[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

[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

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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

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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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