Quote:
Originally Posted by Jeff Lebowski
American will come out of this thing the General Motors of airlines. Still around, but in greatly reduced form.
They've run out of room to maneuver thanks to their debt and all their previous bankruptcies. And with all the strings attached to those federal dollars, their options are pretty slim. If and when they declare Chapter 11, the feds will force them to make the kinds of cuts that GM executives had to make back in '09. They will have to spin off everything that isn't essential to the business to pay down debt and move forward.
GM lost Delphi, GMAC, a whole slew of brands (Hummer, Oldsmobile, Plymouth, etc.) and shuttered their most inefficient factories to consolidate production. They extracted huge concessions from the UAW. They all but abandoned the passenger sedan segment to focus on the one thing that still made them money: trucks and SUV's.
I realize the analogy isn't 100% perfect, but as a blueprint of how a major American corporation integrated into the fabric of everyday life confronts an existential crisis, the GM bankruptcy and bailout is pretty instructive.
I was pretty young when the auto industry was bailed out, so I had to do some digging after reading this. I really don't think your comparison has any merit....
The restrictions imposed on GM were massive and far reaching. In taking the cash, GM agreed to:
-Selling their corporate jets
-Slashed the pay of union workers, and laid off thousands of workers
-Unions were banned from striking (probably not enforceable)
-Streamline number of brands produced (sold off the Saab, Saturn, and Hummer brands)
-Government bought 60% of the company in warrants for common stock and preferred stock. A union health trust received 17.5% stock ownership in exchange for delayed contribution to a health trust fund for retirees. Canadian govt bought 12% stock ownership.
-Executive compensation reduced to essentially $0
This was all agreed to before taking government cash.
Compare that to what AA has agreed to in exchange for government assistance:
-Prohibition on stock buybacks for one year after government loans are fully paid back
-No issuing of dividends to shareholders while receiving aid (can be waived by treasury department)
-Executive compensation capped at 2019 levels
-Stock warrants worth 10% of the loan amount that exceeds $100 million. These are non-voting shares
-Airlines must maintain a certain level of service between cities
-Guaranteed employment and recall of any employees subject to furlough for a set time frame
Really, the airlines were just given low interest loans and grants, and a few other minor impositions. A drastic difference to what was imposed on GM.
Quote:
Originally Posted by NotMrNiceGuy
Just curious, why do you draw your analogy with GM and not Delta? Is it because they both took federal dollars as opposed to Delta? In that case, could American have possibly declined federal dollars and elected to go the traditional bankruptcy route? I understand this would lead to pain through the annihilation of labor contracts and would ultimately hurt all labor contracts across the industry. However, the airline bankruptcies from 2005 through 2013 ultimately strengthened the industry. Juxtapose that with the auto industry that was “saved” by the federal government but has struggled ever since. Just curious what everyone’s thoughts are regarding the best path forward. Maybe even discuss what should have been done differently with 20/20 hindsight.
Off topic but the auto industry bailout is widely considered a giant success
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