“Unknown Unknowns”

Based on the large number of SoundOff messages the APA leadership has received in recent days, it’s evident that our members have a variety of questions about the tentative agreement, the impact of“yes” vote on a potential American Airlines-US Airways merger, what happens in the event of a “no” vote, and other issues associated with the TA.

One common thread that has emerged from members’ messages: there is some resistance to the use of terms such as “could,” “might,” “likely” and other qualifiers by APA’s subject-matter experts. Many of you have expressed skepticism about this sort of noncommittal verbiage and have asked why the attorneys and other advisers representing our interests have been qualifying their statements in this manner. The fact is, we really don’t know what may happen in the event of a “no” vote. The legal process we are subject to in Chapter 11 restructuring doesn’t lend itself to predictability, and no pilot union has ever opted for potential contract abrogation versus ratifying a deal on the table. As former Secretary of Defense Donald Rumsfeld famously stated, “There are known knowns… There are known unknowns… But there are also unknown unknowns—there are things we do not know, we don’t know.”

The situation we find ourselves in contains a large number of unknowns, including those of the “unknown unknowns” variety. If our members vote to ratify the TA, we’ll never know for certain how the judge would have ruled in our case. (That noted, attorneys for APA, APFA and TWU employed similar legal theories in the bankruptcy hearing, so the rulings would likely be consistent for all three.) Conversely, if our members vote against ratification and the judge proceeds to rule in management’s favor, we won’t be able to predict how management will choose to proceed.

In an effort to shed some light on issues associated with the TA, the following questions and answers represent the beginning of a new series of Q&As specifically pertaining to the TA and potential contract abrogation that we’ll be publishing in the coming days in response to messages we’re receiving from members at large. We encourage you to continue sending the APA leadership your questions and views via SoundOff. By doing so, you’ll enable us to continue providing new Q&As that address your information needs. We will post TA Q&As in the “Rumor Control” section of alliedpilots.org and also in the “Tentative Agreement” section, both accessible via the members’ home page.

Q(1): If we vote no on the TA, I’ve heard that after the judge abrogates our contract, he will tell management that the “Last, best final offer” will supersede the original 1113 term sheet for future contract negotiations.

A: The judge doesn’t actually abrogate our current contract. Instead, if he were to rule in favor of management’s motion, he would be granting AMR management the legal authority to reject our collective bargaining agreement.Management would then decide what terms to implement, and they would probably implement their April 19 1113(c) term sheet. The terms of the “last, best final offer,” (LBFO) which represent a significant improvement over the term sheet, will not be taken into consideration by the court. Management’s LBFO is technically a section 408 “settlement offer” and separate from the 1113 process. The judge will not direct management as far as what specific changes to make to our current wages and working conditions once the contract is abrogated. That would be at management’s discretion.

Q(2): If we just vote no on the TA and take our chances with an abrogated contract, we should be able to get a shorter-term deal than the six-year deal duration in the TA, right?

A: In a post-abrogation scenario, management doesn’t create a new contract, they simply impose terms unilaterally. The “duration” of those terms would be until management decides to agree to a new contract with APA. Management would be free to impose pay, work rules and benefits that serve their needs. Once they have imposed below-market labor rates, it is unlikely that management would make significant improvements in pay and work rules that would increase their costs. They will have established a de-facto contract that solves their “cost” problem without having to bother with the collective bargaining process. In that environment, given the current state of the Railway Labor Act, it could be years before we could reach an agreement with management on another TA.

Q(3): Doesn’t management need a contract in place in order to get exit financing?

A: There is no statutory or administrative requirement in the bankruptcy process that states that management must have a contract in place in order to exit bankruptcy. AMR’s cash position has actually improved since their Nov. 29 filing and currently stands at more than $5 billion.As such, there is no need to obtain exit financing as most other carriers had to due to their poor cash position.

Q(4): If we vote yes on the TA, doesn’t that just empower the current management team and lessen the chances for a merger with US Airways?

A: Our advisers and experts have told us that the Unsecured Creditors’ Committee is focused on a resolution to the labor cost issue above all other issues, including merger offers. Until the issue of labor contracts has been settled, consideration given to an offer by US Airways or any other potential suitor is on the back-burner. While it may seem like reverse logic, our advisers believe that the shortest path to a merger with US Airways will be through a ratified agreement with AMR management. This will allow the focus to be shifted from the labor cost issue to the revenue and network issue, which the stand-alone plan fails to address.

Q(5): Isn’t it correct that we’ll be able to strike if our contract is abrogated or at least once we exit bankruptcy? Then we can force management to agree to an industry-leading contract on our terms.

A: In a 2007 decision by the court in Northwest’s bankruptcy, the Second Circuit made it clear that an order from the bankruptcy court authorizing a contract rejection does not in itself give the union the right to launch a strike in response to the carrier imposing new work rules and pay cuts. Upon exit from bankruptcy, with no contract in place, we will again fall under the auspices of the National Mediation Board and Railway Labor Act and begin a new round of negotiations.

Q(6): Isn’t this just a 2003 “bum’s rush” all over again? Why aren’t we following our normal requirements for a ratification vote?

A: Whatever your view of the events of 2003, the key difference is that a federal bankruptcy judge is determining our timetable in the current ratification process. Our members will be voting on the tentative agreement against the backdrop of a broader legal proceeding, which is AMR’s Chapter 11 restructuring. Federal judges have wide discretion and their direction takes precedence over our internal governance policies.

Q(7): Just a few weeks ago 7,500 AA pilots expressed “no confidence” in AMR management. How can we turn around and do a deal with them now?

A: A “yes” vote doesn’t represent an endorsement of AMR management or their stand-alone plan. Instead, a “yes” vote secures better terms of employment versus what we would end up with in a contract abrogation scenario. Despite what some may claim, the two choices we currently face are 1) the TA or 2) the unknowns associated with contract abrogation. The only certainty about contract abrogation is that we would be facing considerable uncertainty with respect to our terms of employment.