Bankruptcy for the Company is the latest development in an ongoing struggle between the airline and its labor union to agree on adequate cost structure. It’s a familiar story: labor unions demand higher wages and more benefits, margins get compressed, profits wither, investors balk, and down goes the whole firm.
The labor unions kept their prices so high it drove costs out of control. As airline usage curtailed over the past decade (thanks DHS, keep up the good fondling… or work, or uhhh, never mind) major air carriers were forced to find ways to cut costs and preserve profitability.
In this particular case, AA management swallowed a poison pill: declare Chapter 11 bankruptcy, take the lumps, but in the end, hopefully able to negotiate new labor contracts. So instead of having “fair wages”, potential layoffs may likely mean “no wages” for the many members of the labor union. A reasonable person might ask: “why would the labor union ask for wages so high that it would force their employer—the source of said wages—into bankruptcy?” Seems counterproductive, right? Wrong. Perennial cash cow for left-wing politicians, labor unions have a lot less to lose by forcing Chapter 11 than one might think.
This Mexican standoff between corporations and labor unions has played out before (most notably in GM). It’s not a pretty picture. GM’s bondholders, contractual obligations ignored and violated, were forced to eat pennies on the dollar for what they were owed. But the labor union made out much better, shielded and defended by friends in politically influential administrative jobs.
And to all my 99% friends out there, don’t think this is a sweet deal for the 1%. Exiting CEO Gerard Aprey has no golden parachute. In fact, he has no severance. And with AMR shares trading down 95.49%, his stock is negligible at best. That’s the length the 1% guys are willing to go to get costs under control, and get the job done. If we spread his success and everyone gets their fair share, what’s OWS’s fair share of his failure? I digress.
To further exacerbate AA’s problems, fuel prices ate away at margins. Thanks to the Obama Administration and its respective Dept. of Energy for that one: stifled drilling, grossly inadequate refining capacity, threats of taxes, and burdensome regulations have driven energy costs to unmanageable prices. And this is one problem Obama’s DOE can’t solve by handing out corporate welfare to industries building fancy electric powered vehicles. With the current problems GM is facing with the Volt, I think we’re a few decades away from electric powered airliners.
On one hand, we have a President and Administration that passes favors to labor unions in return for campaign contributions. On the other, we have a DOE that stifled growth in domestic cheap energy to satiate the bloodlust of the enviro-jihad. It’s becoming more and more remarkable that airliners are able to survive much less thrive.
3 comments:
Are you sure that labor and energy costs are too high or is it the case that the firm is an inefficient producer of airline travel?
that question reminds me of what the libs like to ask about ford et al: why don't they just do a better job of making fuel efficient cars, like those cute japanese ones?
but why doesn't the government stop telling ford what type of cars to make, and what CAFE standards to have?
Dave: your point is well taken, I'm sure there are more causes to AA's decline that only labor and energy costs. And you're right, AA was an inefficient producer of airline travel. But an immense factor contributing to their deficiency was simply this: they paid employees more money than the value the employees created for the Company. That's unsustainable and destroys value.
Post a Comment