Airlines in bankruptcy land
Carriers use protection to cut costs; execs laugh all the way to the
bank
OPINION
By Charles Leocha
Travel columnist
Updated: 12:16 p.m. CT March 30, 2007
Charles Leocha
Travel columnist
When did bankruptcy become a deliberate management strategy for the
airline industry? Somehow it has become the ultimate hammer with
which to pound out excess costs and then reward executives in charge
of the bloodletting for their "effectiveness."
Delta Air Lines and Northwest Airlines are the two largest airlines
still in bankruptcy. But United Airlines, Continental Airlines,
America West, US Airways, ATA Airlines, Braniff International,
Eastern Airlines, TWA, Hawaiian Airlines and Aloha Airlines have all
reorganized under bankruptcy protection at one time or another, and
some of these carriers are still operating.
Bankruptcy courts have just about rolled over and played dead for
airline management. I can't remember the last time I heard pilots,
flight attendants or other union members had been favored in any
court decision that involved a confrontation with management.
Consider the damage. Stockholders have been wiped out. Pensions have
been abandoned by the bankrupt companies. Flight attendants have seen
their work rules changed dramatically. Pilots are being squeezed for
more and more flight time. Aircraft orders have been canceled.
Contracts with suppliers have been torn up. Terminal leases with
airports remain unpaid.
The only parties in the current spate of airline bankruptcies that
seem to be flourishing are the airline executives, the lawyers and a
handful of bankruptcy financing firms. This greedy triad has been
working the bankruptcy system to line their pockets - and to hell
with the rest of the players.
According to SEC filings in February and March last year, Glenn
Tilton, the current CEO of United, was awarded more than $20 million
by the airline's board of directors; by some estimates, he is now one
of the largest shareholders in the company that he shepherded into
bankruptcy. According to UnionVoice.org, his handpicked legal firm,
Kirkland & Ellis, has charged more than $50 million, and one attorney
has pocketed almost $2 million in fees for a recent year.
USA Today reported only this week that SEC filings showed United's
top five executives received $25.7 million in the form of cash, stock
or exercisable options. Of that, CEO Glenn Tilton received $9.3
million, the filing said.
CNNMoney.com reported as far back as 2003 that former CEOs have
reaped stunning salaries and even more astonishing pension deals. The
former CEO of Delta worked for the company less than six years and
walked away with a pension promising a million dollars a year. Unlike
the pensions of the airline rank and file, his retirement is
protected and guaranteed by a special executive trust fund.
Similarly, though its former CEO Donald Carty was forced to retire
when the size of his pension became public, other executives at
American Airlines still enjoy the protection of a special trust fund
guaranteeing their pensions. The pilots and flight attendants, on the
other hand, may see their hard-earned pensions slashed and eventually
sent over to the Pension Benefit Guaranty Corporation. They get no
guarantees.
The American Airlines pilots are incensed at the phenomenal increase
in pay that their airline's top executives have seen. According to
Airline Pilots Association figures, the five top executives at
American stand to receive $26,498,899 this year, up from the
$3,777,325 they received in 2002. During the same period, the pilots
pay actually decreased 4 percent -- even though they now spend 26
percent more time in the air.
According to Arianna Huffington, quoted in WorkingForChange.com, the
former CEO and the former CFO of US Airways, who together piloted
that airline into debtor's land, reportedly each walked away with $35
million in salary, bonuses and stock options in 1998. They then
feathered their retirement nest by receiving administrative credit
for more than 20 years that they weren't actually on the job. The
CEO, Stephen Wolf, left the company with a $15 million pension cash-
out just six months before US Airways declared bankruptcy.
Even recent announcements by Delta Air Lines that its workers will
share in the airline's profits once it emerges from bankruptcy are
suspect, as the plans continue to treat executives as royalty.
According to reports in the Atlanta Business Chronicle, Delta's
39,000 non-contract employees will share an estimated $480 million in
stock and cash payments (or about $12,300 each) while 1,200
executives will share a jackpot of restricted stock, stock options
and performance shares estimated at about $240 million (or about
$200,000 each). My arithmetic calculates that the executives are
receiving 16 times the share of the non-contract employees.
What happens to you when you don't pay your bills? Do you get a bonus
or a lush retirement package? Of course not. And yet there seems to
be no stigma attached to airline bankruptcy. In fact, the airlines
are still being treated as highly respected corporations in the
business community. They are allowed to compete and bid for new
routes and they are allowed to restructure their fleets with
multibillion-dollar purchases. It is business as usual - unless one
of the bankrupt airlines is your employer or owes you money.
Theoretically, the bankruptcy courts approve major management
decisions but, in fact, no bankruptcy court judge seems comfortable
overriding airline management - even when unions fight the executives
aggressively in court. The legal system seemingly follows a principle
that the good of the corporation and its executives trumps the good
of the employees, stockholders and creditors.
The inconvenient truth is that bankruptcy has become part of the
management process in our country. In the airline industry,
bankruptcy is the norm rather than the exception. It is used not to
cull the weak and mismanaged airlines but to provide a shelter from
which to pursue advantage.
Northwest Airlines is a case in point. It landed in bankruptcy court
with more than a billion dollars in the bank. Management even
claimed, as it declared Chapter 11, that it didn't need the
protection of the bankruptcy court to keep operating. It was a bold
and shameless maneuver to use the bankruptcy courts to batter its
unions, avoid paying its bills and renege on its contracts.
For years the airlines were a regulated industry whose salaries,
benefits, pensions and profits (and sky-high airfares) were protected
by a cozy relationship with the government. Though the industry has
been deregulated for more than a decade, legacy airline executives
have found a new way to suckle at the teat of the government - this
time through the bankruptcy courts.
When a system allows continued mismanagement and provides no apparent
consequences for the failing executives, it puts the burden of pain
on creditors, stockholders and employees who have done nothing wrong.
And while bankruptcy actions have not much affected airline
schedules, ticket prices and frequent-flier programs, the public is
certainly paying for these bankrupt airlines' mistakes. Taxpayers are
footing more and more of the unpaid airline bills (money for the
Pension Benefit Guaranty Corporation and for airport bonds both come
from taxpayers) and court costs and higher prices are all passed
along to consumers when the airlines don't pay their bills.
Our seemingly endless bankruptcy process is no longer serving the
public good. In this upside-down, Alice-in-Wonderland world of
bankruptcy relief, the ones wearing the smug, Cheshire-cat smiles are
the airline executives who created the problem in the first place,
along with their bankers and lawyers.
Go figure.
The pilots are happy at Flex. It is a good company with good managers that CARE about the pilots. They don't need a union. I wonder why that is there? 
