|Heritage: Big Labor Drags American Airlines into Bankruptcy|
by Nick Stone:
In the wake of the 9-11 terror attacks and the ensuing aviation industry downturn, every major American airline filed bankruptcy to reduce costs and reorganize their balance sheets. Every airline that is, except American Airlines.
American Airlines takes pride in its position as America’s defacto flag carrier and reputation for innovation, like the first frequent flyer program. The company is also known for good relations with employees. American’s website proudly boasts, “For our progressive and fair-minded policies and employment practices, American Airlines is the only airline in the nation to earn a perfect 100% score four years in a row by the Human Rights Campaign for its Corporate Equality Index (CEI).”
Management has moved heaven and earth to work in good faith with employees while achieving productivity and cost containment goals. Indeed, wages and benefits for AA employees significantly exceed their counterparts. But financial analysts have urged the airline to do more to bring labor costs down in the face of flat revenues and high fuel prices. AA has been in stalled contract negotiations since 2006 and recent talks have found the union unwilling to help avoid financial disaster. In need of a game changer, yesterday American’s holding company (AMR) declared Chapter 11 reorganizational bankruptcy.
According to PBS Nightly Business Report, the move was “brought on by the carrier’s sky high labor costs.” Bankruptcy gives the carrier muscle in negotiations with unions.
American Airlines employees are in for a rude awakening put off for too long. Unable to avoid sacrifices faced by their counterparts at other airlines, American’s unions decided they would rather take down the company than agree to sacrifices for their members. Unfortunately, those employees may go down with the ship.
Of course, airlines and autos are the two go-to example industries where union intervention has strangled companies and resulted in disaster. For a few extra bucks and slightly looser work rules, unionized employees often face unfortunate consequences. When high labor costs force their company into bankruptcy, massive pay cuts and layoffs are often the result. Worse yet, the company may dissolve leaving everyone jobless.
The Heritage Foundation summed up the situation at AA perfectly: “American’s unsustainable losses forced bankruptcy, which in turn could have a negative impact on creditors, employees, retirees, shareholders, and consumers. And though American may emerge stronger after bankruptcy, it will not be without a steep price paid by all parties involved.”
In a hard hit industry and a poor economy, the notion that the union would hold American Airlines hostage is reckless. It is reckless because their decisions will result in more drastic pay cuts and layoffs than would have been required through cooperation. It is also reckless because it permanently tarnished the final legacy airline in America.