Editorial Board Interview with Doug Parker, Laura Glading, APA and TWU – 6.18.12

Star-Telegram editorial board meeting with US Airways, Allied Pilots Association, Association of Professional Flight Attendants and the Transport Workers Union

(Introductions are made.)

US Airways chief executive Doug Parker: I should start by pointing out or hopefully you have already noticed the fact that we’re able to show up here with American’s labor leaders with us is we think really noteworthy. It’s noteworthy in our business that the labor union leaders can be of one mind and work together, these three labor unions have done a fantastic job of going through a really difficult time for their constituents and try to come up with solutions that are better than what are already a really bad situation, the company filing bankruptcy and trying to come up with a different plan that will be better for their constituents.

So they’ve all hired, in addition to having their own really strong teams, they’ve all hired really strong advisors to help them figure out what is best for their constituents and they have come to the same conclusion we have with our advisors: that putting together US Airways and American Airlines creates an airline that is strong enough to compete with United and Delta that creates a network that can do that. Once you do that you have an airline that therefore creates a higher level of revenues, create higher revenues you can do more for those people that work for those airlines. That’s true for the people at American. That’s true for the people at US Airways. We can’t do as much for our employees as much as I’d like to, we can’t do as much for them as a standalone airline as we can combined with American because combined with American we create all sorts of value in a network business that we can’t do standalone. And similarly American Airlines can’t do as much for their employees in a standalone environment as they could do combined with US airways.

So by combining these companies we create a network that can compete with United and Delta we should be able to therefore have an airline that can compensate people the way United and Delta do something US Airways can’t do on a stand alone basis but would be able to do in this combination. And we therefore have been working with the people you see here today to make that happen.

We’re very pleased, how long ago was it now, a couple of months ago when they signed on with their support for such a transaction and we’ve been working together since on ways to do that at the same time of course, American is working through its own standalone bankruptcy filing process that’s affected these people a lot more than US Airways. They’ve been going through the 1113 process which is again they can talk about a lot better than I can. But that’s been going on as well.

But the long and the short of it is, we believe we have an idea here that can create a stronger airline, take care of all the employees and also take care of the creditors of American Airlines better than a stand alone airline can. It’s better for US Airways shareholders. The value that’s created by putting two companies together and two airlines together allows you to share a lot of that with employees and have some leftover for bondholders and investors as well.

The net result of this would be, we think, only good for Texas or Fort Worth or for the Metroplex, it would create an airline that is stronger than American is today that flies to more places and allows the customers of American to fly to more markets than they can today. The two networks are so complimentary we will need all the airplanes of both companies we need all of the employees of both companies. We would need all the hubs of both airlines. Dallas itself just as it is with American would be the crown jewel of the combined airlines, it is the best part of the network is the Dallas/Fort Worth hub and it will always be that of course, but it would be even stronger because the company would be stronger, so we certainly think it is in the best interest of the Metroplex.

Star-Telegram editorial board: Why are we here today? You don’t have any money on the table, or have made an offer? There may be better or at least other offers later?

Parker: What I tried to say at the outset which is I do think you’ll see more of this start to move in the coming weeks and wanted to give you a chance to know before you start to see at least some ideas what we’re trying to accomplish. But if you’re asking about process, the process is a bankruptcy process which has its own rhythm, a process we have to respect and we do respect and we need to let play out its course. Where that process is right now is this painful 1113 process that is not complete. What we understand is once that is complete there is a merger protocol that will take place that falls behind that and what will happen then will be working with the creditors through looking at alternatives to this table of time and I believe that will happen shortly after the 1113 process concludes. We’ll move through that process.

ST: The union leaders here with you today, you’ve put a plan in front of them that they like better than American’s plan?

TWU International president Jim Little: I can speak to that. I think there are two parts and I certainly can’t..let me only speak on behalf of the Transport Workers Union. Me personally, I have a long history at American Airlines probably over 37 years in a number of jobs throughout my career. And I’ve watched a lot of good management at American Airlines and a lot of good decisions that were made. However, it’s like that old story that if you start digging a hole and you’re getting too deep and you see that you’re not going to go anywhere you better stop digging. And American’s structure has continued to do that, has continued to dig in this hole.

I’ve seen over this period of time labor relations deteriorate. I’ve also had the opportunity to, fast forward, to going through this bankruptcy process. We had two contracts over a period of time that were negotiated and out for ratification. American filed for bankruptcy and during that time frame I heard a lot of rumors. I heard rumors about Delta. I heard rumors about some investment companies possibly interested in American Airlines and I also heard some rumors about US Airways and I also saw American Airlines’ business plan when they first introduced it to us. And to me, it was business as usual. I didn’t see any unique opportunity for American moving forward. I saw concern that I had on the security of our members, the employees of American Airlines.

And I reached out to Doug Parker and said ‘are you guys serious? Or are you guys just trying to be a spoiler in the process.’ And he said ‘no, Jim, we are serious.’ And I said ‘well did you have something you can share with us to show us how serious you are?’ And he said, ‘I can.’ And he said ‘I will be more than happy to share that with you with my top officers.’ And they did. I was there myself, no pressure. And we had four contracts at US Airways already so I already heard from my locals and my people about hey what do you think about the management and I will leave that for my last comment. And so I went there and I was very impressed because you don’t have to be in the airline business to see that the model they have put together and the plan they have put together makes a lot of sense. It’s not smoke and mirrors, its true synergies and provides a lot of resources for American.

And what I felt good about and I left that meeting and I said you know what I finally see that American can be back to number one again. Whether management chooses to recognize it, I would be hopeful that they would kind of work together with US Airways in this point and time and find a way to jointly come out with a plan, I don’t see that happening.

And as Mr. Parker said, we’re in a situation where we’re going through a bankruptcy process. It’s not up to labor unions to come out of a bankruptcy in a positive fashion. There is a process and quite frankly one of my advisors said to me, ‘Jim, in 32 labor related union labor related bankruptcies, how many do you think the labor unions came out with a win out of 32?’ And I said ‘I don’t know, five’. And she said ‘no, try zero, put that on.’ And I’ve been struggling with this whole thing that I really see that out of all the options that are available, whether it be Delta or whether it be investment companies and looking at US Airways and what they’re plan was, it makes the most sense. It makes the most sense.

ST: So what if American bought US Airways? Does that make sense?

Little: No. And here’s why. I think there has to be a shift in the way that we do business and one of the things that I’ve talked to not Doug Parker but to his other officers, Robert Isom for example, who handles the operations, we’ve got to do business differently. Because we’re seeing the airline industry, we haven’t seen an evolution, we’ve actually seen it dissolve. And unless…the small options are available, whether it be us airways and American really has to happen, were there other more beneficial mergers yeah there surely was. But they never pulled the trigger on it, and the ones we pulled the trigger on turned out to be disasters. And I can go right through it. AirCal, the only thing we ended up with were the people. Bad decision. We picked up TWA the only thing we have left is the people. So all these decisions that were made on mergers the ones that we didn’t capitalize on were the potential for Northwest Airlines. We had our advisors look over this over a period of time, it was a perfect opportunity, Pacific Rim so forth…there’s not a lot left. And if American management doesn’t realize that this something that will really benefit us in the future and like I said to Robert, I said we have to reposition ourselves to take on the rest of the industry and if we don’t do this, and as you were saying if it goes the other way, I think we may lose on the opportunity to have a different management style on this.

ST: So a different management style is what you’re after on this?

Little: And also I think security. I think as a representative of our members, I think we owe it to try to find if there is a partnership available. And one of the things I liked about US Airways in talking to their management is they were open-minded to a process. One of the things we do really well and I represent 7 contracts on the property, not just one, we have spent a lot of time in saving the company a lot of money by doing work in house. I’m very proud of that that 90 percent o four aircraft maintenance is done in house. And I think there is a good story to tell but in the same story in all fairness to US Airways they can’t appreciate it because they don’t have access to American Airlines internal documents to see is it better or is it not.

But they’re open-minded to it and like I said to Robert Isom I said if we’re doing something better than the original manufacturer which we are, we can show them, he said Jim, hey, I’m in, and we’ve explained to them the benefits of some of the things that we do well, they’re in but they’re at a disadvantage. But with US Airways I save a lot of cities. I save cities that a potential because our people are not going to be displaced from those cities and I think US Airways very clearly said that makes sense we’re going to take a look at it. The way they staff.

Look it’s not going to be a panacea, this is a competitive industry and I’ve been around this industry for quite some time I’ve seen the ups and downs, one value that I have is I don’t just have people at American, I have people at US Airways, people at Horizon, people at Alaska, other carriers and we know what the trials and tribulations have been, but where we are today, forget about the past, I can’t undo the past, but one thing I can do is see if the future if we can have any insight or any say in what happens  in the future than American has to make a major move and it has to be something that makes a lot of sense and the synergies that US Airways brings on the East Coast actually brings American in a lot of markets back to no. 1 again.

But it has to change the model, we can’t do business as usual. That’s my problem. My problem is when American showed me the business plan there is nothing new, except they are going to bring the more premier passenger back on American. How are they going to do that? You don’t think United is going to try to do that? Other carriers are, so I asked them what are you going to do differently. We’re going to continue doing what we’re doing because we do it well. Bad answer. You can’t continue doing things the way you’re doing. You gotta look at thing differently and the model that I saw made a tremendous amount of sense and I haven’t seen a downside to this.

APA national officer Scott Shankland: You asked earlier what is the significance of having the three labor groups here with US Air and what shouldn’t be lost on this group and I’m sure it isn’t the common denominator for successful mergers is having labor on board. And the fact that we’ve been able to team up and have been able to sustain that partnership now for months is significant and that’s why we’re here. We ultimately, we as labor groups have decided this is where the future of this airline needs to go. We’ve had years of failed shrink to profitability strategies and we’ve studied like you said, we got all the great consultants that looked at all these different scenarios and we’ve examined them and we’ve determined that the future for this airline, not just for the airline but for all the employees, for the passengers, even for north Texas since it is so important to this area, the future of this airline is one that includes a merger with US Airways, that is where we ultimately want to end up and it’s the future that we’re all pursuing, that’s why we’re here and that’s we’re partners. And having labor on board, really, really brings a lot to the table and Wall Street has taken notice and even the unsecured creditors committee is taking notice that is what will make this merger eventually get it on the playing field and make it come true, I believe.

ST: But you’re not married to US Airways, if another deal comes to the table and it’s better for your seniority will you go with the new deal?

Shankland: Well we’re committed to this plan. We’ve signed agreements. We’re committed to this plan. Now the bankruptcy process it has a course and its going to follow and as labor groups we all have to participate in these different tracks that we’re on. But we have partnered with US Air and we’re doing what we can to support that plan and help it come to fruition.

Parker: If I can, they’re supposed to do what’s best for their constituents. We expect that [APFA president] Laura [Glading] will do what’s best for the flight attendants. [APA president] Dave [Bates] and Scott will do what’s best for the pilots. Jim will do what’s best for his members. But what we believe is there is no other plan that can generate the value ours can so we’re highly confident this will be the one that prevails.

ST: Say that American Airlines ends up costing more 1.5 times what you expect it’s going to, where does that money come from except from these people (labor)?

Parker: Let me try to explain. The way this would work is it would be a stock for stock transaction and there is enough cash in both the companies that does not, we’re not even certain it requires any sort of investment whatsoever, so what you’re really talking about a merger, taking the two companies together and putting them together, combine the stock, and that’s how the transaction works. To the extent, there is a cost issue… I’ll tell you what that means, what really happens is you put the two companies together there is a lot of value created. The fight becomes as everyone, or some, try to fight for more than their fair share of that pie. And that some is generally going to be bondholders who loaned money to American Airlines and they’re not going to get paid back in full and they’re trying everything they can to get back every penny that they were paid as they should. But we will be able to give them more than American can stand on but they will fight for we want more versus the US Airways shareholders, versus the labor unions etc. that I think is the issue.

ST: If it ends up costing you more than you think the transaction will, what will happen to these folks?

APFA president Laura Glading: Wouldn’t that only happen if there are other plans competing? Really, right now it is just the standalone or US Air. So there would have to be other people who show up and they haven’t yet expressing an interest to drive that price up.

ST: No. It’s still these folks buying these folks and there is nothing on the table yet.

Glading: There’s nothing on the table because the books aren’t open. But let me answer your question a little bit. This second question and then I’ll go back to your first question. First of all when you talk about well it’s going to cost you more for these folks. All we’ve ever asked for and all we’ve ever been offered by US Air is a market competitive contract. So we’re not asking for anything more than anyone else is making at a network carrier and that’s a fair square deal. What kind of airline are you going to be able to run if you’re paying your employees far less, 30 percent less with the term sheet American has offered the flight attendants than any other carrier. How enthusiastic, how are the flight attendants going to embrace a plan like that?

Let me also say this, I’m here because I think that this merger is really the only best last chance for American to be competitive. And like Jim, I’m a long term employee, 34 years with American Airlines, can remember very clearly the days where I would put my uniform on and hope for people to ask me what I do and who I worked for. I mean pride can’t begin to describe what we all felt like back then. And we have watched, particularly in the last six years, American Airlines do a virtual nosedive. What is going to stop that freefall? Until somebody else takes over, there’s a merger. We see what happens with the Delta, United and how they’ve been able to be successful with those mergers. It’s the obvious answer.

And like Jim, I met alone with the US Air folks. It was completely independent for all of us, it was a completely independent decision. But not to say I didn’t consult with a lot of people. Having been president for a while now and gotten to know so many of the analysts, sure I called all those analysts. I asked the Jefferies, our financial advisors. I asked everyone I knew in the industry, what do you think? Everyone seems to think this is a great idea. Everyone seems to think that this is the way American Airlines is going to survive. And if American Airlines came up to me tomorrow and offered me the same package as US Air, even a sweeter deal, I would still be for this merger. It’s not really so much what’s in the contract as it is having a future, getting back that feeling that we had 30, 40 years ago when we first put the uniform on, getting the best airline possible. I firmly believe this opportunity will get us there. That’s why I’m here.

ST: Are you guaranteeing that everyone that is employed there will have a job?

Parker: In the terms that we have with these guys [points to APA and APFA] yes, there are “no furlough protections” for the existing employees.

ST: There were seniority integration issues with the American-TWA merger. Who gets seniority if US Airways/American Airlines are merged?

Glading: I’ll take that one. Because we really screwed up on that big time with the flight attendants. When we merged with TWA, the company did give them top pay but we stapled them to the bottom of our seniority list. That was a mistake. But we did. So before at that time though there wasn’t the Allegheny–Mohawk provision was not legislated. Since then in December of 2007, McCaskill–Bond put together an amendment to the omnibus bill that said that seniority integration has to be agreed upon by the parties, if it’s not it goes to this binding arbitration process. So now we have this backstop. That backstop will now be in place for the pilots.

As you know the East-West pilots at US Air still have a bit of a struggle, the TWA [pilots] still have a bit of an issue with the seniority at APA, so we’ll have a way of ending all of that and integrating. I have said publicly and privately and in my sleep that I would be very much for a date of hire seniority integration. That’s what AFA would like and I’ve talked with AFA every day. We’re all very enthusiastic about this. I don’t want to speak for them, they’re in contract negotiations but I can tell you, I do not see any upset with this seniority integration for the flight attendants at least.

Little: That’s the same thing with the IAM on the property. I told them I said my preference would be integrating, dovetailing everyone together I said because you end up spending the next X amount of years you’re on the property all complaining about seniority. And my first incident with American on seniority integration was going back to TransCaribbean. I still know people who worked for TransCaribbean who are still complaining about seniority and that goes back to 1970. So seniority is an issue that you deal with. So I think I’ve always taken the position, even though it didn’t happen with TWA as you brought up, we arbitrated it and we ended up coming to a compromise and we ended up locking cities in and it wasn’t quite dovetail but we did give them 100 percent of the cities they wanted, I’d like to go to the next step because I’ve always believed they should be dovetailed.

ST: Laura, what was the term you used on how these would be put together?

Glading: Date of hire or the Allegheny-Mohawk?

ST: Date of hire.

Glading: Date of hire. Meaning we’d go back to the date you were hired by your company whether it was US Air, or American or America West and that would be your seniority date and you would all be integrated in that fashion.

ST: So one union on this side and two unions on the other side would all be merged into one?

Glading: Well it would be merged into one union as well. What we would do there, I don’t know because, well that get’s a little bit more complicated because the National Mediation Board changed the rules for representation. So right now it’s sort of questionable whether you need 50 percent of the membership or 65 percent of the membership but either way I think all of our unions have 65 percent of the membership so it wouldn’t even necessarily trigger a representation election. What I’m saying is at the end of the day one union will be representing all the people of American with the combination.

ST: What will the name of the new company be?

Parker: American Airlines

Little: That was one of my first questions.

Parker: Headquartered in Dallas (pause) Fort Worth

ST: We say that the other way, there is only one city for the headquarters and that’s in Fort Worth.

Parker: The headquarters are in Fort Worth. I worked there. I know where it is. American is the stronger brand and American Airlines needs to be headquartered in Fort Worth.

ST: So will an offer be coming from you shortly? A formal offer for American?

Parker: We are following a process, a bankruptcy process and we aren’t driving the process. American is in bankruptcy and we are told that part of the process is going to include that the creditors committee at looking alternatives and we’re certainly hopeful that’s the case because if it is we would love to participate in that. We’re waiting for direction from the committee.

ST: So the trigger would be the creditors committee saying we are willing to entertain other offers?

Little: American still has its exclusivity. Until the judge changes that position they are inhibited from doing that unless the creditors intervene or whatever and that’s why I agree it’s a process and right now we’re going through the process. The creditors have told us directly and indirectly they are not going to do anything until the 1113 process has been satisfied which is this week unless the judge changes it. June 22 is the final day. After that happens then I think we’ll see some changes.

ST: How fast?

Little: How fast we’ll see the changes?

ST: After the Section 1113?

Little: I don’t know. I don’t have a crystal ball but I wouldn’t think it would be too long I mean weeks, a couple weeks or so.

ST: Will you be ready?

Parker: We’re ready.

US Airways executive vice president Elise Eberwein: We’ve been ready.

Little: I think they’ve been ready. I think they’re (inaudible)

Parker: We’re absolutely ready.

Little: My only disappointment though is that I think if we would have had these discussions on a mutual basis with American and US Airways we may have been able to save Alliance Airport. I think there is an awful lot of value there. It’s a diamond in the rough. But again, I don’t think US Airways could even consider it because they don’t know the, they don’t have access to all the documentation. They don’t see a value there yet and I don’t expect them to. But I think if they had done it differently as a mutual agreement but I don’t see that happening.

ST: Surely at some point in this process of negotiating with the creditors committee 
There would be an opportunity to look at the books?

Little: I think they’re too far down the road. I’d like to say yes but I think it’s a little too far down the road.

Glading: You also asked, said something about American taking control. So if they came out as a stand-alone and American buying US Air and being under the control of American. Part of the problem with that, that I see and again this isn’t just, I understand I’m a flight attendant but I have spoken to many analysts and they agree. It would be very very risky to come out of bankruptcy as a stand alone and then have American to make a move because you have people like Delta who will be standing in the wings, looking at USAir being able to possibly buy them with some antitrust issues yes but the ability to pull back on some slots and some flights, acquire USAir and then American is hanging out there and I just don’t know how long we’d survive like that. I think we’d be sold apart in maybe a year, maybe two, possibly three. But I don’t see American Airlines surviving after that. And I don’t see Delta letting American come in and buy USAir. I think there’d be other bidders. I could be wrong and Doug may have a different view of that. But the analysts that I’ve spoken to share that concern. It’s a risky, risky business. And for all the reasons that Jim so eloquently said. We need new leadership, new direction, a new game plan and that’s that. And it’s not personal. I mean we’ve all gotten to know quite well…

ST: Come on…yes, it is…

Glading: No it’s not. I swear to God. It really really isn’t. I have actually liked these guys. I really liked Gerard Arpey. How could you not like Gerard Arpey, one of the kindest, gentlest souls that ever walked the face of the earth. I got to know these people. I’ve work with them all the time. Jeff Brundage I’ve known 20 years. You know who their family members are, you know their families. I’ve met with Tom Horton. They’re nice people. They’re good people. But it’s like going for a job interview. Here’s this package and what they have to offer and here’s that package and you wish these guys well. I’m sure they’ll do fine. They’re smart people. They’ve tried their hardest. It was nothing…but you know, but it’s just not working. It’s not working. And at some point you have to suck it up and say we have to move on. We have to move on. It’s only fair to everyone. It’s fundamentally unfair for the public, for the employees, for everyone to continue in a dysfunctional operation here.

ST: I think that’s important but I think [Doug Parker] is part of the package that you’ve all signed on to. The individuals that are running the other airline, you like better. You would see yourself in a better position with than these guys.

Glading: I see a stronger, better company. It’s not about Doug Parker. I didn’t know Doug Parker from Adam before all this happened. If somebody else approached and it was a different person, different name. It’s the package. It’s the business plan. It’s the merger. Take the people out of it. What makes more sense? Is there anyone out there who’s touting American Airlines and this leadership team should remain in control? Is there anyone saying that, other than Tom Horton and his group? No one else sees it that way. I think we’re much closer to it. But we’re looking at it in a very fair and objective way.