to fully understand all the issues), whereupon now, almost 30 years later, when the financial crisis is ostensibly worse than it ever was, people still want to lay the blame at the foot of Mr Kahn and co. rather than the chronic financial mis-management that has ensued since then.

derekl,

I think you are being generous to Ch 11 here, but my take is that, when companies take opportunistic advantage of imminent change in legislation to file for Ch 11, an abuse of the system is being perpetrated. I accept it was likely to happen anyway but thats not the point.

The reason this one is difficult for pilots to swallow is that the economic issues and social issues are confused.

Lets assume that airline (ex)+employees were not going to take a big hit in order to solve the problem of how the bath-tub emptied and no-one noticed (impossible but run with it...).

The answer is obvious. The networks must shrink. The customer will loose out but he is going to loose out anyway.

But it is because, (ex)+employees are going to take a huge hit, that (and quite rightly so) the issue becomes complicated because with business activity comes social responsibility.

What I can't figure out is how those MBA's could sit there with the books in front of them everyday and watch those pension deficits mount. How can you not notice a number with 6, 7, 8 zeros after it? Even if you did, why didn't you do something about it? If pensions are capitalised on the BS in the US, the crime is even more heinous.

But you have to say some are still succeeding inspite of the economic climate whereupon you arrive at your own conclusions about whether the de-regulation paradigm is valid. It bothers me that some see the fact that some airlines are hedged (for instance) as having an unfair advantage. Thats bulls**t. All the information was out there for everyone to take advantage of - your/my management didn't, you/I pay the cost.

Ryanair are hedged at $57/barrel for next year I believe and everyone laughed when they bought. Now who is laughing. Plus a boat-load of sale-leaseback transactions to carry them through the lean years ahead...

Opportunistic perhaps?

If you wanted to go into business though, would you want MOL as your wingman?

We will see how WW @ BA stacks up against him soon no doubt.

[water check]

....just an observation (and no disprespect to SR71), but it seems nearly no one on this forum can spell the word 'lose' properly (almost always mispelled as 'loose').....:D Either way, the employees of Delta, United, NW...and probably in the end CO and AA, have been cheated out of their rightful pension benefits. If I was a pilot at AA or CO, I would take early retirement and get out your lump-sums now. Unfortunately, wishful thinking will prevail and most will wait until it's too late. Funny how predictable human nature is.

[flown-it]

IF and that's a big IF one can get out early and still take a lump sum. Most pensions in the legacy carriers have some sort of restriction and the unfortunate fact is that if PBGC gets hold of the pension you are done for. They look back 3 years, take a snapshot from there back to establish FAEs (thus rendering ones best years invisible) and then say look you retired 3 years early...that's a decrement to your FAes (2.5% pa I think). As to planning for the unthinkable. Some of us got screwed by multiple bankrupcies and when you have to start at the bottom with a growing family it is next to impossible to save at the rate required to replace a pension.

[Ignition Override]

SR-71: from what I've read about the conflicts of interest which created so-called deregulation, and the ruling favoritism, made on behalf of various parties by many numerous, some former, Dept. of Trans. Admin judges, among others (the Dept. of Justice), it might be worth seriously considering re-regulation, although in what form might be the most beneficial to stockholders and route flexibility (or should this be excluded?), who can guess? There is no doubt that marketing depts have priced the tickets too low to make any profit on most domestic routes, therefore, with decades of this policy being STANDARD, among the major airlines, and the resultant accidents which are directly related to unrestrained growth (Air Florida...Valuejet, to name just two, and with the documented help of the FAA's..eh... ;) "oversight", driven by political factors stemming from the White House : these are just the more notorious accidents, because passengers paid the revenue, instead of cargo customers...), nobody can convince me that US deregulation has been a success. Are stockholder profits to be the only criteria? How about a son or mother killed in a crash, in an operation where flight ops are quietly given carte blanche by the govt. inspectors, especially at higher levels where documented concerns are "allegedly" locked away?

No matter whose fault it is for the state of the industry, it appears to me that from a safety perspective and that of stability for employees and passengers, it is quite a failure. The stupid fare-wars have created the "Wal-Mart" mentality among the flying public, regarding ticket prices. Nobody deserves to buy a ticket below, or even at the operating cost to move the airline seat, and I make no apologies to Wal Mart (their benefits come partly from "allegedly" cheating many of their employees out of numerous benefits, and outsourcing production to the Pacific Rim).

[water check]

Flown it. Most of the legacy carriers have a portion of their pension fund set up so that the employee can elect to take a 'lump-sum' provision. It reduces the subsequent monthly amount that they also get after retirement. Once the carrier has entered Ch11, the lump-sum payout is history. If I was in AA or CO, I would take the lump-sum NOW, and worry about the rest later. At least that way they have recouped some of their long-term investment in their pension. I think it is criminal how US companies are allowed to continue to keep operating for years without funding their pension plans, and even more criminal that the amount they do fund can be held by the Airlines themselves. You couldn't make this stuff up...!! I think we are about to see the greatest melt-down in the retirement welfare of middle-class America in history. It is becoming quite apparant that for decades corporate management in America has had an unwritten 'compact' with the Government to line each others pockets. The supposed welfare of the employees is now being discarded brutally and cynically. I predict much social unrest in the US in coming years. If you think the Airline situation is dire...wait until the autoworkers and GM/Ford face off over these same issues...! Although I think Europe has a lot wrong with it too, you couldn't concieve of this sort of thing happening here.....could it! :oh:

..another thought: I think some sort of regulation of aviation is necessary. As an airline grows, the cost of it\'s loyal workforce grow, as do it\'s infrastructure costs. It seems unfair that a new airline can come into the market place, with NO legacy costs (pensions, medical etc) and deliberatly undercut the legacy carriers for however long it takes to put them out of business. As an example, Southwests costs are now amongst the highest in the US, and they don\'t have a pension or onerous medical benefits system. They do however have \'high\' crew costs. A new entrant should not be able to sell tickets below an established \'cost\' basis. As it is now, they can get enough capital in place, then \'bleed\' the competition until they fail. I don\'t have all the answers (probably not any for that matter), but surely the present ridiculous system in the US has been proven to be a failure...certainly for the average employee.

[Wake Turbulence]

Question for all the Airline Management bashers:

If the Tooth Fairy magically took back, retroactive to the date the company came into existence, every penny ofl Management compensation ever paid, would that sum be enough to make whole the pension plan shortfall at UA or your airline of choice?

Methinks not. During the bullish years, you negotiated a contract that ended up being unsustainable given the revenue and cost fluctuations in this highly volatile business. There simply isn't money to pay it out.

This just isn't a business that can sustain lifetime employment, ever-escalating wages based upon seniority, and fully paid rich retirement and benefits.

Very unfortunate - and I agree unfair to those who signed on and worked hard under the unkeepable promises - but seemingly true.

Maybe the real reason to be angry at "Management" is because they weren't prescient or fortitudinous in past to say "We can't make these sorts of deals with employees."

[flown-it]

Wake turbulance. As you are no doubt aware, the rapid expansion post deregulation dried up the available pool of pilots of the normal hiring age . To fill their seats the airlines turned to older pilots some of whom had already suffered through a bankruptcy. Those pilots then, if lucky, made Captain after 10 or 11 years ...lots of them did not. They thus did not have many years with their snout in the trough and when their pension went South they were left with the little they had saved through the years. Let me assure you, the best laid plans mean naught when at age 59 with less than 20 years in the company you are told that your pension will be reduced by 60%.
Water check
Not necessarily. I believe some plans had open and closed years depending on the amount going out of the plan with normal retirements and also dependant on the prevailing interest rates. However I believe Delta did not have this restriction and it would be interesting to see the effect on the Delta pension of so many senior Captains jumping ship prior to Chap 11

[Ignition Override]

Wake T: Your ideas appear to make some sense, and seem in a minority on Pprune whereby at least they use a detached perspective to defend the upper mgmts. of many airlines. Such an outlook is appreciated and refreshing on this forum :D . I wish my comments could be more detached and appear less resentful. My main gripe is that retirements were never all kept in separate funds, let alone certain funding contributions falling far short, even when the economy was doing well. What was it really all about, hang-ups with the IRS, SEC, or Congress? Maybe all of them.

As for lump sums, based on everything I've read in the US media in the last few years, only the Delta pilots (at least until until now) were able to take out the entire retirement in one single lump sum.

[GlueBall]

The airline "career" has deteriorated into a "blue collar" job.
A career path often encompassing multiple employers.

We pilots are little more than truck/bus/taxi drivers with wings,
....subjected to constant schedule changes and relentless
challenges to our hard earned benefits and quality of life standards.

What are one's expectations? What can one do? What can one hope for?

The airline business has become a mass transit industry.
"Now everyone can fly" is the logo of paperless low cost
carrier AIR ASIA.

New practical reality: Carriers with the cheapest fares rule the sky.

...and most pilots, soon to be working for common wages, will
have a hard time earning expected retirement portfolios at any
retirement age.

:ooh: :ooh: :ooh:

[Wake Turbulence]

IgnOverride - thanks for the kind words. Re: underfunding, and subsequent termination, of defined benefit pension schemes in the US - this is not limited to the airline business and is a MAJOR looming social issue. Fixing blame is less important at this stage than learning from the mistakes and coming up with a solution.

[cityfan]

Otterman, Ign Ov., Wake TB,

I think there is a general misunderstanding of Chapter 11 and the pensions of US pilots.

Chapter 11 is a mgmt tool that allows the mgmt, at the discretion of the Creditors Committee established to represent the bests interests fo the enterprise, to reorganize the entity into a forward-looking, on-going company. Both the Federal Bankruptcy Judge and the Creditors Committee have to comply with the intended direction of the company coming out of BK.

One of the immoral by-products of Chapter 11 are the 1113c and 1113e sections, which allow the company to renege on contracts after a suitable period of "negotiation." During this time, most company tells unions they want $X billions of dollars in concessions and then the "negotiations" are to determine where the money will come from. The 1113c is a "consentual" change in the contracts after "negotiations." 1113e is the "emergency" changes to contracts that come when the mgmt convinces the judge that the need to save the dollars in the 1113e filing is dire and immediate for the well-being of the corporation's ability to reorganize successfully.

So, in short, a company tells its unions that they are filing an 1113c motion so start negotiating for 51 days. At the end of that time, if no agreement has been arrived at, they file an 1113e motion to get the cuts foreced on employees by the Judge. However, at that time they can also ask for MORE than they originally asked for....and often do (IAM at UAL).

As for the pensions, it is a difficult problem to overcome due to ERISA, which (perversely) was intended to protect the pensions of employees from corporate raiders and malcontents. It has done exactly the opposite and US Congress has been too myopic to change it. Clearly, the Bush Administration has declared war on its own citizens by having a clearly stated objective to rid US industry of Defined Benefit Plans.

Defined Beneft Plans are the type of pensions that set aside a percentage of your pay for an annuity type retirement payment. They are VERY different from Defined Contribution Plans, which are monies, such as 401(k) plans, that are deposited in the mployees name with an investment firm, and are managed by the individual. DC Plans are entirely OUT of the hands of the company as soon as they are paid. They are usually a defined percentaged of payroll for the individual (e.g. $10,000 per month pay cheque would produce $1,000 deposit in investment account, if DC Plan was a 10% plan).

DB Plans, on the other hand, have funding requirements established by ERISA and the IRS. They allow a company to NOT fund the pension as long as it maintains its funding to a set percentage, usually 80%, of expected liabilities. It is the calculation of the liabilities and assets that creates the problems, and the willingness of the US Government to allow companies to NOT fully fund their plans, that has led to the dire problems.

DB Plans have what is called a 5 yr smoothing, such that any peaks or troughs in investment returns are smoothed out so as to avoid large payment requirements by companies when the markets are negative. On the surface, this makes sense, as companies can LEAST afford to pay large pension payments to the Plans when the economy is trending downwards. However, no-one foresaw such a lengthy downturn and companies willingness to ONLY fund at the minimum levels during economic difficulties.

In essence, the laws allowed companies to provide minimal funding, then, as liabilities increased, to STILL not fund the plans even to minimum levels, under what was erroneously termed Deficit Reduction Contribution Relief. WHat this allowed companies to do was not even pay the minimum and allow their pensions to become even higher out of balance. Assets decreased while liabilities, which are tied to employee longevity, continued to increase.

Therefore, as soon as a company sought Chapter 11 protection, the pensions were immediately on the chopping black. They require CASH infusions and bankruptcy in the US is all about conserving cash by not paying your debts in full. Thereafter, banks express an unwillingness to provide bankruptcy exit financing until the pension liabilities are wiped clean, so companies merely turn their pensions over to the PBGC.

The PBGC is a Quango that provides "insurance" coverage for pensions. However, they are becoming INCREASINGLY irritated by companies seeking Chapter 11 protection almost SOLELY to unload their pension obligations.

The maximum DB Plan benefit is somewhere in the region of $120,000 per year, whereas the maximum PBGC payout for a pilot who is foreced to retire at Age 60 is $29,000. Therein lies the rub for ALL employees who spent decades accruing this pension benefit only to have it snatched from before their eyes by mgmts who see it as merely another liability....regardless of the fact that this liability had been paid for in the collective bargaining process.

After all, just as Glenn Tilton said about his and his management teams contracts when asked if they were going to take large cuts, "A contract is a contract!" Unless of course you are considered "labor."

Hope that helps,

cityfan

[flown-it]

cityfan.
Thank you thankyou.
You have explained it in laymans terms. I hope the rest "get it". I watched in horror for days as the attack dogs hired by the airline for some $11million tore into our side. The judge incredibly believed the smoke and mirrors and agreed that the union had to agree to terminate the pension. The union of course caved and thus my soul is owned by the PBGC. Those older than 53 when the pension was stolen (see my previous post re PBGC techniques) actually got an enhanced pension and only lost some 60% of their expected income.(the lump was naturally gone). The under 53s got as you suggest about $28K.
So once again get out while the going is good and for goodness sake have a back up plan.

[Ignition Override]

CityFan: thank you very much.

Wake Turbulence: You are right, especially in a practical sense.

How does one copy off the bottom two or three pages of a long forum? Can this be explained to a "steam-gauge" guy? :=

[JustAnothrWindScreen]

Ignition Override said:

As for lump sums, based on everything I've read in the US media in the last few years, only the Delta pilots (at least until until now) were able to take out the entire retirement in one single lump sum.

Someone else correct me if me if I am wrong but I believe that Delta could only take half out as a lump sum and half as an annuity. AA can take all as an annuity, all as a lump sum, or half lump sum and half annuity depending on the A fund or B fund..

[GlueBall]

....cityfan The PBGC is a Quango that provides "insurance" coverage for pensions. However, they are becoming INCREASINGLY irritated by companies seeking Chapter 11 protection almost SOLELY to unload their pension obligations.

Rightly so, because "they," the "Quango" is a taxpayer supported entity; and I, as taxpayer, object to having to subsidize the pension payments of employes of private, mismanaged, semi bankrupt airlines.

[SR71]

Glueball,

I'm not sure the PBGC receives any funds from general taxation at all. At least thats what it says on their WWW site.

It seems a little tautological to me though and I don't claim to understand how the whole edifice works. It seems like it funds failed DB schemes with the the funds of failed DB schemes! Whoever thought that one up should be congratulated on their wisdom.

Even the executive director of the PBGC writes:

You may have read about challenges facing the PBGC. As of the end of 2004, the agency has a shortfall of more than $23 billion. Rest assured, however, that it poses no near-term threat to PBGC's ability to pay current benefits, nor will it affect our commitment to quality customer service. Having said that, it is becoming ever clearer that changes in the system must be made to strengthen the defined benefit system for employees, create incentives for plan sponsorship and ensure that PBGC is able to fulfill its mission in the future. PBGC is actively engaged with Congress and the Administration to improve the retirement security of American workers.

I'm sorry but this malaise isn't confined to the US - it is prevalent in the UK too, but it appears at least Holland have it right.

:yuk:

Cityfan,

The composition of the Creditors Committee is obvious, but in the absence of an ESOP, which presumably means that employees do not get representation on such committees, it seems to me that employee benefits are always going to get hit first in bankruptcy proceedings. Is my understanding essentially correct?

Hence my comment earlier in the thread about how Creditors aren't about to give up the "protections" they are afforded in Ch 11.

For the conspiratorial amongst us, it does not take a genius to figure out the advantages that a degree of collusion between City and airline merit.

And therein lies the rub.

As an employee you make the wheels go round on a day-to-day basis, but the real game is being played on a higher stage.

:yuk:

[arcniz]

I believe the PGBC is technically operated in the style of an "insurance" pool, where recurring small fees charged to all eligible participant companies are intended to maintain the solvency of the fund over time. Whether that long-term vision will actually work, given the present cascade of pension plan abandonments, is anyone's guess.

The US has struggled to establish and maintain methods for funding basic 'life-support' pensions for the general working populace since the early 1930's. That system is under stress because of the pig-in-python effect of the post ww2 population surge and the longevity effects of improving sanitation and health care.

'Private pensions', operating supplemental to but independent of Social Security, have been viewed as a form of incentive compensation for the convenience of the employer's business goals. I remember very well hearing impassioned pleas for "portable pensions" in the early 1970's in the airlines and other 'growth' industries. Employers methodically used pension vesting as the principal method for locking-in key employees, so the owners opposed any plans for immediate incremental vesting and portability - leading to the wing-and-prayer system that now is failing so badly in the airline industry.

No compelling standards existed for pension administration and funding practices until modifications were made to the ERISSA rules (about 1987), with phased-in 'effective' dates in the early and mid 90's. Those rules required that pension promises be funded to some percentage of reality and the difference carried on company balance sheets as a liability. This was a sort of poison for companies that had methodically fudged the numbers, so companies began dumping the obligations any way they could, with cash buyouts and phenomenal projections re future rates of return being the main methods. Geniuses in the style of Michael Miliken and Ivan Boesky developed swift methods for wholesale cashectomy of companies that had any big money in reserve near the surface, however, so pension accounts became increasingly difficult in every regard. Companies in the US with consistent growth and profits are the only ones that have been able to sail through these vicissitudes with their pension promises intact.

The pain of all this as it plays out is palpable. It has the qualities of an inexorably unfolding Greek tragedy writ on the path that led us here. It follows, like night from day, from the willingness of employees, unions, and managers to rely on fluff and dreams about a prosperous future - instead of working with a less inspiring but more viable vision based on cold hard cash for modest but real pension accruals on deposit with independent fiduciaries.

[Airbubba]

United reports "improved results":
_________________________________________

UAL Loss Widens
Amid Costs Tied
To Restructuring

By ILAN BRAT

Staff Reporter of THE WALL STREET JOURNAL
November 1, 2005

United Airlines's parent, UAL Corp., reported a third-quarter net loss of $1.77 billion, its largest ever quarterly loss, as bankruptcy-related expenses offset its efforts to shift to more profitable routes, cut costs and emerge from Chapter 11 as a more nimble competitor.

The Chicago-based airline, the second-largest U.S. carrier by traffic after AMR Corp.'s American Airlines, said reorganization items reduced its bottom line by $1.84 billion, primarily from noncash expenses on the rejection of aircraft. UAL said it is common for a company to rack up losses associated with its reorganization as it approaches its exit from Chapter 11 of the U.S. Bankruptcy Code, and said it expects a large noncash gain after it emerges from bankruptcy protection, also stemming from accounting factors.

United, which filed for bankruptcy protection in December 2002, hopes to emerge in February as an efficient, competitive airline. In the latest quarter, United said, employee costs declined 21% from a year earlier, and its aircraft obligations fell 35%. However, fuel expenses rose 37% to $1.1 billion, meaning fuel has leapfrogged labor as its largest single expense.

United's results amount to $15.26 a share, compared with a net loss of $274 million, or $2.38 a share, in the year-earlier quarter, which included $115 million in reorganization items.

In the latest quarter, revenue climbed 8.1% to $4.66 billion from $4.31 billion a year earlier.

United has been cutting back on its domestic operations to put greater emphasis on international flights, which are less competitive and which allow airlines to charge higher fares. The company said mainline unit revenue, or the money brought in for each seat flown per mile, jumped 11% to 9.6 cents from 8.6 cents in last year's third quarter. In September alone, United's mainline unit revenue jumped 15% compared with September 2004.

The airline said it reduced the number of aircraft in its fleet by 10% compared with the year-earlier period. Seat capacity declined 5%, while the percentage of seats filled rose to 83.9% from 82.1%. The company expects its fourth-quarter mainline capacity to be down 3% from 2004's fourth quarter.

Glenn Tilton, UAL's chief executive officer, said that the improved results reflected cost controls. "The results we are reporting make it clear that we have done well this quarter in overall cost control, especially given the significant reduction in capacity."

[aviator]

And here is another way to analyze the same numbers:



UAL Corporation Reports Third-Quarter 2005 Results

Monday October 31, 10:16 am ET

- Third-Quarter Operating Earnings of $165 Million, a $245 Million Improvement Year-Over-Year Despite Higher Fuel Prices Negatively Impacting Fuel Expenses By $405 Million
- $68 Million Net Income, Excluding Restructuring Charges
- Predominantly Non-Cash Bankruptcy Related Charges of $1.8 Billion Result in Net Quarterly Loss of $1.8 Billion
- Mainline Passenger Unit Revenue up 11 percent
- Mainline Unit Costs Up 5 percent on 5 percent Lower Capacity Excluding Fuel, Mainline Unit Costs Down 5 percent

CHICAGO, Oct. 31 /PRNewswire-FirstCall/ -- UAL Corporation (OTC Bulletin Board: UALAQ - News), the holding company whose primary subsidiary is United Airlines, today reported its third-quarter 2005 financial results.

UAL reported third-quarter operating earnings of $165 million, $245 million better than the same quarter last year, despite higher fuel prices for the mainline and regional affiliates negatively impacting fuel expense by $405 million year-over-year. UAL reported a net loss of $1.8 billion, or a loss per basic share of $15.26, which includes $1.8 billion in reorganization items. The company believes the best indicator of United's post-reorganization financial performance is provided by reviewing operating and net earnings excluding restructuring charges. Excluding the reorganization items, UAL earned a net profit for the third quarter totaling $68 million.

Reorganization items were primarily driven by $1.7 billion in non-cash aircraft rejection charges. It is common for the results of operations of companies progressing through Chapter 11 to be impacted by non-cash charges related to their reorganization, especially as restructuring work nears completion. Charges based on the claims of our creditors are recorded at the amount expected to be allowed by the court. However, as shown in our Plan of Reorganization, these claims are expected to be settled at exit for a minor fraction of the amount of the charges recorded. Looking forward, the company is expected to record a large gain at exit in 2006 when these claims are settled for less than the amounts originally recorded. It is important to note that this is a matter of accurate accounting, and that neither the aircraft rejection charges recorded at this time nor the gain expected to be recorded at exit in 2006 have any significant impact on the company's cash position.