Nov.-Dec. 2011

AA Declares BK — What Color is Your Parachute?

It won’t be until early 2012 will the full impact of the American Airline bankruptcy be known. However, if the past is any indication of what the future could look like a review of the 2002 United Airlines bankruptcy (BK) is a telling story.

Today, a UAL captain is likely making half of what he made 10 years ago. A captain with 20 years of experience is making $140,000 — 50% of where he was at and well below what he expected when he joined the airlines.  The pay picture is bleaker for UAL first officers (F/O) who are making $90,000 annually — more than a 50% drop from the $175,000 salary they had 10 years ago. It’s the UAL pilot retirees that suffered the most answering the call “to save the company.” The salary cuts went along with decreases in healthcare benefit cuts, changed work rules, lower stock value in the company’s ESOP and drops in annual pay increases.

A retired UAL 747 captain responded when asked if the company’s BK impacted his retirement: “My benefits went from about $10-12,000 per month to just under $2000.  I am currently getting about 18% of what I earned and paid for with my money over 39 plus years.  I lost my retirement home, my airplane, my water ski boat, my symphony and opera tickets… I lost my ability to retire and went back to work and now I’m a FAA consultant.  Worst of all, I lost my ability to dream.”

One pilot who joined UAL in the 1990s remembers airline management and the union reps saying “on my first day, they said to start living the (pilot’s) dream… it felt like we basically won the lottery.” The promise of a long-term job and an upper-income lifestyle all the way through retirement was the balance for hard work, long trips from home and shouldering the safety of thousands of passengers.

Now as one UAL F/O said, raising a family of four on a F/O pay means driving  used cars and selling the family home to help pay for the kids college.  The 747 captain went on to tell us that his son followed in his footsteps and is a commercial pilot. Today he’s responsible for recruiting flight crews for the AA subsidiary, American Eagle. With the pay dropping like a brink in the sky and retirement benefits going out the window the American Eagle manager is finding it tough recruiting the best pilots to AA.

Usually, ACE aims to be objective and represent the fairness of both sides. However, on airline BK it sometimes becomes personal. ACE is unique among aviation-expert witness practices in that the consultants are all UAL pilots each with as much expertise on the ground — from airline finances, manufacturing and flight line operations — as they do in the air.  www.aeroconsultingexperts.com

Airlines said they must re-organize financially to keep up globally. The result is often times the shedding of old contracts that kept the airliners locked into unprofitable routes, and pensions and pay agreements that were made during the airlines boom years.

There is the core of the problem, the boom-and-bust cyclical nature of the airline business. Wall Street lenders resist unexpected trends and now require management to smooth out the ups and downs. Employees see greed is behind the dismantling of the nation’s legacy airlines, pointing out that Southwest Airlines does it well having the highest paid pilots, operates a lean system and pays relatively modest bonuses to company executives.

Pilots on Wall Street

Not since the startup of the U.S. airline industry before the Great Depression in the 1920s has there been as many consolidations and bankruptcies among aviation companies as in the past 25 years. When a company declared bankruptcies in the 1920s the president of the failed business might throw himself under a train; and now a CEO of an airline in Chapter 11 is likely to be handed a golden parachute worth millions of dollars.