Major Legacy, National, and LCC


Old 08-05-2005, 10:51 PM
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Default APAPDP Update

PDP Special Update: Our Current Status

DFW Captain Thomas Westbrook has written an outstanding article on the current state of our company and our union. The article was originally posted on APA's Challenge and Response bulletin board.

With Captain Westbrook's permission, we have forwarded his article in its entirety. We urge you to take the time to read it carefully.

The release of the 2nd quarter numbers and the subsequent decision of the AMR Board to reward senior management with lucrative payouts under their Performance Plan have led to some interesting discussion. In my opinion, too much of this discussion has detoured into the same endless re-hashing of the decisions of 2 years ago. I would respectfully submit that whether we should have voted one way or the other, whether AMR would have or should have declared bankruptcy, whether the purchase of TWA was a good idea or the cause of all our current troubles, along with the parallel discussions of which union leader is to blame for where we find ourselves are all counter-productive to meeting the challenges we currently face.

Two years ago, we decided (for better or worse, whether correctly or incorrectly) to invest a large sum of money (I don't want to debate the details of how much we have invested) in the form of pay rate reductions and work rule changes. We also decided to devote a large amount of union volunteer time and focus on working with AMR to streamline operations and improve the profitability of the corporation. This effort was described by Mr. Arpey as "Pull Together-Win Together". Now that two years have passed, it is time to assess what management has done with our "investment" and decide where we as a Union need to go from here.

As some are fond of pointing out, any objective examination requires a look at the numbers. A fellow pilot suggested a list of measurements, which I have borrowed for use here, and I have added a few of my own. My numbers are all archived directly from the AMR quarterly and annual reports, APA status 15 manning and fleet numbers, and Eagle fleet numbers from the AMR web site. To keep things a little more simple, I will only look at how we compare today (2nd quarter 2005) with where we were when we signed the contract (1st quarter 2003).

American Airlines:

* AA Available Seat-Miles have grown a modest 11.779 percent (from 40.274 billion to 45.018 billion).

* This was done while the AA fleet shrank from 812 airplanes to 714 (12.069 percent decrease), down from its peak of 905 in 2nd qtr 2001.

* AA Revenue Passenger miles have increased 28.583 percent (from 27.838 to 35.795 billion).

* Load factor has risen from 69.1 percent to 79.5 percent, an increase of more than 10 percentage points.

* AA quarterly passenger revenue has risen 25.633 percent (from 3.394 to 4.264 billion).

* Total AMR quarterly revenue has risen 28.859 percent (from 4.12 to 5.309 billion).

* The number of AA employees has fallen from 92,200 to 75,100 (an 18.547% decrease).

* AA revenue per ASM has risen 11.957 percent (from 9.42 cents per ASM to 10.547).

* Total AMR revenue per ASM has risen 12.914 percent (from 9.749 to 11.008 cents).

American Eagle/Regional Affiliates:

* Eagle ASMs have grown 61.6 percent (from 1.987 to 3.211 billion) - Eagle ASMs have grown 82.755 percent from 1st qtr 2002 (3 year growth 82.755 percent, 2 year growth 61.6 percent).

* The Eagle fleet has risen from 286 to 343 (including the American Connection fleet) - a 19.93 percent increase.

* Eagle RPMs have increase 98.884 percent while Eagle Passenger Revenue has increased 72.086 percent. It should be noted that Eagle revenue reporting has changed and is still artificially set according to "industry standard proration agreements".

* Eagle load factor has risen from 58.6 percent to 72.2 percent, a 13.6 point improvement.

* Eagle employee count has risen from 11,800 to 13,400, a 13.559 percent increase.

Productivity results:

* The number of AA pilots has fallen from 12,410 to 9,610 - a 22.562 percent decrease and down 29 percent from a peak of 13,550 in 3rd qtr 2001.

* AA ASMs per aircraft have risen 27.122 percent.

* AA ASMs per pilot have risen 44.348 percent.

* AA revenue per pilot has risen 62.238 percent.

* AMR wage/benefit expense per ASM has fallen 29.585 percent from 5.271 to 3.712 cents per ASM.

* Fuel cost per ASM has increased 65.67 percent from 1.81 to 2.999 cents per ASM.

* This in spite of an 8.198 percent increase in our ASMs per gallon of fuel burned (from 55.55 to 60.104).

* AA revenue per aircraft has grown 42.877 percent (from 4.180 to 5.972) while Eagle revenue per aircraft has grown 43.489 percent (from 1.140 to 1.636). Eagle revenue per aircraft is 27.387 percent of AA's revenue per airplane.

* The percentage of Total ASMs being flown by Eagle has risen from 4.702 to 6.658 (a 41.6 percent increase).

* AA generates 63.05 million ASMs per airplane per quarter, Eagle produces 9.362 (14.848 percent of AA efficiency).

AMR financial position:

* At the end of the 1st quarter 2003 AMR reported its cash and short term investments as 1.272 billion plus restricted cash of 550 million - for a total of 1.822 billion.

* At the end of the 2nd quarter 2005 AMR reported cash and short term investments of 3.4 billion plus restricted cash of 492 million - for a total of 3.891 billion. This is an increase of over 2 billion dollars in 2 years.

* Including the present value of operating leases (which is the method AMR insisted on using in 2002) Total AMR debt at the end of 2002 was 21.305 billion (13.17 billion in debt plus 8.135 billion in present value of operating leases).
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Old 08-05-2005, 10:52 PM
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* At the end of 2004 (last point we have operating lease numbers) AMR reported long term debt of 12.436 billion plus present value of operating leases of 6.291 billion for a total debt of 18.727 billion. This is a decrease in total debt of approximately 2.5 billion in 2 years.

* This debt number includes 2.4 billion in debt incurred to purchase airplanes during the last 2 years (554 million to buy 9 767-300s and 2 777s in 2003, plus 473 million in 2003 and 1.4 billion in 2004 to purchase 60 regional jets).

* AMR's debt to asset ratio at the end of 2002 was .704 (which compares to AMR's debt to asset ratio in 1991-1994 of between .739 and .761). AMR's debt to asset ratio at the end of 2004 had improved to .651 (better than 1995 and 1996 - .683 and .663 respectively). As a point of reference, the best annual debt to asset ratio reported since 1991 was .522 in 2000 just prior to the TWA purchase.

* Pension data is hard to come by; the last year in which we have actual numbers is 2003. During calendar year 2003, AA contributed 350 million to the Pilot A-fund plus 168 million to the Pilot B-fund. End of year asset balance for the A-fund at year end 2003 was 1.704 billion, up from 1.297 billion at year end 2002 (this in spite of a spike in benefits paid in 2003 - 240 million, nearly double the normal annual benefit amount). We won't know until December how much AMR contributed to the various funds (the 2004 report is not released until 11 months after the year is closed out), but they have reported over 320 million in defined benefit contributions for 2004 and planned 310 million in defined benefit contributions in 2005.


By any objective measure, American Airlines has dramatically improved its balance sheet, costs, and efficiency. AMR's debt and cash position improved 4.5 billion dollars over a 2 year period while reporting only a modest profit in 2 isolated quarters. The numbers clearly show that the vast majority of the improvements have come through employee wage and manning concessions. While pilot efficiency has improved substantially more than general employee efficiency, both measures have improved to the point where we are approaching the efficiency levels of Southwest. Eagle efficiency has improved as its fleet has changed from turboprops to jets (faster and more seats yields greater efficiency) yet continues to significantly lag AA fleet efficiencies. Even with the artificially high revenue allocation, Eagle continues to operate at a loss - when the 1.8 billion in Eagle jet purchases (not to mention the interest expense on this additional debt) is taken into account, the Eagle deficit is simply enormous and continues to grow unchecked.

These improvements in efficiency (AA ASMs per pilot up over 40 percent) have gone largely unheralded and in the case of pilots have come despite ongoing public complaints from senior management that pilots are "unreliable" and are using too much sick and other leave. The most recent HI-6 to this effect was issued just this weekend. Union leadership has joined this chorus (rather than trumpet our contributions) lecturing pilots on the need for professionalism (which automatically implies that they think we are lacking in that department).

Other, less visible, measures than these point to still more work left to be done. A few pilots have done a masterful job documenting the glaring deficiencies in our customer service and operational areas. They continue to highlight AMR's failure to improve Survey America scores or to make significant improvement in how our customers perceive our level of commitment to their interests. This lack of improvement reveals a fundamental failure of management to meet its obligation to manage the product we create, either through the management of the resources and systems required to produce that product or through the motivation of the employees delivering the product. This lack of product focus threatens to undermine all of the significant good done through our sacrifice and poses a real threat to the long-term future of the company. Now that our financial situation has been put on the right track (again in large measure through our sacrifices and the sacrifices of other employee groups), we simply must insist that AMR management do the job of improving our product (of which customer service is a part).

By any objective measure, the employees of American Airlines have "pulled together" over the last 2 years. Neither our Union nor our management have publicly acknowledged the results of this effort, nor have they publicly acknowledged the leadership role taken by the pilots of American Airlines. We have led not only through our financial sacrifices, we have stepped up and worked harder, and we have led the drive to streamline our operation (even when that streamlining cost us jobs and advancement opportunities). The question now is simply this, when does the "win together" start and what form will that take?

While there are obvious ideas - pay raises, stock options (including extending the expiration of existing options), improvements in vacation, reserve, scheduling - there are other areas we should look at as well. For example, in spite of the talk of a "new relationship" no fewer than 5 pilots have been fired in the last year in what can only be described as an aggressive attempt by Human Resources to bring pilots under the same disciplinary umbrella as other employee groups. The relationship between the pilots and Crew Schedule is nothing short of dysfunctional and often abusive. The company continues to pressure our scope clause (the expanded excess bag letter) and if some APA Board member's characterization of the circumstances surrounding the Delhi flying is accurate, AA continues to bargain over safety issues using the same old "do it our way or we just won't do the flying" approach. AA continues to stretch our pilots to the breaking point with circadian rhythm disruptions (2-on 2-off all niters) then complains as these pilots grow fatigued and call in sick. In spite of the tremendous amount of effort being expended by APA in safety and operational efficiency improvements, the cost of the union leave required to have union officials attend the meetings is being borne solely by the pilots through their dues money.

In short, the "win together" needs to start now and it needs to involve more than just money.

We as an association must begin to hold the company publicly accountable for continuing to undermine the very relationship they (AA) claim to want. We need to decide among ourselves what our financial priorities are and begin the process to prepare for Section 6 openers next spring. We need to begin developing the strategies and building the organization that will bring the public pressure needed to shame AMR (if need be) into fulfilling their end of our bargain. We need to insist that the company address the customer service deficiencies in order to safeguard our investment. We should stand up and demand that the company recognize (in ways other than mere words) the contributions of its employees (as well as the leadership role the pilots have taken) in achieving substantial improvements in efficiency and cost. This association needs to recognize that AMR's position has improved substantially since the spring of 2003 and it is high time we begin the process of rebuilding our pay and working conditions. We need to move beyond our endless arguments over the decisions of 2 years ago and actively work to find ways to work together even when we differ on individual issues.

The members of this association who refuse to participate absent a crisis must be approached and convinced that the company will continue its present course unless they come off the sidelines and begin to actively demand that we pilots participate substantially in "win together". While it is understandable that our financially strapped members are busy taking care of the necessities of their lives, they (we) must be willing to make at least some effort to participate if we are going to improve our profession. This mess will not fix itself and we need to talk to our fellow pilots and convince them of how important it is that we all participate.

All of this information is publicly available; one does not need special access or secret briefings. What is needed is the effort to look beyond the headlines, read the fine print, and connect widely separated pieces of information. It serves the company's purpose to convince us that things have not really improved; it is all part of the process of managing our expectations and getting us to self limit our demands. Our leadership should be more wary of the risk of being used in that process (convince the leadership through "special access to the real numbers" and get them to convince the membership to limit their demands). The AMR Board is sufficiently pleased with our progress to reward the senior management for their role in our recovery; we should not be shy about taking credit and demanding compensation for our role as well.

These issues are complex and it is important to look at all of the data in order to reach an informed opinion.
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Old 08-05-2005, 10:52 PM
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