January 2003 • Vol 3, No. 1 •

The Chapter 11 bankruptcy filing by United Airlines reflects a structural crisis facing the major airlines: how to maintain profits while competing with lower-cost airlines. Robert Crandall, former CEO of American and the architect of many of the concessions won from the unions since the 1978 deregulation of the industry, noted in the Wall Street Journal, “If the established airlines are going to survive, management and labor must literally start over. ‘Concessions’ within the framework of contracts derived from another era simply won’t allow the carriers to cut costs enough to compete. Business practices and labor contracts must change sufficiently to reach employee productivity levels comparable with airlines like Southwest, AirTran, Frontier, and Jet Blue”—all low wage.

September 11, 2001 gave the airline industry a golden opportunity to attempt restructuring. Within months the airlines cut more than 140,000 jobs and parked 577 aircraft in the desert.

Even before 9/11, the problems facing the airlines were evident. United, for example, lost $605 million in the first half of 2001 due not only to the structural problems, but also to bad business deals and a slumping economy. This compares with the $8 billion United made in net profit during the boom years of the 1990s and 2000.

United is not alone. The world’s largest airline companies all lost money: American lost $1.7 billion; Delta lost $1.2 billion; Lufthansa lost $.5 billion and Japan Airlines and British Airways lost a quarter billion each. Even if the economy should pick up, the major airlines won’t be able to do profitable business the way they’ve done before.

In October, the Air Transport Association (ATA) met to discuss restructuring the industry. The ATA represents: American, United, Delta, US Airways, JetBlue, Continental, and fifteen or so others. Their prescription: layoffs, concessions, shifting jobs to low-paying regional operations, outsourcing and, they hope, changing the Railway Labor Act (RLA) which affects airlines. The RLA is one of the worst laws restricting labor to government control, making it difficult to strike. Senator John McCain plans to amend the act to prevent airline unions from striking at all.

The first day of the bankruptcy court proceeding was the first time the workers learned that United was losing $20 million per day. The restructuring that United wants to do under Chapter 11 was inevitable. The question is, who will pay for it? United is using the bankruptcy proceedings to step up its attack on the workers.

Before the filing, threatening to go bankrupt was used as a club to get the pilots, flight attendants, and ramp and other support workers to vote for massive cuts in their own wages and benefits. However, United’s mechanics voted down the concessions the leadership of the International Association of Machinists (IAM) urged them to accept, by 57 to 43 percent. The vote of the mechanics was one of the very few bright spots in the American labor movement in recent years.

The concessions were supposed to help United stay out of bankruptcy by getting loan guarantees from the U.S. government. But United was on course for bankruptcy whether or not the loan guarantees were granted. The government board made it clear that even if the mechanics had accepted their concessions, more drastic rollbacks were needed. Now, United can utilize the bankruptcy proceedings to force bigger cuts in wages and benefits. United executives are now also demanding major changes in work rules.

Under Chapter 11, a judge is assigned the job of using the capitalist law to protect the capitalist’s interests. The company can now ask the bankruptcy judge to abrogate the contracts it now has with the pilots, flight attendants and machinists. Any of his rulings can be appealed—to an equally pro-business review board.

Another thing that will happen is that United will get loans for what is called debtor-in-possession financing to be able to keep running during the bankruptcy proceedings from a consortium of Citizens Group, J.P. Morgan Chase, and Bank One. These lenders would get first claim on the airline’s assets, ahead of other creditors.

What this could mean is evident in the case of US Airways, which is also in bankruptcy. That company, which has already forced concessions from its workers, is demanding more. The spokesman for the principle debtor-in-possession for US Airways, David Bronner, has stated that either the workers accept these further cuts or he will force the company to shut down and be liquidated. “What’s their alternative?” he asked. Without the concessions, “they’re gone.” Under this pressure the IAM leaders agreed to a second round of concessions, which US Airways workers will vote on in early January.

United workers, and not just the mechanics, are angry. Some background is in order. In 1994 United, pleading poverty, wanted concessions from its workers. The pilots union and the IAM, on the urging of their leaders, bought into an Employee Stock Ownership Plan (ESOP). The flight attendants didn’t. Under the ESOP, the pilots and machinists got stock in the company in return for a wage cut. Wages were frozen at the new rate until 2000, when the contract would again be opened for change. But this stock was unusual to say the least. It was non-voting stock, which meant that no matter how much the employees owned, they still had no legal voice in the company; they could not ever control the company. Further, the stock couldn’t be sold until the employee left the company. So it was really a retirement plan, and was coupled with the company no longer paying anything into the 401(K) plan.

The stock did go up, to a high of about $100 in 1997. Those employees who retired then got something back from their sacrifice. Now the stock is worth about $1.

Supposedly, the ESOP meant that the company was now “employee-owned” with workers “owning” 55 percent of the stock. But it was not “employee-controlled” of course. On the Board of Directors the IAM had one person, the pilots one, and one was reserved for salaried employees. The rest were the creatures of the private investors, who continued to run the company as always. The IAM’s representative was appointed by the top IAM officials. He never once voted in any other way than with management. The pilots elected their person, and the bosses appointed the representative of the salaried people as well as their own.

A negative thing developed. Union solidarity began to erode, as workers thought of themselves as “owners.” Representatives of management were invited to speak at union meetings. The IAM newspaper began to run articles by management, and the IAM pushed the line that labor and capital were one big happy family.

Management also promised that when the contract was up for changes in 2000, there would be a “seamless” transition. Guess what? Management lied! When negotiations began prior to the end of the old contract, it turned out that the company was playing hardball. In the six years since 1994, United raked in billions of dollars. The workers wanted to at least catch up with what workers at other airlines were getting . But that’s not what management was proposing.

Once the pilots understood that they had been had, they voted out their old leadership and put in a new one. In the summer of 2000, they began to refuse overtime, their legal right. This job action disrupted United’s flight schedules, and the company capitulated and gave the pilots the increase to bring them up to pilots in other airlines.

In the hidebound and bureaucratic IAM, however, no such leadership change was possible. And any thought of a real job action is completely alien to these preachers of the “team” concept of “labor-management cooperation,” wherein the workers always get screwed.

From the time the IAM contract was open for change in June 2000, the IAM conducted its negotiations in secret. We heard from IAM officials every once in awhile telling us things were going hunky dory, but without citing anything concrete. Negotiations dragged on while we were tied down by the terms of the old contract to 1994 wages.

Another union, the Aircraft Mechanics Fraternal Association (AMFA) had been seeking to replace the IAM as the bargaining unit for the mechanics and related employees. After the debacle of the IAM-recommended ESOP, and the foot-dragging by the company keeping us on the terms of the ESOP contract, anger at the IAM grew. Support for AMFA grew too.

AMFA had a lot going for it in the eyes of most mechanics. It is democratic. Its officers and negotiators are elected and can easily be replaced. Its negotiations are not secret but open to the membership. AMFA had won representation rights at Northwest Airlines, and was in negotiations for a new contract. Rank and file workers could sit in on the negotiations (if too many showed up, lots were drawn to see who would sit in). Reports were made weekly (sometimes daily) to the membership on what was going on.

An informed and participating membership is a mobilized membership, and this power resulted in the Northwest mechanics getting the best deal in the industry. After that, American quickly settled with their mechanics, organized by the Transport Workers Union, at slightly better terms than Northwest.

In the summer of 2001, AMFA turned in cards from a majority of mechanics at United calling for a vote for representation. These cards were turned into a commission appointed by President Bush overseeing the negotiations (the airlines are under the Railway Labor Act—not under the NLRB, which does not provide for such extraordinary presidential influence over labor contract negotiations).

The IAM officials, in collusion with management, then “found” hundreds of IAM “members” not previously accounted for. Among these were secretaries who had never been members or paid dues to the union, people in management, people who had quit the company 25 years ago, and so forth. Many of these weren’t even notified that they had become “members” of the IAM. So the government commission ruled that AMFA missed by six having enough cards to call an election—so the election that AMFA would have won hands down wasn’t held.

Finally, in the early months of 2002, with the hot breath of AMFA breathing down the necks of both the IAM and the company, a new contract was proposed that would bring us up to the level of American’s mechanics. But there was a poison pill in the contract. The IAM had pledged to negotiate new concessions if United said it might go bankrupt. But even so, the membership voted for it by a small majority. It’s this contract that the IAM just proposed be jettisoned in favor of the concessions United wanted. It was this betrayal that the mechanics rejected.

While the IAM officials were campaigning for a “yes” vote on the concessions, AMFA put out an email to the mechanics urging a “no” vote.

United workers face a tough fight. We have to face not only the company and the government under the Railroad Labor Act, but now the bankruptcy court.

We have one hand tied behind our backs by the IAM bureaucracy. United has made drastic cuts in its workforce already, and plans more. It may threaten to close shop entirely. Layoffs and company failures are part of this capitalist system. We shouldn’t accept the argument that we workers are the cause of such catastrophes, because we aren’t. It is always better to fight than to agree to being hosed.

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After reading the article by Barry Sheppard above, the editors requested information concerning AMFA’s challenge to the IAM for jurisdiction over airline mechanics, which posed the old question of craft versus industrial unionism and related problems.

Barry responded to our request below:

Concerning AMFA and the question of industrial vs. craft unionism, I will say that, unfortunately, AMFA is bad on this, and champions craft unionism. For me, the question comes down to this: is it better at this juncture to continue to support the IAM as against AMFA because at the airlines IAM seeks to be an industrial union? I think that the advantages of AMFA over the IAM outweigh that disadvantage. These are, as I indicated, that it is democratic, has a very small bureaucracy, the rank and file can make changes, and it is militant.

The key change in the IAM at United was its acceptance of the ESOP. This meant going over to the “team” concept lock stock and barrel. This remains the orientation of the IAM leadership today. It’s something like what happened in the UAW in the mid 1980s, when the bureaucracy agreed to concessions and adopted the “team” concept that led to the split of the Canadian Auto Workers. The UAW had many things wrong with it before, but that marked something of a turning point.

While AMFA supports the craft union idea, it does tend to be supportive of union solidarity. One example was the ILWU battle. When a worker I know wanted to bring leaflets to an IAM stewards’ meeting supporting the ILWU, she was blocked. When she brought them to an AMFA meeting she was greeted with open arms. The IAM refuses to support the AMFA when it is in a struggle, like the one at Northwest last year. But AMFA always supports the IAM when it is in a struggle. AMFA in general supports other workers in conflicts. This mitigates somewhat its craft union outlook, and could be a point of departure for uniting all airline workers in the future, although that would be a battle down the road.

We should also note that airline workers are already divided by craft, with the flight attendants and pilots, and in certain companies air traffic controllers, in their own unions.

Another factor to consider is that the IAM has already divided its airline workforce into two bargaining units, one for mechanics and related, and one for ramp workers and related. (Who is “related” has been determined by the government—aircraft cleaners are in the same unit as the mechanics.) The IAM leadership did this in an attempt to fend off AMFA, but in so doing, it went along with the craft union idea itself. In other words, it adopted what is wrong about AMFA while rejecting what is right about it.

So, which is better to support right now, the IAM with its industrial form, weakened by its division into two bargaining units, or the AMFA with its democracy and militancy which opens the road to taking further steps forward later? I favor the latter.

Fraternally,

Barry Sheppard