Freedom Line Blog

Big Labor is at it again.  This time in the airline industry.

As you’ve probably heard, US Airways has proposed a merger with American Airlines, and the latter’s labor unions have eagerly pursued contract agreements with their potential new employer.  A benevolent effort meant to expedite the process?  Hardly.  Rather, it is a hasty, thinly-veiled act of desperation.  Instead of allowing American’s bankruptcy restructuring process to run its natural course, and a stronger airline to emerge, American’s unions have acted in a manner that can only serve to muddle and complicate the situation.

Here’s the critical fact to keep in mind: American Airlines reached its current predicament due primarily to its onerous labor costs.  Its industry-high labor costs, representing fully 28% of its revenue, led to bankruptcy.  Now, however, its unions seek to repeat that futile process by pursuing similar deals with US Airways.  It defies history and economic reality to believe that a new merger under similar conditions would create such a magical synergy allowing the new contracts to be sustained for a lasting amount of time.

On top of that, successfully integrating two separate workforces into one can be a logistical nightmare.  After all, US Airways itself has yet to fully integrate the new employees it acquired with its 2005 takeover of America West Airlines.  Pilots from both carriers have engaged in an ongoing dispute over seniority and pay scales, and to this day US Airways and America West essentially operate as two separate entities, with US Airways pilots only flying US Airways planes and vice-versa.  How could repeating that scenario be expected to create sudden synergies or cost savings?  What evidence is there that this union-proposed takeover might play out differently?

Make no mistake – we at CFIF don’t maintain any inherent antipathy toward mergers.  We do, however, recognize the pitfalls and dangers of mergers suspiciously pursued and negotiated by union bosses.  The unfortunate reality is that this appears to be yet another example of Big Labor pursuing its own interests at the expense of the rank-and-file employees it claims to represent.

By way of historical background, the airline industry has changed rapidly over the years due to rising fuel costs and other market forces.  Countless carriers have restructured union contracts or merged with competitors to reduce costs and remain in the market.

American Airlines stands as the lone exception.

American has never merged with another airline, and until this year it had never filed for bankruptcy.  As a result, its unionized employees have enjoyed arguably the best salaries and benefits packages in the industry.  And in an ironic bit of history, US Airways has itself gone through several bankruptcies over the years, and even frozen or terminated pensions and many of the types of benefits they’re apparently ceding to American’s labor unions in hopes of a quick deal.

We live in economically uncertain times, in which the cushy union contracts of old have become outdated and fiscally unsustainable.  The fact that American, once the nation’s model airline, is bankrupt is itself evidence of how challenging it has become to operate in the industry.  Big Labor knows this well.  After all, it represents a significant percentage of the industry workforce.  Sadly, however, it refuses to learn the straightforward lessons of recent history, and instead continues to demand unreasonable contracts that will put the longevity and viability of airlines at risk.  In so doing, shortsighted union leaders place their own survival above that of their members.  They concern themselves primarily with replenishing their coffers and pursuing political victories financed by union dues.

That imprudent approach may benefit the union leadership in the near term.  But in the end, it proves to the detriment of average unionized American Airlines employees, as well as customers due to the reduced long-term viability of a bloated, union-controlled airline.  The alternative is to allow American the opportunity to right the ship and carve out a new, mutually-beneficial agreement with its employees.  Concessions will need to be made by both management and labor, and it will necessary for American Airlines’ bankruptcy proceedings to run its course.

The Big Labor alternative to repeat the unsustainable cycle will merely prolong the misery at the expense of employees and consumers.