[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
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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
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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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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
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Response to Post-Hearing Questions from Marshall S. Huebner, Partner,
Davis Polk & Wardwell, LLP
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Response to Post-Hearing Questions from Robert Roach, Jr., General Vice
President of Transportation, International Association of Machinists
and Aerospace Workers
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Response to Post-Hearing Questions from Stephen Nagrotsky, Deputy
Director, Airline Division, International Brotherhood of Teamsters
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Letter to the Honorable Steve Cohen from Brendan M. Kenny, Director,
Government Affairs Department, Air Line Pilots Association,
International
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