    [House Hearing, 111 Congress]
    [From the U.S. Government Publishing Office]

                  PROTECTING EMPLOYEES IN AIRLINE BANKRUPTCIES

    =======================================================================

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                       COMMERCIAL AND ADMINISTRATIVE LAW

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               DECEMBER 16, 2009

                                   __________

                               Serial No. 111-61

                                   __________

             Printed for the use of the Committee on the Judiciary

          Available via the World Wide Web: http://judiciary.house.gov

                                   ----------
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                           COMMITTEE ON THE JUDICIARY

                     JOHN CONYERS, Jr., Michigan, Chairman
    HOWARD L. BERMAN, California         LAMAR SMITH, Texas
    RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr.,
    JERROLD NADLER, New York                 Wisconsin
    ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
    MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
    ZOE LOFGREN, California              BOB GOODLATTE, Virginia
    SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
    MAXINE WATERS, California            DARRELL E. ISSA, California
    WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
    ROBERT WEXLER, Florida               STEVE KING, Iowa
    STEVE COHEN, Tennessee               TRENT FRANKS, Arizona
    HENRY C. ``HANK'' JOHNSON, Jr.,      LOUIE GOHMERT, Texas
      Georgia                            JIM JORDAN, Ohio
    PEDRO PIERLUISI, Puerto Rico         TED POE, Texas
    MIKE QUIGLEY, Illinois               JASON CHAFFETZ, Utah
    JUDY CHU, California                 TOM ROONEY, Florida
    LUIS V. GUTIERREZ, Illinois          GREGG HARPER, Mississippi
    TAMMY BALDWIN, Wisconsin
    CHARLES A. GONZALEZ, Texas
    ANTHONY D. WEINER, New York
    ADAM B. SCHIFF, California
    LINDA T. SANCHEZ, California
    DEBBIE WASSERMAN SCHULTZ, Florida
    DANIEL MAFFEI, New York

           Perry Apelbaum, Majority Staff Director and Chief Counsel
          Sean McLaughlin, Minority Chief of Staff and General Counsel
                                     ------

               Subcommittee on Commercial and Administrative Law

                        STEVE COHEN, Tennessee, Chairman

    WILLIAM D. DELAHUNT, Massachusetts   TRENT FRANKS, Arizona
    MELVIN L. WATT, North Carolina       JIM JORDAN, Ohio
    DANIEL MAFFEI, New York              HOWARD COBLE, North Carolina
    ZOE LOFGREN, California              DARRELL E. ISSA, California
    HENRY C. ``HANK'' JOHNSON, Jr.,      J. RANDY FORBES, Virginia
      Georgia                            STEVE KING, Iowa
    ROBERT C. ``BOBBY'' SCOTT, Virginia
    JOHN CONYERS, Jr., Michigan
    JUDY CHU, California

                         Michone Johnson, Chief Counsel

                        Daniel Flores, Minority Counsel

                                C O N T E N T S

                                  ----------

                               DECEMBER 16, 2009

                                                                       Page

                               OPENING STATEMENTS

    The Honorable Steve Cohen, a Representative in Congress from the
      State of Tennessee, and Chairman, Subcommittee on Commercial
      and Administrative Law.........................................     1
    The Honorable Trent Franks, a Representative in Congress from the
      State of Arizona, and Ranking Member, Subcommittee on
      Commercial and Administrative Law..............................     2

                                   WITNESSES

    Mr. Chesley B. Sullenberger, III, Captain, US Airways Flight 1549
      Oral Testimony.................................................     4
      Prepared Statement.............................................     7
    Mr. Arnold D. Gentile, Captain, US Airline Pilots Association
      Oral Testimony.................................................    10
      Prepared Statement.............................................    12
    Mr. Robert Coffman, Captain, Director of Government Affairs,
      Coalition of Airline Pilots Associations
      Oral Testimony.................................................    19
      Prepared Statement.............................................    21
    Mr. Marshall S. Huebner, Partner, Davis Polk & Wardwell, LLP
      Oral Testimony.................................................    26
      Prepared Statement.............................................    28
    Mr. Robert Roach, Jr., General Vice President of Transportation,
      International Association of Machinists and Aerospace Workers
      Oral Testimony.................................................    36
      Prepared Statement.............................................    38
    Mr. Stephen Nagrotsky, Deputy Director, Airline Division,
      International Brotherhood of Teamsters
      Oral Testimony.................................................    46
      Prepared Statement.............................................    48

                                    APPENDIX
                   Material Submitted for the Hearing Record

    Prepared Statement of the Honorable Lamar Smith, a Representative
      in Congress from the State of Texas, and Ranking Member,
      Committee on the Judiciary.....................................    58
    Prepared Statement of the Honorable Henry C. ``Hank'' Johnson,
      Jr., a Representative in Congress from the State of Georgia,
      and Member, Subcommittee on Commercial and Administrative Law..    62
    Supplemental Prepared Statement submitted by Marshall S. Huebner,
      Partner, Davis Polk & Wardwell, LLP............................    63
    Response to Post-Hearing Questions from Arnold D. Gentile,
      Captain, US Airline Pilots Association.........................   133
    Response to Post-Hearing Questions from Robert Coffman, Captain,
      Director of Government Affairs, Coalition of Airline Pilots
      Associations...................................................   141
    Response to Post-Hearing Questions from Marshall S. Huebner,
      Partner, Davis Polk & Wardwell, LLP............................   145
    Response to Post-Hearing Questions from Robert Roach, Jr.,
      General Vice President of Transportation, International
      Association of Machinists and Aerospace Workers................   148
    Response to Post-Hearing Questions from Stephen Nagrotsky, Deputy
      Director, Airline Division, International Brotherhood of
      Teamsters......................................................   152
    Letter to the Honorable Steve Cohen from Brendan M. Kenny,
      Director, Government Affairs Department, Air Line Pilots
      Association, International.....................................   155

                  PROTECTING EMPLOYEES IN AIRLINE BANKRUPTCIES

                                  ----------

                          WEDNESDAY, DECEMBER 16, 2009

                  House of Representatives,
                         Subcommittee on Commercial
                                and Administrative Law,
                                    Committee on the Judiciary,
                                                        Washington, DC.

        The Subcommittee met, pursuant to notice, at 2:33 p.m., in
    room 2141, Rayburn House Office Building, the Honorable Steve
    Cohen (Chairman of the Subcommittee) presiding.
        Present: Representatives Cohen and Franks.
        Staff Present: (Majority) James Park, Counsel; Adam
    Russell, Professional Staff Member; and (Minority) Zachary
    Somers, Counsel.
        Mr. Cohen. This hearing of the Committee on the Judiciary
    Subcommittee on Commercial and Administrative Law will now come
    to order.
        Without objection, the Chair will be authorized to declare
    a recess to the hearing. I now recognize myself for a short
    statement.
        The past 9 years have been particularly difficult ones for
    employees of the Nation's major airlines. Of the eight largest
    U.S.-based airlines in 2001, five have since filed for
    bankruptcy. That is TWA of Howard Hughes fame, United Airlines,
    US Airways, Delta Airlines, and Northwest Airlines, with US
    Airways filing for bankruptcy twice in that time period.
        These are and were some of the Nation's oldest and most
    respected air carriers, those that were part of the original
    cohort of companies that established commercial aviation as a
    viable and ultimately indispensable industry. I remember Fly
    Eastern and all those other airlines that no longer exist,
    Republic, et cetera, et cetera. Their success, in turn, was
    based on the dedication and commitment of talented and
    hardworking pilots, flight attendants, mechanics, customer
    service agents, baggage handlers, dispatchers, and other
    employees.
        In some of these airline bankruptcy cases, the airline
    initially used Section 1113 of the Bankruptcy Code to change
    existing wage rates, work rules, and other terms of collective
    bargaining agreements, to the detriment of workers. For
    example, US Airways successfully petitioned the bankruptcy
    court to reject collective bargaining agreements with several
    of its labor unions during its second trip to bankruptcy, the
    first time an airline was able to successfully reject a labor
    contract in bankruptcy in 23 years.
        Similarly, United Airlines successfully convinced the
    bankruptcy court to terminate its collective bargaining
    agreements with new, harsher terms implemented in their place.
    United pilots, for example, took a 30 percent pay cut, less job
    security, harsher work rules, and a terminated pension plan.
        Ironically, Congress enacted Section 1113 to ensure that
    corporations would not use the bankruptcy process strategically
    to get out of their obligations under collective bargaining
    agreements. More specifically, Section 1113 was enacted in
    response to a Supreme Court decision that effectively allowed a
    business to reject the terms of a collective bargaining
    agreement unilaterally. Section 1113 imposed specific
    conditions for rejection of a collective bargaining agreement
    in bankruptcy.
        Notwithstanding congressional intent, the experience of the
    previous decades suggest that the Section 1113 process is not
    working as intended, at least in the context of airline
    bankruptcies. We will hear about some proposals to fix these
    problems from some of our witnesses today.
        Employees covered under Title I of the Railway Labor Act
    are exempt from the procedures established by Section 1113,
    which covers railroad workers and rail carriers. Section 1113,
    however, does not extend this exemption to those covered under
    Title II of the act, namely air carriers and their employees.
    Yet, in most cases, rail workers and air companies are
    similarly situated under the Railway Labor Act for similar
    situations and logical reasons.
        Some have suggested the existing exclusion of those covered
    by Title I of the RLA from the Section 1113 process could be
    extended to airlines and their employees, thereby requiring
    that any changes to the terms of collective bargaining
    agreements be done under the arguably more worker-friendly
    procedures outlined in Section 6 of the Railway Labor Act. They
    have also suggested amending Section 365 of the Bankruptcy Code
    to ensure that airlines are not able to effectively reject a
    collective bargaining agreement unilaterally.
        Protecting the rights of all labor unions is paramount.
    Last Congress, I cosponsored Chairman Conyers's bill, H.R.
    3652, the ``Protecting Employees and Retirees in Business
    Bankruptcies Act of 2007,'' which would have made broader
    changes to the Bankruptcy Code to help protect workers in the
    airline and other industries. I intend to cosponsor that
    important legislation again once it is introduced, as we need a
    reform of bankruptcy laws.
        I am confident that our panel of witnesses can sharply
    define the contours of the problem and help craft meaningful
    solutions. I thank them for being here and for their testimony.
    And I thank the witnesses for appearing today and look forward
    to their testimony.
        I will now recognize my colleague, Mr. Franks, for an
    opening statement.
        Mr. Franks?
        Mr. Franks. Well, thank you, Mr. Chairman.
        And I also want to thank the witnesses for coming to be
    with us today. I know it is always a trip, and I am grateful
    that you are here.
        And, you know, in all deference to the rest of you, it is
    not unusual, I know, for someone to recognize especially
    Captain Sullenberger, who is certainly a true American hero.
        We all owe you, Captain Sullenberger, a debt of gratitude,
    the Nation does, for saving the precious lives of so many on US
    Airways Flight 1549 this year.
        And I am glad he is a US Airways pilot. I fly on that one a
    lot, and I hope they are all like him.
        Mr. Chairman, bankruptcy law is often, really, about
    striking a proper balance between competing interests. The
    competition in bankruptcy between labor contracts and a
    successful airline reorganization has made modifying collective
    bargaining agreements one of the most difficult issues in an
    airline bankruptcy.
        And I know that rejecting collective bargaining agreements
    and reducing employees' wages and benefits is not something
    that airlines take lightly, nor do I. However, many airlines
    have been so constrained by unaffordable labor costs and union
    work rules that, without relief, sometimes reorganization would
    have been impossible. Now, this is why Section 1113 of the
    Bankruptcy Code reasonably attempts to balance the rights of
    unionized employees with the bankrupt company's ability to
    eliminate labor contracts.
        Collective bargaining agreements can only be rejected if
    rejection is, quote, ``necessary to permit reorganization of
    the debtor,'' unquote. Now, that is not true with nonunion
    employees; they can just be told the situation. ``And rejection
    can only occur after the parties have met to try to reach an
    agreement on modification.'' As you know, this has, Mr.
    Chairman, been something that, in many cases, there are several
    meetings, again, not afforded to workers that are not
    unionized.
        Some would like to make it more difficult for distressed
    airlines to reject collective bargaining agreements. But if
    airlines are forced to liquidate because labor costs cannot be
    reduced, employees will lose their jobs anyway and retirees, of
    course, will lose their benefits.
        I guess I use the example of US Airways again. It was the
    first--I think it entered bankruptcy in August of 2002, and, by
    mid-2004, management determined that a further realignment of
    its costs was unavoidable. US Airways entered into a second
    bankruptcy in September 2004, where it sought to rid itself of
    historical costs that made the carrier less competitive at the
    lower fare structures that had become the industry norm.
        During the second bankruptcy and as a result of steps taken
    to achieve a more competitive cost structure, US Airways was
    able to attract a merger partner. As it emerged from bankruptcy
    in the fourth quarter of 2005, US Airways was acquired by the
    former America West Airlines.
        Through the bankruptcy proceedings, US Airways was lawfully
    relieved of its pre-bankruptcy pension obligations. This was a
    very difficult and painful step which unquestionably impacted
    employees in a profound way. However, had US Airways not been
    relieved of pension obligations through bankruptcy, it is
    highly unlikely that America West Airlines would have sought to
    merge with US Airways in the first place. The America West-US
    Airways merger ensured that the jobs of many thousands of
    former US Airways employees were preserved. It saved the
    airline, and, of course, if it hadn't, I may have had to ride a
    bicycle back and forth to Washington.
        So the fundamental question we should ask ourselves is
    this: Do we want to make it impossible for airlines to reject
    their collective bargaining agreements, forcing them to
    liquidate, or do we want to allow them to make the cuts under
    the bankruptcy laws necessary for their reorganization?
        Mr. Chairman, the Bankruptcy Code currently attempts to
    strike a proper balance between distressed airlines and their
    labor unions. This balance allows the airline to make the
    necessary changes to its cost structure and obtain the
    financing it needs to successfully reorganize, saving jobs and
    preserving retirement benefits.
        And I look so forward to the witnesses' testimony and yield
    back. Thank you, Mr. Chairman.
        Mr. Cohen. I thank the gentleman for his statement.
        And I would now like to welcome the witnesses. I thank each
    of you for participating in today's hearing.
        Without objection, your written statements will be placed
    in the record, and we would ask you limit your oral remarks to
    5 minutes. We have a lighting system that starts with green,
    goes for 4 minutes. When it gets to the last minute, it is
    yellow. And when it is red, Beulah does the buzzer and we are
    supposed to be finished.
        Subcommittee Members, after all questions are asked, will
    have 5 minutes also to ask questions.
        Our first witness is Captain Chesley B. Sullenberger, III.
    Captain Sullenberger is an airline pilot and safety expert.
    And, as Mr. Franks mentioned, he rose to fame this year when he
    saved US Airways Flight 1549 and saved 155 people in quite a
    heroic action.
        But regardless of his action and his heroism that is
    recognized as truly being an American hero, he would lose his
    pension if his airline decided to go into bankruptcy, and he
    wouldn't lose it if he was running a train. I would like him to
    explain that to us.
        He has been an international speaker on airline safety and
    has helped develop new protocols for airline safety. He is the
    author of ``Highest Duty,'' a memoir of his life and the events
    surrounding Flight 1549.
        Thank you, Captain Sullenberger, for your service and for
    being willing to testify. And I would like to ask you to start.

          TESTIMONY OF CHESLEY B. SULLENBERGER, III, CAPTAIN,
                         US AIRWAYS FLIGHT 1549

        Mr. Sullenberger. Chairman Cohen, Ranking Member Franks,
    thank you for your wonderful introduction and your kind words.
        But, before I begin, let me point out to the Committee that
    I am not the only one in this room today who had a hand in the
    remarkable events of January 15th, 2009. Just behind me to my
    left is my first officer, Jeffrey Skiles, also of US Airways,
    who has my eternal gratitude for his skill and his courage.
        Mr. Cohen. Would Mr. Skiles stand?
        Thank you, sir. I appreciate your being here. Thank you.
        You would also lose your pension, I guess.
        Mr. Skiles. I already lost it.
        Mr. Sullenberger. It is my honor to appear before you today
    to provide testimony regarding an issue that is critical to
    airline employees across our Nation.
        I realize that I have been asked here largely because of
    the events of January 15th, 2009, but what I have to say to
    you, the value of my testimony is what took place in the 30
    years prior to that. Like my colleague next to me, Captain
    Arnie Gentile, I am a US Airways pilot, and I have personal
    knowledge about how airline bankruptcies affect airline
    employees based upon my 42 years of flying and my 30 years as a
    line pilot.
        My pay was also drastically cut by 40 percent, and my
    contractual right to a retirement pension was stripped away,
    all under the veil of Bankruptcy Code provisions that are
    specific only to airline employees. Like me, thousands of our
    commercial pilots served our country in jet fighters or other
    cockpits of the armed services. We know what commitment is, and
    we know when commitments are broken. For professional pilots
    who had their retirement commitment broken in large part
    because they do not have the same rights during a business
    bankruptcy as every other organized employee in the United
    States, it is a basic and fundamental injustice that needs to
    be rectified.
        Airline pilots do not live in a vacuum, and we clearly
    understand and are sympathetic to the fact that many Americans
    have recently experienced economic difficulties. But airline
    employees had been hit by an economic tsunami that dates back
    to 2001. One of the driving forces has been the discriminatory
    application of the Bankruptcy Code to this specific group of
    employees.
        In all, over 100 airlines have filed for protection against
    their debtors since the late 1970's, the time of airline
    deregulation. Airline managements have shown a willingness to
    file bankruptcy and use their leverage to ravage airline
    collective bargaining agreements, resulting in lower wages,
    loss of pensions, and poor working conditions for airline
    employees.
        I believe it is essential that our lawmakers realize the
    unintended consequences of exposing airline pilots during
    bankruptcy proceedings, which have directly led to working
    conditions that challenge even the most seasoned pilots. The
    rapidity and near unanimity with which the United States House
    of Representatives approved the ``Airline Safety and Pilot
    Training Improvement Act of 2009'' demonstrates the House's
    keen appreciation of the fact that our industry has reduced the
    margins above the regulatory minimums on which we have
    historically relied.
        Pilot compensation was, for many years, comparable to what
    other professionals earned. That is no longer the case. At
    large carriers, many current airline pilot salaries are equal
    to 1989 to 1992 levels, levels from 20 years ago, without any
    adjustment for inflation. Given a wide variety of career
    choices, military-trained pilots and other young, ambitious,
    well-educated individuals must weigh the financial sacrifice
    associated with the airline piloting profession.
        Because this profession isn't valued as much as it used to
    be because of the other choices available to those entering the
    workforce, hiring standards at many airlines have been lowered
    significantly from when I started. Even as recently as 2001, a
    well-managed regional airline requested 3,000 hours of flight
    experience and 1,000 hours in turbine-powered aircraft. That
    same airline today has dropped its requirements to 500 hours
    total. Other regional airlines have hired pilots with less than
    300 hours, requiring only 190 hours of experience, the FAA
    minimum.
        In addition to compensation, pilot collective bargaining
    agreements have long provided margins developed over decades
    that pilots deemed necessary to ensure adequate rest and
    sufficient levels of training. In many cases, those contractual
    provisions no longer exist. Without the appropriate level of
    bankruptcy protection, these collective bargaining agreements
    will be in jeopardy of further erosion.
        When my company offered pilots who had been laid off the
    chance to return to work, 60 percent refused. Members, as I
    testified to the House Aviation Subcommittee in February of
    this year, I attempt to speak accurately and plainly, so please
    do not think I exaggerate when I say that I do not know a
    single professional airline pilot who wants his or her children
    to follow in their footsteps.
        It has been pointed out several times during testimony here
    today that airline employees stand alone in bankruptcy. We do
    not have the same rights under RLA that railroad employees do.
    And the absence of these rights has created a situation where
    airline employers may, as a practical matter, gut our wages,
    work rules, and pensions with near impunity.
        Let me be clear. I am not advocating the elimination of
    bankruptcy laws. Certainly, bankruptcy laws have played an
    important role in American industry. But there is no basis for
    the discriminatory treatment of airline employees inside the
    bankruptcy process. It certainly was not the intention of the
    framers of the RLA.
        Unfortunately, the current situation has created a
    tremendous disadvantage to airline employees. The result is the
    destruction of professions within the industry that are
    fundamental to the safe operation of our Nation's air
    transportation system.
        Unlike all other organized labor, railroad and airline
    employees fall under the RLA. The logical solution is for
    airline employees to fall under Bankruptcy Code Section 1167,
    like their railroad counterparts. With airline employees under
    Section 1167, management and labor will better recognize each
    other's needs and a certain level of cooperation will ensue,
    creating a partnership that will serve both sides better into
    the future.
        You can help us, honorable Members of Congress, to work
    together across party lines, end the inequity, and promote a
    better balance in the airline industry. We must keep the
    American commercial aviation industry safe and affordable for
    passengers and financially viable for all stakeholders,
    including those who work in the industry day to day.
        Accordingly, I ask the Members of Congress for the fair
    treatment of airline employees inside a business bankruptcy and
    strongly suggest this could be accomplished by having airline
    employees fall under Bankruptcy Code 1167.
        I thank you for the opportunity to share my perspective
    with you today.
        [The prepared statement of Mr. Sullenberger follows:]
               Prepared Statement of Chesley B. Sullenberger, III

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________

        Mr. Cohen. Thank you, Captain. And I appreciate your
    recognizing Mr. Skiles, as well.
        Our second witness is Captain Arnold Gentile. Captain
    Gentile is a captain for US Airways and the government affairs
    chairman of the US Airline Pilots Association.
        Prior to joining US Airways, he was the chief pilot for
    Corporate Air in Hartford and served as director of operations
    for Providence Airline Corporations and didn't play first base
    for the Orioles.
        Thank you, Captain Gentile. And will you begin your
    testimony?

               TESTIMONY OF ARNOLD D. GENTILE, CAPTAIN,
                     US AIRLINE PILOTS ASSOCIATION

        Mr. Gentile. Good afternoon, Chairman Cohen, Ranking Member
    Franks, and other Members of the Committee. My name is Arnold
    Gentile, chairman of the Government Affairs Committee of the US
    Airline Pilots Association and a US Airways captain with over
    38 years in aviation.
        I am grateful for the opportunity to give testimony today
    concerning the protection of employees in airline bankruptcies.
    I am here to ask this body to put an end to a particular
    inequity concerning the application of Bankruptcy Code and its
    effect on a single industry employee group: airline employees.
        It is not a question of the essence or merit of bankruptcy
    law, as we fully support the concept of permitting companies to
    restructure. Rather, it is a question of inequities in
    Bankruptcy Code application.
        As a US Airways captain, I have witnessed the effects of
    this inequity. Our pilot group experienced two bankruptcies
    that took 40 to 60 percent of our salaries and terminated our
    pensions. The US Airways pensions, like all pensions, were
    earned by professionals year after year. They are now worth
    pennies on the dollar, and the burden of all remaining pension
    costs have been shifted to the PBGC and the American taxpayer.
        Just between the recent US Airways and United Airline
    bankruptcies, over 183,000 pensions were lost. Our pilot group
    witnessed family uprooting, the selling of houses, divorce, and
    even suicide.
        To add insult to injury, according to an October GAO
    report, US Airways pensions disappeared at a time when US
    Airways CEOs received over $120 million, plus collected over
    $40 million in stocks, plus collected over $30 million in
    reimbursements to pay for their income taxes. In addition, only
    14 months to the day after the carrier exited bankruptcy, US
    Airways made an $8 billion bid for Delta Airlines and later
    raised that bid to $9.8 billion.
        The early 1980's, 1990's, and the last 8 years were all
    marked by waves of airline bankruptcies--over 100 airlines, as
    Captain Sullenberger mentioned, since 1978, and 11 airline
    bankruptcies in 2008 alone. I point these facts out to
    demonstrate that airline corporations have comparatively easy
    access to the bankruptcy process and have shown a willingness
    to decimate airline collective bargaining agreements.
        To understand and address the vulnerability of airline
    employees in bankruptcy, let's categorize all unionized labor
    into three groups. Group one: Railroad employees, covered by
    the RLA, fall under Bankruptcy Code 1167, where negotiations
    take place and the bankruptcy court nor the trustee may change
    the wages or working conditions of employees.
        Group two is all other employees except for airline
    employees. They are covered by the National Labor Relations Act
    and fall under Bankruptcy Code 1113. These employees have the
    right to strike. Of course, this right is not one that anyone
    is in a rush to exercise; it is fully understood that it may
    potentially damage both the employer and the employees.
    Nevertheless, this right is the potential for exercising this
    right that allows a union to temper the consequences of what is
    otherwise a very one-sided 1113 process.
        And, finally, group three: airline employees. Like
    railroads, they are covered under the Railroad Labor Act. Due
    to some historical anomaly, they do not fall under Code 1167
    but, rather, Bankruptcy Code 1113. The result is, only airline
    employees are subject to the corrosive 1113 process without any
    recourse, and they are the only employees covered by the RLA
    without any access to 1167 and the Section 6 negotiating
    process.
        Airline employees have no means to temper employer's
    rapacity; thus, can be stripped of their contractual rights
    with impunity. This vulnerability has been exploited time and
    time again, with no indication that it will cease.
        This was not the intent of the framers of the Railway Labor
    Act, who sought reciprocal rights in terms of changes in the
    status quo. And it was not the intent of the framers of 1113,
    who bestowed upon labor unions an ability to seek moderation of
    their employer's demands. This situation exists although the
    Supreme Court has held, in the context of bargaining under the
    Railway Labor Act, quote, ``Only if both sides are equally
    restrained can the act's remedies work effectively,'' end
    quote.
        The US Airline Pilots Association requests that Congress
    fix this inequity by treating all employees covered by the
    Railway Labor Act equally and subject to Bankruptcy Code 1167.
    What 1167 does is it makes us partners in the process and, in
    the long term, bolsters our companies' chances for success.
    Pilots, more than any other professional workgroup, have a
    culture inside our company and a vested interest in its
    success. Proposed language to treat all RLA-covered employees
    equally has been drafted and is attached to this testimony.
        Thank you for allowing me the opportunity to share my
    perspective with this Committee. I will be happy to answer any
    questions. Thank you, sir.
        [The prepared statement of Mr. Gentile follows:]
                    Prepared Statement of Arnold D. Gentile

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________

        Mr. Cohen. Thank you, Captain. I appreciate it.
        The third witness is Captain Robert Coffman, director of
    government affairs for the Coalition of Airline Pilots
    Associations, a trade association representing over 28,000
    pilots, including the pilots of American, Southwest, NetJets,
    United Parcel Service, and Teamsters Local 1224, formerly
    Airborne Express.
        He is with American Airlines and has been since 1988, based
    in New York, Chicago, Dallas, presently in Miami--
    congratulations; international captain of the Boeing 767, 757
    fleet. Before American, he was a physicist, employed by Hughes
    Aircraft Company as a systems analyst.
        Thank you, Captain Coffman. And will you proceed with your
    testimony?

     TESTIMONY OF ROBERT COFFMAN, CAPTAIN, DIRECTOR OF GOVERNMENT
           AFFAIRS, COALITION OF AIRLINE PILOTS ASSOCIATIONS

        Mr. Coffman. Good afternoon, Chairman Cohen, Ranking Member
    Franks, Members of the Subcommittee. Thank you for the
    opportunity to testify today. I am Bob Coffman, director of
    government affairs for the Coalition of Airline Pilots
    Associations and a captain for American Airlines, as
    introduced.
        CAPA is the largest airline pilot trade association in the
    world and represents more than 28,000 professional pilots from
    six unions, including the Allied Pilots Association, the
    Association of Shared Aircraft Pilots, the Independent Pilots
    Association, the Southwest Airlines Pilots Association,
    Teamsters Local 1224, and US Airlines Pilots Association.
        On behalf of our members, I want to address the urgent need
    to correct an unfair difference in the way airline employees
    are treated in Chapter 11 bankruptcies from rail employees
    covered under Railway Labor Act. In bankruptcy filings,
    railroad labor contracts administered under the RLA cannot be
    unilaterally abrogated, while airline labor contracts under the
    RLA are subject to judicially approved abrogation.
        This disparity in the Bankruptcy Code has resulted in
    numerous airline labor agreements being gutted in bankruptcy
    court, with only cursory attempts made to collectively bargain
    a concessionary contract with input from the affected labor
    group. As a direct result, there have been thousands of lost
    airline jobs and billions of dollars in lost wages, benefits,
    and pension cuts.
        Bankruptcy has become a standard course of business for the
    airline industry, per the previous witness who testified to the
    large numbers and frequencies of bankruptcy within our
    industry. In fact, of the six legacy carriers, four have filed
    for bankruptcy since 2000. There have been more than 40 airline
    bankruptcies overall in this decade alone.
        I am afraid that the process has become an economic
    opportunity rather than a final attempt to survive. It has
    become a way to negate a company's contracts, to the detriment
    of decades of collective bargaining history, including safety
    increments above the regulatory minimum. It has been called the
    new collective bargaining weapon to force extraction of
    concessions beyond those necessary for a successful
    reorganization.
        In the railroad industry, management must negotiate with
    its workers during the bankruptcy process. The railroad
    industry is covered by a provision of the Bankruptcy Code,
    Section 1167, which mandates that management cannot reject
    railroad labor contracts during the bankruptcy process without
    following the provisions outlined in the Railway Labor Act. So,
    unlike airline managements, railroad management cannot use
    Chapter 11 to unilaterally abrogate, reject labor contracts as
    part of the financial reorganization.
        The courts have ruled, though, that Section 1167 does not
    apply to airlines, even though airlines are the only other
    industry covered by the Railway Labor Act. Therefore, airlines
    may reject their labor contracts in bankruptcy following the
    provisions specified in Section 1113(C) of the Bankruptcy Code.
        Under Section 1113, airline management only needs to show
    that changes to a collective bargaining agreement are necessary
    for reorganization, and the legal burden is placed on labor to
    prove otherwise. And although Section 1113 does require an
    attempt to negotiate, the bar to satisfy this requirement falls
    far short of the formal process required under the RLA used in
    a railroad bankruptcy. Recent history shows airline managements
    have almost always been able to get court approval to reject
    those labor agreements.
        Since 2002, the managements of nearly all major carriers,
    with the exception of Southwest Airlines, have used bankruptcy
    or the threat of bankruptcy to wrest enormously concessionary
    contracts from unions, a process that also included the
    determination of defined benefit pension plans. In fact, in
    early 2003, my airline, American Airlines, told its unions that
    it would declare bankruptcy on a specific date absent
    membership assent to highly concessionary changes to the
    contracts.
        To add insult to injury, some airline managements have used
    bankruptcy or the threat of bankruptcy to enrich themselves.
    For example, a recent GAO study showed how, in years leading up
    to the termination of two underfunded airline pensions,
    executives received more than $175 million in compensation, an
    amount that is about the same order as the pension-funding
    shortfall. At the same time, these terminations have
    contributed undue additional stress on the Pension Benefit
    Guaranty Corporation.
        Clearly, the capability to exploit this disparity in
    bankruptcy proceedings grants an airline management
    tremendously powerful advantage over its unions. The company
    can threaten the union to acquiesce to its demands or else.
    After bankruptcy is declared, it ceases to be a negotiation
    and, instead, becomes a unilateral imposition of threats and
    demands.
        The delicate balance of power codified by the Railway Labor
    Act between a management and its employees simply evaporates.
    Management's ability to reject CBAs has essentially left unions
    with no choice but to cede substantial contractual benefits in
    the face of the potentially worse option of the wholesale
    rejection.
        We, therefore, ask legislators give airline workers the
    same protection that railroad workers are currently afforded by
    aligning the relevant portions of the Bankruptcy Code. This
    legislative fix would mandate the use of the Railway Labor Act
    negotiating process before management could reject a collective
    bargaining agreement. CAPA, my organization, believes that a
    negotiated solution, rather than one that is imposed, is always
    in the best interests of all concerned.
        Chairman Cohen, Ranking Member Franks, thank you for the
    opportunity to testify here. I look forward to your questions.
        [The prepared statement of Mr. Coffman follows:]
                      Prepared Statement of Robert Coffman

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                                   __________

        Mr. Cohen. Thank you, Captain.
        Our next witness is Mr. Huebner. And Marshall Huebner is a
    partner in the law firm Davis Polk & Wardwell, co-head of the
    insolvency and restructuring group, who routinely represents
    financial institutions and companies in major restructurings
    and bankruptcies, and has advised on several of the largest,
    most complex patent matters that have been done; advised
    purchasers, companies, and boards of directors in many
    nonpublic distress matters; and provides risk management and
    bankruptcy advice on derivative products and other complex
    transactions which have almost put this country into
    bankruptcy.
        Thank you, Mr. Huebner. Will you proceed with your
    testimony?

              TESTIMONY OF MARSHALL S. HUEBNER, PARTNER,
                       DAVIS POLK & WARDWELL, LLP

        Mr. Huebner. Good afternoon, Mr. Chairman and Ranking
    Member. Thank you for inviting me here today. It is a singular
    honor.
        Section 1113, for sure, presents unusually difficult
    issues. On the one hand, airline debtors are often fighting for
    their very lives, at severe disadvantage to newer market
    entrants and foreign competitors. On the other hand, the rights
    and needs of employees are core values of our great Nation.
        I provided as part of my testimony a list of the more than
    185 airline bankruptcies filed since 1978. Critically, 90
    percent of them ended in liquidation. So while we must ensure
    fairness for employees who suffered, often greatly, at the 10
    percent that are still flying, the deepest pain has been taken
    by those who lost 100 percent of their salaries, pensions, and
    benefits and are not here today testifying.
        Thus, the changes I suggest materially enhance employee
    protections and recoveries without unduly risking the survival
    of their employers, against whom the odds are already
    frighteningly stacked.
        I would make four suggestions today.
        One, courts must consider in all 1113 cases management
    compensation, levels, sacrifices, and enhancements, not only in
    bankruptcy but in the year prior as well. A true flash point of
    anger at Chapter 11 is the not-infrequent mismatch between the
    lack of executive sacrifice and sacrifice farther down the pay
    scale.
        To be clear, this does not mean that management must always
    take pay or benefit cuts. Sometimes management actually makes
    sacrifices, either before or during bankruptcy. But, as we all
    know all too well, management does not always lead by example.
    These abuses must be stopped, and everyone's compensation must
    be considered when 1113 relief is sought.
        Two, a debtor's 1113 proposal should not extend more than 4
    years past bankruptcy emergence. 1113 must not be used to
    impose inappropriately long concessionary agreements on unions.
    But a period shorter than 4 years would be dangerous and
    unwise, because a debtor's cost structure must be locked in
    long enough for it to procure exit financing and encourage
    counterparties that it has staying power.
        Three, unions must get a damage claim for their members
    when their contracts are rejected under 1113. These claims can
    have very substantial value, and because they are often paid in
    equity, they provide meaningful upside when their employer's
    situation approves post-emergence. In Delta, for example, where
    I represented the company, in addition to $650 million in notes
    and a profit-sharing plan, the pilots got a $2.1 billion agreed
    claim, which amounted to 13 percent ownership of the
    reorganized company.
        Four, courts must consider not only the proposals made by
    both sides as of the commencement of the proceedings, but also
    proposals made during the 1113 process. As everyone is
    agreeing, real negotiation is what we want, and encouraging the
    parties to negotiate all the way through is a shared goal.
        But, while I feel very strongly that 1113 needs real
    revisions to protect American workers, I feel equally strongly
    that radical changes will not protect them. In fact, it will
    leave more of them with no jobs, pensions, or benefits. As
    noted above, the bankruptcy failure rate for the airlines is 90
    percent. Making remedies and tools that they need more
    challenging or unavailable will only doom more airlines to
    liquidation.
        Moreover, with due respect to the other witnesses, a debtor
    seeking 1113 relief already faces the most daunting procedural
    and substantive hurdles in the entire Bankruptcy Code. Given my
    limited time, I will not list the nine gates a debtor must
    currently clear to get 1113, but I live them and they are very
    real.
        The unfortunate reality of insolvency is that companies
    cannot honor all their obligations. Many suffer: small
    businesses that may themselves close; individuals or pension
    funds who invested in the debtor's securities; airports and
    communities with empty terminals and no service at all because
    their leases have been rejected. But if every sympathetic
    counterparty could convince Congress to protect its contract or
    give its claim special priority, no company will survive
    Chapter 11, and the losses to all will be immeasurably greater.
        Airline employees who suffered substantial cuts tell an
    absolutely compelling and sympathetic story, but employees who
    lost their jobs, pensions, and benefits entirely in the many
    airline liquidations--including ATA, Aloha, Eastern, Pan Am,
    Skybus, and about 150 more--have an untold story that is at
    least equally compelling.
        Filing for Chapter 11 unfortunately cannot increase demand
    for one's product, nor allow a company to buy fuel or aircraft
    or pretzels below current market prices. Congress must consider
    meaningful changes to better protect America's rank and file,
    but it is imperative that changes not be implemented that
    threaten to take the frightening failure rate of U.S.
    restructurings yet higher, which will ultimately hurt the rank
    and file most of all.
        Finally, Mr. Chairman and Ranking Member, one final thought
    for which I apologize in advance. I was stunned yesterday
    afternoon to read in Mr. Nagrotsky's statement that Frontier
    Airlines used the 1113 process to, and I quote, ``obtain an
    order from the bankruptcy court authorizing it to permanently
    outsource the mechanics' work to El Salvador,'' close quote.
        This is totally incorrect. This morning, I submitted a
    supplement that explains and documents with many of the actual
    documents attached what actually happened, which, in fact, is a
    great case study. It was unprecedentedly and amazingly
    protective of IBT's jobs and members and a good example of 1113
    working exactly as Congress wanted it to. The parties met 17
    more times after the process started and the judge forced a
    deal, and, ultimately, no outsourcing at all was allowed.
        Thank you.
        [The prepared statement of Mr. Huebner follows:]
                   Prepared Statement of Marshall S. Huebner

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                                   __________

        Mr. Cohen. Thank you, Mr. Huebner. I appreciate your coming
    back here on Mr. Nagrotsky. We like a little Jane Curtin/Dan
    Akroyd every so often.
        Our fifth witness is Robert Roach, Jr. Mr. Roach started in
    the International Association of Machinists as a ramp
    serviceman for TWA and a member of Local Lodge 1056 in New
    York.
        He has been a union representative since 1979, holding
    numerous worker advocate positions. He became a member of the
    IAM Executive Council as General Vice President of the
    Transportation Department, June 1, 1999, and most recently
    reelected in 2009. He oversees and coordinates 150 collective
    bargaining agreements covering U.S. rail and air carriers,
    foreign flag airlines, and airline service companies.
        Thank you, Mr. Roach. You are on.

       TESTIMONY OF ROBERT ROACH, JR., GENERAL VICE PRESIDENT OF
      TRANSPORTATION, INTERNATIONAL ASSOCIATION OF MACHINISTS AND
                           AEROSPACE WORKERS

        Mr. Roach. Thank you, Chairman Cohen and Ranking Member
    Franks, for this opportunity to speak to you today. As stated,
    my name is Robert Roach, Jr., general vice president of the
    Machinists Union, and I am here appearing on behalf of
    International President R. Thomas Buffenbarger.
        The IAM is among the Nation's largest industrial trade
    unions, representing nearly 700,000 active and retired members
    under more than 5,000 contracts in transportation, aerospace,
    shipbuilding, defense-related industries, including more than
    100,000 U.S. airline workers, making us the largest airline
    union in North America.
        I am speaking to you today both as a union representative
    as well as a former employee of TWA with extensive bankruptcy
    experience, having been their lead spokesman for all airline
    bankruptcies since 9/11. I endured three airline bankruptcies
    at TWA as an employee, and today, after 30 years as a TWA
    employee, I receive a monthly pension from the Pension Benefit
    Guaranty Corporation of a mere $212 per month.
        While Chapter 11 bankruptcy can be a lifeline for
    struggling companies, unfortunately the law allows management
    to use that line to choke employees and retirees. Current
    bankruptcy law eliminates any incentive for a company to engage
    in good-faith bargaining. Under the unfair corporate advantage,
    employees have suffered greatly. I have some examples.
        At United Airlines, workers gave up jobs, endured wage
    cuts, and could not prevent United from refusing to fund their
    pensions, leading to plan terminations. Retirees saw their
    fixed incomes decrease and their cost of health care increase.
    In total, IAM members were forced to sacrifice more than $4.6
    billion for United Airlines, while the CEO received total
    compensation the first year of United Airline's bankruptcy of
    $39.7 million.
        And US Airways, the first bankruptcy in 2002, IAM members
    agreed to two rounds of contract concessions, totaling $276
    million per year, or $1.8 billion over 6.5 years. US Airways
    CEO David Siegel was rewarded with $1.45 million a year as the
    airline exited the first bankruptcy and another $9 million in
    2003, the year in between the two airline bankruptcies. It
    should be noted that the second airline bankruptcy was planned
    prior to US Airways exiting the first bankruptcy to get a
    Federal guarantee backing for a loan.
        After filing for bankruptcy the second time, the mechanics'
    wages were cut by more than 15 percent. Management and salaried
    employees were reduced only by 5 percent. In this bankruptcy,
    Siegel's successor, Bruce Lakefield, orchestrated massive
    benefit and job cuts for front-line employees but refused to
    accept any wage cuts for himself.
        On Northwest Airlines, members saw their pension plans
    frozen and took an 11.5 percent pay cut as a result of
    management's bankruptcy. With me here today are two Northwest
    Airlines employees, John Ketelstein and Ken McNair, who are now
    suffering under the bankruptcy contract that was forced down
    their throats. In contrast, Northwest Airlines CEO Doug
    Steenland was granted $26 million in stock upon the carrier's
    2007 exit from bankruptcy, plus a cash salary that year of over
    $500,000.
        In major airline bankruptcies, much of the financial
    sacrifices to save the companies were diverted into the pockets
    of people responsible for the company's failure. This is not
    acceptable to me or the people I represent, and I hope it is
    not acceptable to the Members of this Committee.
        While airline employees have been hit hard by the impacts
    of bankruptcy, they are certainly not alone. Auto, steel,
    banking, newspaper, cable TV, trucking companies are among more
    than a hundred publicly traded companies that seek Chapter 11
    bankruptcy protection each year. Bankruptcies are not
    restricted to just one sector of our country, and neither
    should bankruptcy reform.
        The Machinists Union believes that there is an immediate
    need for bankruptcy reform that should apply to all private-
    sector workers covered by collective bargaining agreements.
    Companies should not be able to use the Bankruptcy Code to
    eliminate decades of collective bargaining gains when there is
    no justifiable reason other than corporate greed.
        Court rulings should be overturned to allow airline workers
    the right to engage in self-help if the bankruptcy court
    terminates a bargaining agreement. And good-faith bargaining
    can only be achieved when there is a level playing field, and
    today bankrupt companies hold all the cards.
        If employees are forced to sacrifice in order to
    restructure their bankrupt employer, bankruptcy laws should
    require everyone from the break room to the board room to share
    their pain. Executive bonuses, stock grants, and other
    compensation enhancements proposed during bankruptcy must be
    strictly limited.
        IAM believes that companies should be required to pay into
    pension plans as benefits are earned. Additionally, the PBGC
    should have financial resources available to guarantee all
    vested benefits promised in a pension plan without reduction or
    maximums. Pension plan defaults in the steel, airline, and
    other industries helped the PBGC move from a surplus of $7.7
    billion at the end of fiscal year 2001 to a deficit of $33.5
    billion today. Congress must make bankruptcy a less attractive
    mechanism to dump pension obligations onto the PBGC.
        The Machinists Union supports comprehensive reform that
    would protect all our Nation's workers and require shared
    sacrifice among all stakeholders. We are prepared to work with
    this Committee on such legislation.
        I look forward to your questions. Thank you.
        [The prepared statement of Mr. Roach follows:]
                    Prepared Statement of Robert Roach, Jr.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________
        Mr. Cohen. Thank you, Mr. Roach. I appreciate your
    testimony.
        As you see, we have 15 minutes to vote, and then we are
    going to have to conclude, I believe, because these are the
    last votes of the day.
        The final witness is Steve Nagrotsky, deputy director of
    Teamsters Airline Division in D.C., representing 43,000
    members. For 27 years, he has represented flight crew members
    in collective bargaining negotiations and contract
    enforcements.
        Thank you, Mr. Nagrotsky. And will you proceed with your
    testimony?

       TESTIMONY OF STEPHEN NAGROTSKY, DEPUTY DIRECTOR, AIRLINE
            DIVISION, INTERNATIONAL BROTHERHOOD OF TEAMSTERS

        Mr. Nagrotsky. Good afternoon, Chairman Cohen, Ranking
    Member Franks. I am Stephen Nagrotsky, deputy director of the
    Airline Division of the International Brotherhood of Teamsters,
    which is the largest transportation union in the country.
        As a lawyer, I have represented cockpit crew members for
    the past 27 years in collective bargaining negotiations. On
    behalf of more than 1.4 million men and women Teamster members,
    and especially on behalf of more than 43,000 Airline Division
    members, I am honored to have this opportunity to share our
    views on the needed changes to the Bankruptcy Code regarding
    air carrier bankruptcy.
        The United States airline industry has been in financial
    turmoil since the fall of 2000, when the decline in the
    technology industry caused a precipitous drop in business
    travel demand. September 11th worsened the industry's financial
    troubles due to significant losses resulting from the temporary
    shutdown of the Nation's airspace and passenger apprehension
    about flying following the attacks.
        Congress sought to alleviate the airline industry financial
    crisis after September 11, when it passed the ``Air
    Transportation Safety and System Stabilization Act,'' which
    provided $5 billion in direct emergency assistance and grants.
    Congress also authorized the Department of Transportation to
    reimburse air carriers for increases in their insurance
    premiums and provided billions of dollars of additional dollars
    for loan guarantees.
        Following record-high fuel prices earlier this year and the
    crash of the Nation's financial markets, the airline industry
    is projected to lose between $5 billion and $6 billion this
    year. Despite passenger capacity reductions and recent cuts in
    fuel costs, the turbulent economic markets may continue to
    wreak havoc upon the industry. Indeed, although Congress has
    provided significant public assistance to the airline industry
    over the last several years, it may have to provide even more
    next year.
        In its deliberations, Congress should consider and further
    examine the fact that, since the industry received generous
    taxpayer grants and loans, it has largely terminated the
    defined benefit pension plans covering its employees. A number
    of large carriers have relied upon United States Bankruptcy
    Code Section 1113 to reject collective bargaining agreements in
    order to slash their employees' wages and terminate their
    pension plans. While shedding their funding obligations, these
    airlines shifted their liabilities to the Pension Benefit
    Guaranty Corporation and to United States taxpayers and caused
    huge reductions in the affected employees' retirement benefits.
        Additionally, these carriers have increasingly outsourced
    critical, highly skilled airline maintenance jobs to foreign
    repair stations. According to the DOT Inspector General's
    September 30, 2008, report on the outsourcing of aircraft
    maintenance, airlines have more than doubled the amount of
    repairs and heavy maintenance work they outsourced, from 34
    percent in 2003 to 71 percent in 2007. The increased foreign
    outsourcing has contributed significantly to the dramatic loss
    of jobs in the United States airline industry.
        Several carriers have relied upon Bankruptcy Code Section
    1113 in order to accomplish their foreign outsourcing
    objectives. For example, Frontier Airlines, a low-cost carrier
    based in Denver, Colorado, petitioned the United States
    Bankruptcy Court to reject its collective bargaining agreement
    covering its aircraft mechanics so that it may permanently
    outsource its Denver-based heavy-check maintenance operations
    to a company located in El Salvador.
        Faced with the prospect of losing their jobs entirely or
    slashing their wages to below-market rates, the mechanics
    agreed to slash their wages. But Frontier still was not
    satisfied. Frontier used the Section 1113 process to exact even
    greater wage concessions from the mechanics and to obtain an
    order from the bankruptcy court authorizing it to permanently
    outsource the mechanics' work to El Salvador.
        I hold to our characterization of what occurred in the
    bankruptcy court and will supplement our written statement with
    any additional material to establish that the bankruptcy judge,
    simply put, allowed outsourcing of U.S. Teamster mechanics'
    jobs.
        Our objective is to participate constructively in a long-
    overdue dialogue to address and solve the financial and
    structural problems that plague the airline industry. Any such
    dialogue is significantly impaired because provisions of the
    Bankruptcy Code have been used by the carriers to slash, cut,
    and dump their employees' wages and benefits.
        In order to prevent the further abuse of the Bankruptcy
    Code, we recommend that airline carriers covered by Title II of
    the Railway Labor Act be treated the same as their counterparts
    in the railroad industry. Rail carriers are covered by Title I
    of the RLA and are exempted from Bankruptcy Code Sections 1113
    and 365. Accordingly, we recommend that air carriers likewise
    be exempted from the provisions of Section 1113 and 365. We
    have provided in our written testimony the amended language we
    suggest for Sections 1113 and 365.
        Thank you for this opportunity to share the views of the
    IBT with this distinguished Subcommittee.
        [The prepared statement of Mr. Nagrotsky follows:]
                    Prepared Statement of Stephen Nagrotsky

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                                   __________
        Mr. Cohen. Thank, Mr. Nagrotsky.
        We are going to limit our questions to 3 minutes; we can
    also do written ones, because we do have to vote.
        Let me ask you a panel question real quick. Anybody know
    the reason or a good social reason why the railroad workers
    should be treated differently than the airline workers?
        Mr. Huebner?
        Mr. Huebner. Mr. Chairman, I think the answer is that the
    subchapter 4 of Chapter 11, which is where 1167 is, provides
    for an integrated set of rules that govern a highly regulated
    industry that was never deregulated.
        And so, because railroads are governed by all sorts of
    things as they enter Chapter 11, like the mandatory appointment
    of a trustee selected by the Department of Justice and numerous
    other technical rules which all went by the wayside in 1978
    when 1113 was enacted in 1984-1985 in response to Bildisco,
    only railroads were kept to the side, which, by the way, was
    intentional. 1113, as you may remember, was actually asked for
    by organized labor.
        And so the answer is, railroads are totally different
    because they have been heavily regulated forever. And,
    therefore, on the rare occasion when railroads go into
    bankruptcy, they are governed by a completely----
        Mr. Cohen. Let me ask you this. Mr. Crandall of American
    Airlines, past, said that maybe airlines need to be
    reregulated. What would you be in favor of reregulation and
    then change the labor laws concurrently so they would be
    equitable?
        Mr. Huebner. Chairman Cohen, whether or not airlines should
    be reregulated is a question that I don't think I could
    responsibly answer. I think it is beyond my skill set.
        But what I do know is that cherry-picking----
        Mr. Cohen. I am going to take as a given that it is your
    skill set. That is a given. So what do you think it should be,
    they should be reregulated or not?
        Mr. Huebner. If 1167 is going to apply, then lots of other
    things that I imagine no union member in the country would like
    to apply to airlines would also have to fairly apply.
        Mr. Cohen. Anybody else have an idea about why this came
    about or why the distinction should continue? Does anybody
    disagree with what Mr. Huebner said?
        Mr. Nagrotsky, you ought to disagree.
        Mr. Nagrotsky. I certainly would disagree, Chairman Cohen.
        First of all, I think that, as an industry, apart from
    price setting, the airline industry is incredibly heavily
    regulated, with respect to safety, with respect to training,
    with respect to all kinds of issues. So I disagree with the
    characterization that, because airlines are not as regulated as
    railroads, that there is a distinction there.
        Mr. Cohen. So you think the fact that neither one can
    strike, they are both under the Railway Labor Act, they are
    both essential to the economic vitality of our country, that
    they should be treated equally as far as the bankruptcy goes,
    too?
        Mr. Nagrotsky. Yes. I mean, they provide modes of
    transportation as well as shipping the goods of this country
    from place to place. I mean, they serve equivalent functions in
    terms of the criticality to the economy. And, therefore, they
    should be treated identically.
        Mr. Cohen. Captain Sullenberger, you have experienced a
    bankruptcy in the past?
        Mr. Sullenberger. Two bankruptcies at US Airways.
        Mr. Cohen. Tell us what losses you incurred as a result of
    those bankruptcies and how that affected the morale of the
    pilots.
        Mr. Sullenberger. It has greatly affected the morale of the
    pilots.
        US Airways has 33,000-plus dedicated employees who, in
    spite of our experiences, keep our passengers safe every day.
    It requires a great deal of concentration and dedication to
    compartmentalize and keep focused on what is at hand with all
    the distressing distractions that we have lived under for many
    years.
        I personally have lost 40 percent of my pay. My first
    officer, in January, Jeffrey Skiles, because he had been a
    captain before, in addition to the pay cuts, had to go from the
    left seat to the right seat with a staff reduction, has lost 60
    percent of his pay. Our pensions were terminated. We are
    working longer days, more days per month.
        As Captain Coffman alluded to, the bankruptcy processes
    allowed airline managements to essentially go on a fishing
    expedition and to gut contracts in every area, even things that
    had little or no economic importance. It was a life-changing
    event for everyone in the industry and all their families. And
    that is true not just for the pilots but for every airline
    employee.
        Mr. Cohen. Thank you, Captain.
        I want to thank the other witnesses.
        I am going to yield to Mr. Franks, because we do have to
    do--Mr. Franks, questions?
        Mr. Franks. Thank you, Mr. Chairman.
        And thank, again, all of you for coming. I hope you have a
    wonderful Christmas season.
        And let me just quickly--I was, kind of, fascinated by the
    one instance where some of the jobs were ostensibly outsourced
    to El Salvador. I would be interested if both Mr. Nagrotsky and
    Mr. Huebner might be willing to respond to the Committee later
    in writing as to give us the real picture on that, because I
    don't know what it is.
        In the meantime, let me just ask this one question. Mr.
    Huebner, I will ask it to you.
        Other witnesses have suggested that Congress should extend
    Section 1167 to cover airline unions in bankruptcy. Would such
    a change to the Bankruptcy Code, in your opinion, make it more
    likely or less likely that airlines could successfully
    reorganize?
        Mr. Huebner. Sure. Thank you for the question.
        You know, as you heard in my testimony and as you will see
    in greater length in my written statement, I think that very
    real pro-employee changes to 1113 are needed. But importing
    1167 would not change the playing field; it would obliterate
    the playing field.
        Just so that Congress understands, that would mean that
    debtors have no rights and no tools. It is as if they are not
    in bankruptcy at all. The only thing they could do is ask the
    unions, won't you please agree to change your contract? And if
    under the RLA the contract had 3 years left to run, even though
    you are in bankruptcy and dying, if the union didn't want to
    voluntarily give you changes, you couldn't get any.
        To be clear, the RLA is an incredibly time-consuming
    process. I think Captain Coffman is at American Airlines. I
    imagine he will validate that they have been going for 3 years
    now waiting under the RLA process to try to reach agreement on
    a contract, and they still can't.
        I represent lenders not infrequently, although I obviously
    represented Delta and Frontier. I can tell you, having
    represented the lenders in many of the largest bankruptcy loans
    ever done, airlines will not get financing in Chapter 11 and
    they will die if they have an uncertain period months or years
    before they are allowed to change the status quo and address
    their labor laws.
        There is a reason so many airlines go into bankruptcy, and
    it is not because it is fun and it is easy; it is because many
    of them fail, 90 percent out of 185. Railroads are radically
    different, because there is one set of track and someone has to
    run on that track. The skies are not like that. And, as I said
    before, it is not just the timing, it is that the special
    railroad provisions are incredibly complex. You can't pluck one
    of them out that you like and say, ``We will take just that
    one'' and ignore the system.
        But, again, given the time, I think that may be enough
    elaboration on the question.
        Mr. Franks. Thank you, Mr. Chairman. And I am going to
    yield back.
        Thank you all.
        Mr. Cohen. Thank you, Mr. Franks.
        I would like to thank all the witnesses for their testimony
    today.
        Without objection, the Members will have 5 legislative days
    to submit any additional written questions, which we will
    forward to the witnesses.
        And there will be some questions we will be submitting to
    you, because we have to get up there to vote. We would ask you
    to respond as promptly as possible. They will be part of the
    record.
        The record will remain open for 5 legislative days for the
    submission of any other additional material Mr. Roach or
    whoever would like to submit.
        I thank everyone for their time and patience.
        This hearing of the Subcommittee on Commercial and
    Administrative Law is adjourned.
        [Whereupon, at 3:28 p.m., the Subcommittee was adjourned.]

                                A P P E N D I X

                                  ----------

                   Material Submitted for the Hearing Record

     Prepared Statement of the Honorable Lamar Smith, a Representative in
    Congress from the State of Texas, and Ranking Member, Committee on the
                                   Judiciary

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     Prepared Statement of the Honorable Henry C. ``Hank'' Johnson, Jr., a
       Representative in Congress from the State of Georgia, and Member,
               Subcommittee on Commercial and Administrative Law
        Thank you, Mr. Chairman, for holding this important hearing on
    protecting employees in airline bankruptcies.
        Today we will explore whether the Bankruptcy Code should be amended
    to make it easier to preserve collective bargaining agreements.
        Because of the record high fuel prices and the recession, the
    airline industry has suffered from economic distress. This is
    especially true when it comes to airline employees.
        It has been alleged that airline carriers have relied upon Section
    1113, and other provisions, of the Bankruptcy Code to reject their
    collective bargaining agreements in order to slash their employees'
    wages, terminate their pension plans, and even outsource their jobs.
        If it is true that airlines are abusing Section 1113, and other
    provisions, of the Bankruptcy Code, then Congress should act and
    seriously consider amending the Bankruptcy Code so that airline
    carriers, like rail carriers, are exempted from Section 1113 and other
    similar provisions.
        Millions of Americans traveled on airplanes last year. I, like many
    of my colleagues, travel by plane to commute between my district and
    the Capitol. Our airline employees work hard to safely get us to and
    from our destinations everyday. We should make sure that they are
    treated fairly by ensuring that airline employers engage in good-faith
    bargaining when seeking contract modifications.
        I thank the Chairman for holding this hearing today.

       Supplemental Prepared Statement submitted by Marshall S. Huebner,
                      Partner, Davis Polk & Wardwell, LLP

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      Response to Post-Hearing Questions from Arnold D. Gentile, Captain,
                         US Airline Pilots Association

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       Response to Post-Hearing Questions from Robert Coffman, Captain,
          Director of Government Affairs, Coalition of Airline Pilots
                                  Associations

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

     Response to Post-Hearing Questions from Marshall S. Huebner, Partner,
                           Davis Polk & Wardwell, LLP

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Response to Post-Hearing Questions from Robert Roach, Jr., General Vice
     President of Transportation, International Association of Machinists
                             and Aerospace Workers

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

       Response to Post-Hearing Questions from Stephen Nagrotsky, Deputy
       Director, Airline Division, International Brotherhood of Teamsters

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

     Letter to the Honorable Steve Cohen from Brendan M. Kenny, Director,
          Government Affairs Department, Air Line Pilots Association,
                                 International

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