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



 
 PROTECTING EMPLOYEES AND RETIREES IN BUSINESS BANKRUPTCIES ACT OF 2010

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   COMMERCIAL AND ADMINISTRATIVE LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                                   ON

                               H.R. 4677

                               ----------                              

                              MAY 25, 2010

                               ----------                              

                           Serial No. 111-123

                               ----------                              

         Printed for the use of the Committee on the Judiciary


   Available via the World Wide Web: http://judiciary.house.govFOR 
                               SPINE deg.
 PROTECTING EMPLOYEES AND RETIREES IN BUSINESS BANKRUPTCIES ACT OF 2010




 PROTECTING EMPLOYEES AND RETIREES IN BUSINESS BANKRUPTCIES ACT OF 2010

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   COMMERCIAL AND ADMINISTRATIVE LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                                   ON

                               H.R. 4677

                               __________

                              MAY 25, 2010

                               __________

                           Serial No. 111-123

                               __________

         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
STEVE COHEN, Tennessee               STEVE KING, Iowa
HENRY C. ``HANK'' JOHNSON, Jr.,      TRENT FRANKS, Arizona
  Georgia                            LOUIE GOHMERT, Texas
PEDRO PIERLUISI, Puerto Rico         JIM JORDAN, Ohio
MIKE QUIGLEY, Illinois               TED POE, Texas
JUDY CHU, California                 JASON CHAFFETZ, Utah
TED DEUTCH, Florida                  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
DANIEL MAFFEI, New York
JARED POLIS, Colorado

       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

                              ----------                              

                              MAY 25, 2010

                                                                   Page

                                THE BILL

H.R. 4677, the ``Protecting Employees and Retirees in Business 
  Bankruptcies Act of 2010''.....................................     3

                           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..............................    36
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Ranking Member, Committee on the Judiciary.    37

                               WITNESSES

Ms. Babette Ceccotti, Cohen, Weiss and Simon LLP
  Oral Testimony.................................................    45
  Prepared Statement.............................................    48
Mr. John Prater, Captain, Air Line Pilots Association, Intl.
  Oral Testimony.................................................   151
  Prepared Statement.............................................   153
Mr. James H.M. Sprayregen, Kirkland and Ellis LLP
  Oral Testimony.................................................   183
  Prepared Statement.............................................   185
Ms. Janette Rook, Association of Flight Attendants-CWA
  Oral Testimony.................................................   203
  Prepared Statement.............................................   205
Mr. Thomas Conway, United Steel Workers of America
  Oral Testimony.................................................   232
  Prepared Statement.............................................   234
Mr. Michael L. Bernstein, Arnold & Porter LLP
  Oral Testimony.................................................   241
  Prepared Statement.............................................   244
Mr. Robert Roach, Jr., International Association of Machinists 
  and Aerospace Workers
  Oral Testimony.................................................   293
  Prepared Statement.............................................   295

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, 
  Chairman, Committee on the Judiciary, and Member, Subcommittee 
  on Commercial and Administrative Law...........................    39
Prepared Statement of the Honorable Henry C. ``Hank'' Johnson, 
  Jr., a Representative in Congress from the State of Georgia, 
  and Member, Subcommittee on the Constitution, Civil Rights, and 
  Civil Liberties................................................    43

                                APPENDIX
               Material Submitted for the Hearing Record

Response to Post-Hearing Questions from Babette Ceccotti, Cohen, 
  Weiss and Simon LLP............................................   326
Response to Post-Hearing Questions from John Prater, Captain, Air 
  Line Pilots Association, Intl..................................   336
Response to Post-Hearing Questions from James H.M. Sprayregen, 
  Kirkland and Ellis LLP.........................................   338
Response to Post-Hearing Questions from Janette Rook, Association 
  of Flight Attendants-CWA.......................................   341
Response to Post-Hearing Questions from Thomas Conway, United 
  Steel Workers of America.......................................   343
Response to Post-Hearing Questions from Michael L. Bernstein, 
  Arnold & Porter LLP............................................   347
Post-Hearing Questions posed to Robert Roach, Jr., International 
  Association of Machinists and Aerospace Workers................   350
Prepared Statement of the International Union, United Automobile 
  Aerospace & Agricultural Implement Workers of America (UAW)....   351
Letter from Brian Cove, Chief Operating Officer, Commercial 
  Finance Association............................................   364

 
 PROTECTING EMPLOYEES AND RETIREES IN BUSINESS BANKRUPTCIES ACT OF 2010

                              ----------                              


                         TUESDAY, MAY 25, 2010

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

    The Subcommittee met, pursuant to notice, at 11:05 a.m., in 
Room 2142, Rayburn House Office Building, the Honorable Steve 
Cohen (Chairman of the Subcommittee) presiding.
    Present: Representatives Cohen, Delahunt, Watt, Lofgren, 
Scott, Chu, Franks, Jordan, Coble, and Issa.
    Staff Present: (Majority) James Park, Counsel; Andres 
Jimenez, Staff Assistant; and (Minority) Daniel Flores, 
Counsel.
    Mr. Cohen. This hearing of the Committee on the Judiciary, 
Subcommittee on Commercial and Administrative Law will come to 
order. Without objection, I shall be authorized to declare a 
recess to the hearing.
    I now recognize myself for a brief statement. Congress 
enacted Chapter 11 of the Bankruptcy Code to give all 
interested parties a say in how a struggling business should be 
reorganized. In theory, financial returns and sacrifices should 
be shared in an equitable manner.
    In the 110th Congress, this Subcommittee conducted three 
hearings on how American workers and retirees are treated in 
cases under Chapter 11. These hearings revealed that Chapter 11 
may not be working as we intended, with some businesses using 
the bankruptcy process to bust unions and deprive retirees of 
hard-won wages and benefits, while at the same time paying 
their executives outrageous amounts of money; millions and 
millions and millions of dollars.
    Even prior to the country's recent economy troubles, 
workers and retirees had been hit very hard by the growing 
number of corporate bankruptcies. Working families have been 
asked, and in many cases forced to make substantial sacrifices 
including cuts in pay and benefits and wholesale default by 
their bankrupt employers on their pension obligations.
    To pick just one example, United Airlines successfully 
convinced a bankruptcy court to terminate its collective 
bargaining agreements with new, harsher terms implemented in 
their place. United pilots had to take a 30-percent pay cut, 
less job security, harsher work rules, and a terminated pension 
plan. They were also forced to call the company's telephones 
and be put on hold for a long time, like customers are too, and 
be intermittently told which button to push.
    United employees faced the threat of personal bankruptcy, a 
loss of retiree medical benefits and other significant 
financial hardship, after having devoted years of their lives 
to their company. Sadly, this story seems to repeat itself 
through many cases in many different industries.
    The sting of these sacrifices may have been slightly easier 
for workers and retirees to stomach were it not for the fact 
that these same bankrupt employers would be paying their CEOs 
and other senior management executives almost what could 
conservatively be called obscene amounts of compensation.
    These are the reasons why I am an original cosponsor of the 
House Judiciary Committee Chairman John Conyers' bill, H.R. 
4677, the ``Protecting Employees and Retirees in Business 
Bankruptcies Act'' which makes urgently needed changes to the 
Bankruptcy Code to ensure that the interests of workers and 
retirees are protected in corporate bankruptcies and to ensure 
that executive compensation is reasonable and fair.
    [The bill, H.R. 4677, follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________
    Mr. Cohen. The American public is tired of seeing 
executives come away with tremendous moneys and workers lose 
their jobs and/or their pension benefits and/or their job 
security.
    I commend Chairman Conyers for his leadership in attempting 
to address what is an obscenely unfair treatment of workers and 
retirees in business bankruptcies. And I thank our witnesses 
for being here today to share their perspectives on this 
important legislation as well. I think the American public is 
fed up with bankruptcies being a bonanza for executives and 
desperation for employees. Accordingly, I look forward to the 
testimony of the witnesses.
    I now recognize my colleague Mr. Franks, the Ranking Member 
of the Subcommittee, for his opening remarks.
    And, Mr. Franks, you are recognized.
    Mr. Franks. Well, thank you, Mr. Chairman.
    Mr. Chairman, as the Second Circuit Court of Appeals has 
noted, ``section 1113 of the Bankruptcy Code requires unions to 
face those changed circumstances that occur when a company 
becomes insolvent, and it requires all affected parties to 
compromise in the face of financial hardship. At the same time, 
section 1113 also imposes requirements on the debtor to prevent 
it from using bankruptcy as a judicial hammer to break the 
union.''
    In other words, section 1113 strikes a careful balance 
between competing interests in businesses and in their 
reorganizations.
    The legislation we are examining today will destroy that 
balance, Mr. Chairman. In fact, Harvey Miller, a bankruptcy 
expert the majority has called to testify before this Committee 
on multiple occasions, wrote that this legislation is comprised 
of ``ill-considered proposed amendments that are antithetical 
to the policy of rehabilitation and reorganization of 
distressed businesses. The proposed amendments may preordain 
the failure of a reorganization to the real prejudice and 
detriment of all employees and all other stakeholders.''
    Mr. Chairman, this bill puts the interests of labor unions 
above all others. However, labor issues do not exist in a 
vacuum. They are surrounded by many other interests and 
constituencies, all of which must be dealt with fairly and 
equitably in order for reorganization to be successful.
    Additionally, this legislation increases substantially the 
costs of Chapter 11. It impedes debtors from restructuring 
labor costs to market levels. It makes it much more difficult 
for debtors to attract and retain the management necessary to 
turn a company around. It impairs debtors' ability to find 
affordable bankruptcy financing. It gives unions the right to 
strike after a court has determined that they have unreasonably 
rejected modification of a collective bargaining agreement. And 
by moving organized labor to the front of the line, the new 
priority claims in this legislation may stymie otherwise 
workable reorganizations.
    These changes will make it more difficult for a company to 
successfully reorganize. But Mr. Chairman, reorganization is 
the goal of Chapter 11. As Congress observed in enacting 
Chapter 11, ``It is more economically efficient to reorganize 
than to liquidate because it preserves jobs and assets.''
    Simply naming this legislation the ``Protecting Employees 
and Retirees in Business Bankruptcies Act'' does not mean that 
either group will be protected. Yes, this bill will allow 
unions a few Pyrrhic victories in court, but at the end of the 
day all parties will lose if this legislation is enacted.
    We have recently seen unions get handed the keys to 
Chrysler and General Motors during their bankruptcies. And we 
are currently seeing public employee unions push many cities 
and towns to the brink of insolvency. And I have to question 
whether we shouldn't be considering legislation to weaken the 
inordinate union influence in bankruptcies rather than 
legislation aimed at strengthening it.
    So Mr. Chairman, with that, I look forward to the 
witnesses' testimony and yield the balance of my time.
    Mr. Cohen. Thank you, Mr. Franks. I appreciate your 
statement.
    Mr. Watt, would you like to make an opening statement or 
would you like to yield to the Ranking Member if he would like 
to make a statement?
    Mr. Watt yields. Mr. Smith, the distinguished gentleman 
from Texas, close to Continental Airlines, you are recognized 
for a statement.
    Mr. Smith. Thank you Mr. Chairman. Thank you, Mr. Watt, as 
well. I will be happy to follow him, too.
    Mr. Chairman, American businesses no longer operate in the 
same economic climate of the 1950's and sixties. Today they 
must compete in a global marketplace. And in this marketplace, 
unionized businesses that thrived decades ago now face stiff 
competition from domestic and international competitors. In 
labor-intensive industries from manufacturing to the airlines, 
unionized businesses have been burdened by high wages, 
stringent work rules and crippling pension liabilities. This 
has allowed competitors not burdened by similar constraints to 
overtake their unionized counterparts. As a result, for many 
unionized businesses, their only path to survival is 
reorganization through Chapter 11 of the Bankruptcy Code.
    Unfortunately, H.R. 4677, the ``Protecting Employees and 
Retirees in Business Bankruptcies Act'' cuts off that path of 
survival. H.R. 4677 makes it nearly impossible for unionized 
businesses operating in labor-intensive industries to 
reorganize successfully. This undermines the purpose of Chapter 
11 and threatens our economic recovery.
    Chapter 11 is designed to enable financially troubled 
companies to restructure their operations and obligations so 
they can remain in business. If financially troubled companies 
are forced to liquidate, employees lose jobs, retirees' 
pensions are slashed, and creditors, customers, suppliers and 
communities suffer. Chapter 11's labor provisions work, and 
there is no need for the major overhaul this bill represents.
    Certainly employees and retirees face hardships when jobs, 
salaries, and benefits are cut in Chapter 11 reorganizations, 
but these hardships will be even greater if, as a result of 
this legislation, reorganization is no longer a viable option.
    American workers, retirees, and their families are living 
through difficult times. We do not need to make these times 
more difficult by forcing businesses, which could otherwise be 
restructured, into liquidation through misguided legislation 
like H.R. 4677.
    What employees and retirees really need are economic 
policies that help American workers and small businesses 
rebuild our economy and create jobs. They do not need more pro-
union special interest legislation that is aimed at only 7 
percent of the private sector workforce.
    Despite its name, this legislation protects neither 
employees nor retirees. Instead, it puts companies at greater 
risk of liquidation, and employees and retirees in danger of 
losing not just some of their income, but all of it.
    Mr. Chairman, I look forward to the testimony today and 
yield back the balance of my time.
    Mr. Cohen. Thank you Mr. Smith.
    [The prepared statement of Mr. Conyers follows:]

Prepared Statement of the Honorable John Conyers, Jr., a Representative 
  in Congress from the State of Michigan, Chairman, Committee on the 
 Judiciary, and Member, Subcommittee on Commercial and Administrative 
                                  Law











                               __________
    [The prepared statement of Mr. Johnson follows:]

 Prepared Statement of the Honorable Henry C. ``Hank'' Johnson, Jr., a 
   Representative in Congress from the State of Georgia, and Member, 
  Subcommittee on the Constitution, Civil Rights, and Civil Liberties





                               __________

    Mr. Cohen. The other Members' opening statements, without 
objection, they will be included in the record if they are not 
desirous of making a statement.
    I am now pleased to introduce the witnesses on the panel 
for today's hearing. I want to thank each of you for your 
willingness to participate in today's hearing. Without 
objection, your written statements will be placed in the 
record.
    I would ask that you limit your remarks to 5 minutes. We 
have a lighting system. Green means you are within the first 4 
minutes, yellow means you are in the last minute, and red means 
you should be finished. There is also a little button to push 
to turn on the microphone. Make sure you can be heard.
    After each witness has presented his or her testimony, the 
Subcommittee Members will be asked to ask questions subject to 
the same 5-minute rule.
    Our first witness is Babette Ceccotti. Ms. Ceccotti is a 
partner at Cohen, Weiss and Simon LLP, in New York City, a law 
firm specializing in the representation of labor organizations, 
employee benefit plans and individual employees. Ms. Ceccotti 
divides her time between the firm's bankruptcy practice and 
employee benefits practice. She represents labor organizations, 
numerous bankruptcy cases and a wide range of industries, and 
serves as outside counsel for the AFL-CIO in bankruptcy matters 
since 1998.
    Ms. Ceccotti, will you proceed with your testimony

                TESTIMONY OF BABETTE CECCOTTI, 
                   COHEN, WEISS AND SIMON LLP

    Ms. Ceccotti. Good morning, Mr. Chairman, Ranking Member 
Franks, and Members of the Subcommittee.
    I would like to thank you and Chairman Conyers for 
convening this hearing on H.R. 4677.
    I am appearing today on behalf of the AFL-CIO, a labor 
federation with affiliates representing 10.5 million workers. 
H.R. 4677 is a vitally important bill that would amend the 
Bankruptcy Code to provide greater protection to employees and 
retirees in business bankruptcy cases.
    As envisioned by Congress when the bankruptcy laws were 
modernized in 1978, the fundamental purpose of bankruptcy 
organization is to restructure a business's finances so that it 
may continue to operate, provide its employees with jobs, pay 
its creditors, and produce a return for its stockholders. But 
as the bankruptcy system has grown over the past 30 years, it 
has become clear that bankruptcy has been working well for 
powerful, moneyed constituencies, but is disastrous for workers 
and retirees.
    Rather than a vehicle for the preservation of jobs, 
bankruptcy has come to mean the loss of good jobs, decent 
wages, pensions and health care.
    And at the same time that workers are seeing their own 
financial security deteriorate through their employer's 
bankruptcy cases, they also see company executives being 
rewarded with bonuses and other pay schemes that reflect 
executive compensation practices at their worst. Corrective 
action by Congress is long overdue and is urgently needed.
    The bill provides a comprehensive set of reforms to the 
Bankruptcy Code that would increase workers' recoveries, reset 
the rules when labor costs are addressed in bankruptcy, restore 
job preservation as a true principal goal of business 
reorganization, and halt the use of bankruptcy as a safe haven 
for executive pay schemes.
    Bankruptcy is intended to provide a debtor with legal 
remedies in aid of restructuring its business. But the law was 
never intended to allow a debtor absolute control or unfettered 
discretion to impair the interests of other stakeholders. By 
design, creditors retain important rights in their dealings 
with the debtor. The law is, in fact, designed to develop 
negotiated solutions, and this can only work when stakeholders 
are able to effectively counterbalance the advantages that the 
law gives to the debtor.
    In crafting the bankruptcy laws, Congress has historically 
provided special protections for employees and retirees.
    Sections 113 and 114 reflect Congress' recognition that 
bankruptcy policy must be balanced by important nonbankruptcy 
policies, those favoring the resolution of disputes through 
collective bargaining, and the protection of retiree health 
benefits. However, protections that were built into the law 
have been severely weakened over time. Some statutory 
provisions simply have not kept pace with the growth of the 
bankruptcy system. Others have been undermined by court 
rulings.
    Court rulings have restricted the collection of the wage 
priority, severance pay, and WARN Act damages. Other rulings 
have hollowed out the protections under sections 1113 and 1114 
by reading out of those sections the nonbankruptcy policies 
Congress intended to apply.
    Some employees have been left literally defenseless by 
court rulings prohibiting them from engaging in self-help and 
suggesting that they may not even have a damages claim for 
contract rejection. As a result, workers are collecting less 
and losing more in business bankruptcies. The erosion of 
protections under section 1313 and 1114 have made workers and 
retirees particularly vulnerable because these protections go 
to the very heart of their financial security.
    The bankruptcy system's capacity to absorb ever larger and 
more complex business situations and the broad advantages given 
to a debtor under the law have proved to be a toxic combination 
for workers and retirees. Labor costs have become irresistible 
targets for the debtors and the restructuring professional that 
advise them, to a large degree, because systemic industry and 
economic conditions that may adversely be affecting the 
business cannot be controlled, even by a debtor in bankruptcy. 
In effect, workers and retirees are paying for problems because 
their wages and benefits can be controlled by bankruptcy but 
other forces cannot.
    In my written testimony, I have described a recent study 
that was conducted of cases filed in two popular venues, the 
Southern District of New York, and the District of Delaware, 
that showed that in 32 instances in which the courts ruled on 
motions under section 1113, the courts granted rejection in all 
of them. The author of that study concluded that section 1113 
as currently drafted is defectively ambiguous and provides 
insufficiently clear direction to the court regarding the 
protection of labor agreements.
    The bill would amend section 1113, to interject more 
specific direction to the debtor and to the courts to promote 
collective bargaining and prevent workers from 
disproportionately bearing losses, and adopt similar changes 
for section 1114.
    In addition, the preservation of jobs would become an 
express statutory purpose of Chapter 11. Although this 
fundamental goal has been at the heart of the business 
bankruptcy system, it is often lost among competing stakeholder 
concerns, as bankruptcy increasingly becomes the vehicle of 
choice for significant transactions.
    The bill would also improve the application of the wage 
priority, clarify that WARN Act damages are entitled to 
priority, and enhance recoveries for lost pension benefits. In 
addition, the bill would increase court oversight of executive 
compensation programs.
    Amendments enacted in 2005 to rein in these programs have 
led their proponents to devise strategies to circumvent the new 
rules, and with considerable success. Workers continue to lose 
money, but executives are doing well. Congress correctly took 
action to halt these practices in 2005, and more expansive 
rules are now needed to effectively curtail these programs.
    Mr. Cohen. Can you wrap it up?
    Ms. Ceccotti. Yes. Mr. Chairman, I will be happy to answer 
any questions any of the Members of the Committee have 
concerning the legislation.
    I would simply like to close by saying that labor groups 
worked very hard under difficult circumstances to achieve 
pragmatic outcomes in bankruptcy cases. H.R. 4677 would correct 
the seriously imbalanced bankruptcy process that has eroded the 
financial security----
    Mr. Cohen. Thank you ma'am. We need to keep with our times. 
We appreciate everybody else doing so as well.
    [The prepared statement of Ms. Ceccotti follows:]

                 Prepared Statement of Babette Cecotti





















































                              ATTACHMENT 1











































                              ATTACHMENT 2











































































                              ATTACHMENT 3








































                               __________
    Mr. Cohen. Our second witness is Captain John Prater. 
Captain Prater is the eighth President of the Air Line Pilots 
Association, ALPA, since 2006.
    As ALPA's chief executive administrative officer, Captain 
Prater oversees daily operation of the association, presides 
over meetings with ALPA's governing body and serves as chief 
spokesperson for the union. Captain Prater currently serves as 
a Boeing 767 captain and knows the importance of on-time 
takeoffs and finishing his statement in 5 minutes.
    Captain, would you begin your testimony.

              TESTIMONY OF JOHN PRATER, CAPTAIN, 
               AIR LINE PILOTS ASSOCIATION, INTL.

    Mr. Prater. Good morning, Chairman Cohen, Ranking Member 
Franks, and Members of the Subcommittee. I will keep my PAs 
fairly short and, I hope, make some key points.
    I am pleased to represent the nearly 53,000 pilots of the 
Air Line Pilots Association. Since our founding in 1931, ALPA 
members have delivered safely to their destination millions of 
passengers and millions of tons of cargo. ALPA pilots have 
helped our companies thrive in good economic times. We have 
also repeatedly sacrificed to help save our airlines in bad 
times, and we deserve to be treated fairly in bankruptcy 
process.
    Despite the original intent of Congress, section 1113 of 
the U.S. Bankruptcy Code today fails to protect workers or 
serve as the mechanism of last resort to save a failing 
business. Instead, it has been exploited as a business model of 
the first resort for companies to gain long-term economic 
concessions by gutting the wages and working conditions of 
airline and other employees. The 1113 process allows employers 
to unilaterally impose contract changes through the court and 
outside of the normal collective bargaining process.
    Recent court decisions have significantly loosened the 
standards that employers must meet before forcing unnecessary 
economic concessions from workers and have greatly limited 
employee recourse when it does happen.
    As a result, employers are now able to breach their 
employees' contracts with impunity. Workers have lost critical 
leverage in the process, removing any incentive for management 
to bargain in good faith during bankruptcy, which has yielded 
grossly unfair results.
    In just the last 10 years, more than two dozen U.S. 
airlines declared bankruptcies, with workers at nearly all of 
them taking severe wage cuts.
    Attached to my written testimony is a series of slides that 
illustrates the carnage that the bankruptcy process has brought 
to our industry, and to pilots in particular. This data shows 
the nearly $30 billion in wage concessions that pilots have 
given up and the nearly 50 percent overall decrease in pilot 
wages that has occurred at carriers filing Chapter 11. The data 
also shows that over 135,000 good American jobs have been lost 
from their industry.
    I will reiterate just one example. After the travesty of 9/
11, a typical pilot at United Airlines endured two rounds of 
concessions that included a 30 percent pay cut, followed by a 
12 percent cut in pay, harsher work rules, less job security, 
and a terminated pension plan. Thousands of United pilots were 
laid off. In 2009, the pilots who remained recaptured all of 
1.5 percent of their lost wages. In the face of this, the 
airline's CEO received a total compensation package worth more 
than $40 million.
    Now United is adding insult to injury by attempting to 
outsource significant trans-Atlantic flying based upon the job 
security concessions that were forced upon the United pilots 
during the bankruptcy process. This gross abuse is just one of 
many examples that I have detailed in my written testimony.
    This miscarriage of justice is bad for pilots at these 
individual airlines, bad for our profession. It is also bad for 
the U.S. airline industry and our economy.
    After 9/11, many airline managements not only used the 1113 
process to eviscerate employees' contracts, they also misused 
it to cut staff to the bone, with deteriorating customer 
service as just one of the outcomes.
    ALPA supports this legislation because it clarifies that 
bankruptcy courts must only permit concessions that are truly 
necessary, rather than those that are simply desired by 
management. It also directs courts to weigh in their 
deliberations the ramifications that a reorganization plan will 
have for all workers, and ensure that employee sacrifices are 
fair and proportional to those of other stakeholders, including 
the corporate executives.
    In summary, this legislation will restore balance to the 
bankruptcy processes and, with it, an incentive for management 
to bargain in good faith. It reestablishes collective 
bargaining as the primary means to make changes to a labor 
contract. It clarifies that a union may seek damages from the 
employer or strike if there are forced changes to a 
collectively bargained agreement.
    These critical reforms will promote bargaining, help 
restore battered employee morale and trust, and make labor a 
more effective partner in rebuilding the long-term financial 
health of airlines. This bill will also make certain that 
working families are not forced to deeply sacrifice, while CEOs 
reward themselves with lavish bonuses. This bill will level the 
playing field and share the pain of bankruptcy, rather than 
leaving workers to unfairly shoulder the burden.
    We urge Congress to swiftly pass this comprehensive reform 
legislation. Thank you. I would be more than willing to take 
any questions.
    Mr. Cohen. Thank you, Captain. Another on-time arrival.
    [The prepared statement of Mr. Prater follows:]

                   Prepared Statement of John Prater





























































                               __________

    Mr. Cohen. Our third witness is Mr. James Sprayregen. Mr. 
Sprayregen is a restructuring partner in the Chicago and New 
York offices of Kirkland and Ellis. Mr. Sprayregen has 
extensive experience representing U.S. and International 
companies in and out of court, as well as buyers and sellers of 
assets in distressed situations. He also has extensive 
experience advising boards, in general representing domestic 
and international debtors and creditors, and insolvency 
restructuring workout in bankruptcy matters, handle matters for 
clients in industries as varied as manufacturing, technology, 
transportation, energy, media and real estate.
    He returned to Kirkland and Ellis in December 2008 after 
nearly 3 years with Goldman Sachs. Prior to joining Goldman 
Sachs----
    Mr. Issa. Mr. Chairman, I couldn't quite hear you. Could 
you repeat that for the record?
    Mr. Cohen. Mr. Sprayregen has spent 16 years at Kirkland 
and Ellis where he has led bankruptcy cases for United Airlines 
and Conseco, among many others.
    Mr. Sprayregen, please begin your testimony.

              TESTIMONY OF JAMES H.M. SPRAYREGEN, 
                     KIRKLAND AND ELLIS LLP

    Mr. Sprayregen. Mr. Chairman and Members of the 
Subcommittee, I thank you for inviting me to testify today in 
connection with this proposed bill. As noted, I am a senior 
partner at the law firm of Kirkland and Ellis and run our 
restructuring and bankruptcy group. We primarily represent 
large- and middle-market companies in a wide variety of 
bankruptcy and insolvency situations.
    I have personally represented many international and U.S. 
companies in these types of situations, including TWA in their 
third bankruptcy, United in its bankruptcy, and currently Japan 
Airlines--the U.S. aspects of that.
    I offer my testimony from the perspective of the debtor 
company. We have somewhat of an asymmetrical situation in that 
there are not many prospective debtor companies that will come 
and testify before you and give their perspective on what they 
think will happen if they go bankrupt in the future, so it is 
left to folks like me who are generally in the industry 
representing companies like this in their situation.
    I would note that while this legislation seems to be very 
well intended, I believe that, if passed, it will have severe, 
and I mean severe, unintended consequences. It will be 
counterproductive. I believe it will, unfortunately, contrary 
to the goals of the legislation, result in less jobs, less 
money for employees, there being less employees, retirees being 
less protected, and more liquidations of companies that have 
large employee bases of industrial companies in America.
    Why do I say that? Unfortunately, the bankruptcy system is, 
by definition, used for companies that are unable to comply 
with their promises that they have made to a number of 
stakeholders, including employees. And in those situations, 
there needs to be, to be able to fix the company, compromise 
from all of the stakeholders in the situation: the creditors, 
union employees, nonunion employees, secured creditors, et 
cetera. This legislation would tilt that balance that has been 
carefully crafted in the 1978 Code and a number of amendments 
that have been made to the Code since then and some court-
imposed, U.S. Supreme Court-imposed elaborations on the Code 
and those amendments.
    And there being no free lunch, to the extent that this 
legislation were to pass, we are going to have a situation 
where secured creditors and lenders in the capital markets will 
look at this legislation, evaluate the prospects of a company 
continuing to exist and making it through a bankruptcy, and 
decide whether to lend to that company or not. Both out-of-
bankruptcy and before there ever is a bankruptcy, that type of 
thing is evaluated; and once there is a bankruptcy, the 
lifeblood of a bankruptcy is debtor-in-possession financing, 
and debtor-in-possession financing is only available for 
companies that the lender believes can actually be reorganized.
    Many of the amendments that are contained in the 
legislation will make it much more costly for a company to 
reorganize; will make it harder for the company to reorganize; 
and will set a standard for what compromises can be made by the 
court, or can be agreed to, that is only what is necessary for 
reorganization in a 2-year time period.
    Now, again, that is something that sounds good; but in the 
fullness of time, lenders look at whether there is a 5-year 
business plan for a fix of a company. If the changes that can 
be made to a labor agreement are only those related to what is 
absolutely necessary to avoid liquidation, and only for a 
period of 2 years, I submit that, unfortunately, lenders will 
not be lending to companies on debtor-in-possession financing 
basis, or to be able to exit the bankruptcy itself, and that 
will cause a situation which again is counterintuitive and 
counterproductive and not the intent of this legislation. But 
that is where it will take us.
    I am highly sensitive to all of the pain taken by many of 
the employees and the people that represent those employees 
sitting with me at the table. But I will tell you, many of the 
cases that they are citing were very close calls, not as to 
whether these companies would do those difficult things to 
their employees, but whether those companies would reorganize 
at all and whether they would liquidate.
    We talked about TWA, we talked about United. There are 
other companies that we talked about. If we move the balance a 
little bit here, we are going to put companies in a situation 
where they may not be able to survive the Chapter 11 process. 
And that would be unfortunate, because I agree with the intent 
that has been stated by the two previous witnesses and the 
upcoming witnesses that it is intended to save jobs and 
reorganize the company and share the sacrifice.
    I submit that is exactly what has been going on, and this 
is not something that is broke in this legislation. With all 
due respect, it is unnecessary. Thank you for hearing me.
    Mr. Cohen. You are welcome, Mr. Sprayregen, and I 
appreciate your testimony and allowing me to not have the right 
pronunciation and to help me with that, your name.
    Mr. Sprayregen. It happens all the time.
    [The prepared statement of Mr. Sprayregen follows:]

              Prepared Statement of James H.M. Sprayregen





































                               __________

    Mr. Cohen. Our fourth witness is Ms. Janette Rook. Ms. Rook 
was hired as a flight attendant by Northwest in July 1998. In 
2006 she was elected the Detroit Local Council Representative 
of the American Flight Attendants Union. Ms. Rook was elected 
to the Master Executive Council Vice President in May 2008, and 
has served as President from March 2009 to the present.
    Thank you, Ms. Rook, and will you proceed with your 
testimony.

           TESTIMONY OF JANETTE ROOK, ASSOCIATION OF 
                     FLIGHT ATTENDANTS-CWA

    Ms. Rook. Good morning and thank you, Chairman Cohen and 
Members of the Subcommittee, for holding this important 
hearing. My name is Janette Rook. I am the Master Executive 
Council President of the Association of Flight Attendants-CWA 
at Northwest Airlines, now Delta Airlines. I am also here on 
behalf of AFA-CWA's 55,000 members at 22 airlines around the 
country.
    In July 1998, I became a flight attendant with Northwest 
Airlines. A union contract negotiated since the mid-1940's was 
handed to each and every one of us. That contract provided 
decent pay, benefits, and working conditions, and was our 
admission to the great American middle class. I put my trust in 
that agreement with the knowledge that government institutions 
and the laws of the land would protect my contract.
    I testify today to tell a different story about how the 
laws of my country failed to protect airline employees during 
bankruptcy. My testimony is about my experience during 
bankruptcy at Northwest Airlines but, unfortunately, my story 
mirrors what occurred to thousands of airline workers at many 
airlines. The lives of so many airline workers and retirees 
have been devastated by the exploitation of our bankruptcy laws 
by airline management and their armies of outside lawyers, 
financiers, and consultants.
    I witnessed how management uses the bankruptcy laws like a 
weapon to obliterate pay, pensions, health care, and the jobs 
of hardworking Americans.
    Mr. Chairman, Northwest employees were told to pull things 
out of the trash, shop at thrift stores, and cut coupons as 
ways to manage the 40-percent pay and benefits cuts we 
experienced during bankruptcy. Meanwhile, our executives were 
paid bonuses of nearly $400 million. This insult to the dignity 
of Northwest employees best exemplifies why Congress must enact 
H.R. 4677.
    Congress must act to level the playing field so that 
bankruptcy is no longer a business strategy that transfers 
money to executives' pockets, while those with union contracts 
are forced by law to take drastic pay cuts, face devastated 
health care and retirement benefits, and the risk of outsourced 
jobs.
    On September 14, 2005, Northwest Airlines filed for Chapter 
11 bankruptcy protection in a New York court. Minutes before, 
in the same court Delta Airlines also filed. These filings set 
in motion drastic cuts in pay and slashed benefits at both 
airlines before the merger was announced in April 2008. It soon 
became clear that Northwest executives were poised to use 
bankruptcy laws to extract draconian pay and benefits cuts from 
employees and to abrogate our contract.
    Ultimately, Northwest executives failed to succeed in 
ripping up our contract. But along the way, they exploited 
loopholes in bankruptcy laws to attempt to impose concessions 
on our group and deny us the greatest bargaining leverage we 
have: the right to strike.
    The company filed a motion pursuant to section 1113 of the 
Bankruptcy Code that began an assault on our contract. This 
motion came with a message from management that negotiating was 
not an option. They intended to impose pay and benefits cuts on 
flight attendants with the stroke of a pen. Northwest 
executives also attempted to use the bankruptcy laws to 
outsource our work to the lowest bidder. We relied on remaining 
contractual protections and a public campaign to save our jobs. 
We thought that our country's bankruptcy laws protected workers 
but, instead, the laws were used against us at every turn.
    Meanwhile at United, Mesaba, Aloha, ATA, Midwest, Delta and 
US Airways' corporate executives used the bankruptcy laws in 
the same manner as Northwest management. Across the industry, 
management had the green light from bankruptcy courts that it 
was open season on our careers.
    When employees looked for protection in the laws of our 
land, we found no advocate.
    At Northwest, management won a U.S. district court case 
that eliminated our right to strike during bankruptcy, even 
though our right to self-help was our only leverage to fight 
back. H.R. 4677 restores that right.
    Northwest management also froze our pensions, as did other 
carriers in our bankruptcy. However, management's pension plan 
survived bankruptcy at many carriers. Bankruptcy judges ruled 
on executive compensation motions, they had sympathy for rank-
and-file employees, but essentially said said there was nothing 
they could do about it because the law did not give them the 
authority to second-guess management compensation.
    H.R. 4677 levels the playing field by curbing excessive 
executive compensation during bankruptcy.
    Mr. Chairman, my testimony, unfortunately, can be repeated 
in the near future if we don't act now. The airline industry is 
indeed volatile, and we know that events can spoil what looks 
like a hopeful recovery. Bankruptcy is not new to the airline 
industry. One hundred fifty airlines have filed for bankruptcy 
since the deregulation act of 1978, with 21 bankruptcies just 
since 9/11. We received a fresh reminder on January 5 when Mesa 
Airlines filed for Chapter 11.
    Left unchecked, airline executives can once again use the 
laws of our land to destroy careers and cause chaos to family 
budgets. You can stop it by passing H.R. 4677.
    Thank you. And I look forward to answering your questions.
    Mr. Cohen. Thank you, Ms. Rook.
    [The prepared statement of Ms. Rook follows:]

                   Prepared Statement of Janette Rook























































                               __________

    Mr. Cohen. Our fifth witness is Mr. Thomas Conway. Mr. 
Conway was appointed International Vice President of the 
Steelworkers in 2005 and elected to a full term in office a 
year later. He became an activist in the Steelworkers soon 
after he was hired in the Burns Harbor Works at Bethlehem Steel 
in 1978. While working as a millwright in a coke plant, he 
served as a griever for the plant-wide maintenance group and 
was a member of the Safety and Contracting-Out Committees.
    Appointed as a United Steelworkers staff rep in 1987 and 
assigned to Indiana's former District 31. Appointed secretary 
of the basic industry conference, Steel Industry Conference in 
1995. Was responsible as a court of appeal mobilization of the 
Steelworkers stand-up for steel campaigns and related trade and 
legislative efforts at the Federal and State levels.
    Mr. Conway, would you proceed with your testimony.

                  TESTIMONY OF THOMAS CONWAY, 
                UNITED STEEL WORKERS OF AMERICA

    Mr. Conway. Thank you Mr. Chairman. I appreciate the 
opportunity to be here. Our members in the Steelworkers work 
nearly every segment of manufacturing, not only steel but 
paper, forestry, rubber, energy, mining, automotive parts and 
chemicals. And while we think back over the last decade, we 
think of 40 steel companies who have gone into bankruptcy, many 
as a result of great over-global capacity in the steel markets, 
followed by a rash of unfair trade issues. The human dimensions 
of that were vast. The PBGC terminated some 240,000 steelworker 
pensions and retirees; 200,000 retirees and surviving spouses 
lost their health insurance they counted on, while the steel 
industry recovered substantially due to both tariffs and 
sacrifices made by our members. This onslaught goes on now, 
both in our other industries aluminum and steel, glass, iron, 
paper, every manufacturing sector is facing these issues.
    The last major reforms to the Bankruptcy Code that focused 
on worker interests were in the 1980's and were designed to 
provide a balance between an employer with a proven distress to 
obtain necessary leave from their labor agreement; and we 
believe Congress always intended this imbalance to be in place. 
But the experience of the last 25 years illustrates the balance 
has been upset dramatically, and courts regularly grant 
employer requests for relief under a standard we believe 
Congress had not intended.
    Congress should first now seek to restore that balance, 
give stronger recognition to the role, the important role of 
collective bargaining; include demanding that fulsome 
bargaining occurs before a debtor asks the court to intervene; 
define more narrowly the meaning of the term ``necessary to 
reorganization,'' and put meaningful limits on the length of 
proposed concessions within there.
    Secondly, the reform should assign a higher priority to the 
payment of employee retiree obligations, allowing them to be 
paid before the claims of other creditors who are typically 
more able to absorb those losses. Among those other creditors 
with greater financial reserves are highly compensated 
executives, lawyers, and investment bankers who gather around 
these travesties.
    Third, the reforms should explicitly inscribe the 
principles of shared sacrifice, meaning executives should not 
be allowed to improve their own salaries and benefits while 
workers and retirees are forced to sacrifice their quality of 
life. Courts should ask the executives have they first made 
those sacrifices themselves before exposing workers and 
retirees.
    Linked to this principle is the need to rein in so-called 
incentive plans which are designed for executives by 
compensation firms, retained by those same executives, and 
shower them with new and oftentimes lavish benefits for results 
that may have nothing to do with the ultimate success or 
reorganization.
    The unions are not the only ones expressing a concern about 
this. Recently, in the Southern District of New York, in the 
Ventura Corporation, the judge recognized that there is this 
ever-going compensation arms race that is going on. And by 
acting now, Congress can put an end to this arms race by 
forcing debtors to justify the fairness of the efforts to 
increase managing compensation through the guise of all these 
incentive programs and retention programs.
    Fourth, bankruptcy reform must also take into account the 
impacts of sales and liquidations upon workers and retirees. 
Congress should clarify that a judge may, in reviewing the sale 
or auction of a company's assets, favor a purchaser that plans 
to retain jobs and benefits over a purchaser that would simply 
liquidate assets.
    And as borne out in numerous recent cases, the need for 
sale-related protections has risen. We have observed with 
greater frequency, cases in which a company secured lenders 
which appear to be unwilling in the current climate to extend 
long-term financing needed for these companies to allow--they 
pressure the companies to sell the assets quickly. In some 
instances, the lenders themselves can serve as the buyer. In 
too many of these cases, the bankruptcy case appears to be run 
for the exclusive benefit of the lenders and to the detriment 
of all other credit groups. Congress must act to protect the 
interests of workers and retirees in those types of 
transactions.
    Long after the banks have been paid, the hedge fund 
investors have moved on on the next deal. The so-called workout 
turnaround experts have jetted off to their next assignment, 
and workers and retirees who depended on this company will 
remain. This is an opportunity for Congress to put rebalance 
back into the Bankruptcy Act, to allow workers and retirees a 
place at the table during these transactions that they deserve.
    And I look forward to answering any of your questions. 
Thank you.
    Mr. Cohen. Thank you, sir. I appreciate it, Mr. Conway.
    [The prepared statement of Mr. Conway follows:]

                  Prepared Statement of Thomas Conway















                               __________

    Mr. Cohen. The next witness is Mr. Michael Bernstein, a 
partner at Arnold & Porter, representing secured and unsecured 
creditors, creditors committees, bondholders, investors, assets 
purchasers, debtors and other parties in a wide variety of 
bankruptcy and workout matters and related litigations 
throughout the U.S.
    He has been involved in large bankruptcy cases including US 
Airways, TWA, Adelphia and Continental Airlines, as well as 
many other such cases throughout the United States.
    He has coauthored two books, published many articles on 
bankruptcy-related topics and also testified previously before 
Congress as an independent expert on the status of collective 
bargaining agreements and retiree pensions and benefits in 
bankruptcy. Mr. Bernstein, please.

              TESTIMONY OF MICHAEL L. BERNSTEIN, 
                      ARNOLD & PORTER LLP

    Mr. Bernstein. Thank you, Mr. Franks and Members of the 
Subcommittee. I appreciate your inviting me to testify at your 
hearing today. I am a partner in the law firm of Arnold & 
Porter LLP and chair of the firm's National Bankruptcy and 
Corporate Restructuring practice; however, I am here testifying 
today in my individual capacity and not on behalf of my law 
firm or any of its clients.
    Chapter 11 is intended primarily to enable a financially 
troubled business to restructure its obligations so that it is 
able to emerge as a viable, going concern. A debtor that 
achieves this objective benefits its creditors, suppliers, 
customers, employees, local communities and other 
constituencies.
    H.R. 4677 would modify many provisions of the Bankruptcy 
Code. Some of these modifications are difficult or impossible 
to reconcile with the fundamental goals of Chapter 11 and would 
be likely to impair the ability of debtors to reorganize.
    I will make five points in this regard. First, the bill 
would increase the cost of Chapter 11 reorganizations, 
including by creating substantial new administrative and 
priority expenses. Debtors that are unable to pay such expenses 
would be forced to liquidate.
    Second, the legislation would create additional hurdles for 
a business that needs to modify its labor and retiree cost 
structure in order to remain viable. It would do so in several 
ways.
    First, it would raise the already very stringent legal 
standard for obtaining relief.
    Second, it would effectively preclude labor cost 
modifications where a debtor is paying incentive-based 
compensation to its managerial employees, even if the 
Bankruptcy Court has found that such compensation is necessary 
and appropriate.
    Third, it would slow down the 1113 process and thereby in 
most cases slow down the entire reorganization.
    Fourth, it would reduce the likelihood of negotiated 
resolutions, resulting in more litigation, which is contrary to 
the stated intention of Congress when 1113 was enacted. And 
even after the labor issues are resolved, whether by settlement 
or court decision, the bill would permit the union an unlimited 
opportunity to relitigate the same issues.
    Finally, the bill would limit modification proposals to the 
bare minimum necessary to enable the company to exit bankruptcy 
and survive for a short time. This would discourage new 
investment in reorganizing debtors and make repeat bankruptcy 
filings more likely.
    The bill would also prohibit creditors and other interested 
parties from even participating in the section 1113 hearing, so 
the court would be unable to hear their views, even though the 
outcome of the proceeding may have a profound impact on their 
recoveries.
    Finally, the bill would threaten potential havoc for 
companies that seek 1113 relief. For example, it would give 
unions what they sometimes refer to as the ``nuclear'' option, 
allowing them to strike in retaliation for a debtor's 
implementation of court-approved modifications, even where such 
a strike would destroy the company. And it would make the mere 
filing of an 1113 motion grounds for termination of 
exclusivity.
    These provisions are obviously intended to create a 
disincentive for a company to seek modification of its labor 
costs. But they create an untenable situation for a company 
that legitimately needs that relief in order to be able to 
successfully reorganize. If these provisions are implemented, 
it is almost certain that some debtors who truly need to modify 
burdensome and above-market labor costs would be unable to do 
so.
    Such companies are likely to be unable to attract new 
capital and, instead, would be forced into liquidation. This 
would be detrimental to all stakeholders, including the 
employees who lose their jobs in a liquidation.
    Third, several of the proposed modifications would make it 
materially more difficult for Chapter 11 debtors to attract and 
retain qualified managerial employees. In order to retain and 
attract management talent, the debtor must be able to pay 
market-competitive wages and benefits to its management 
employees, including in many cases incentive-based 
compensation. This bill would make doing so much more 
difficult. It would thus make it easier for competitors to 
cherry-pick a debtor's best management talent.
    Several provisions in the bill would directly link the 
wages and benefits paid to managerial employees to the wages 
and benefits of hourly employees. While there may be a 
superficial appeal to such a linkage, it fails to take into 
account the economic reality that there are different labor 
markets for different types of employees.
    Fourth, certain of the provisions would substitute 
inflexible one-size-fits-all rules for the judicial discretion 
that exists under current law. Because each company, each 
industry, and each Chapter 11 case is different, the 
reorganization goal of Chapter 11 is better served by allowing 
judges to make decisions in each case based on the evidence 
before them, rather than trying to create identical rules for 
every case without regard to the facts.
    And, finally, by elevating the claims and rights of union 
employees, the bill would diminish the recoveries and rights of 
other constituencies. For example, the bill would create 
substantial new administrative priorities that must be paid in 
full before any other creditor gets anything at all. It would 
elevate certain equity interests held by employees to the level 
of debt. It would create new rejection damage claims that would 
dilute the recovery of other creditors. It would allow 
employees to assert pension plan termination claims that are 
duplicative of the PBGC's claims. And it would appear to allow 
retirees greater rights in bankruptcy than they have outside of 
bankruptcy.
    And where there are competing Chapter 11 plans, it would 
require the court to confirm the plan labor favors without 
regard to the interests of creditors or any other constituency.
    Viewed in isolation, these new priorities, claims, and 
rights may not seem particularly problematic. However, in 
evaluating the extent to which they should be created, it is 
necessary to consider two points.
    One, these administrative and priority claims must be paid 
in full for a debtor to reorganize; thus, the creation of these 
claims will make it more difficult for these companies to 
reorganize and emerge from bankruptcy.
    And, finally, the new employee claims will leave less money 
for the holders of other claims. Thus, while it may be 
appealing to ``say we are giving greater claims to employees,'' 
it is important to keep in mind that by doing so you are 
diminishing the recovery of other creditors such as, for 
example, taxing authorities, trade vendors, customers or tort 
victims who are injured by a debtor's products.
    The rights of employees are important but they need to be 
balanced against the rights of other constituencies, and the 
debtor's need to achieve a sustainable cost structure.
    This bill elevates the rights of unions and employees to 
such a great degree that it would be damaging to the rights of 
other parties and to reorganization process.
    Mr. Cohen. Thank you Mr. Bernstein.
    [The prepared statement of Mr. Bernstein follows:]

               Prepared Statement of Michael L. Bernstein



































































































                               __________

    Mr. Cohen. The final witness is Mr. Robert Roach, Junior. 
Mr. Roach started with the International Association of 
Machinists as a ramp serviceman for TWA and a member of the 
local lodge in New York City. He has been a union 
representative since 1979, holding numerous worker advocate 
positions. He became a member of the IAM Executive Council, 
General Vice President of the Transportation Department in June 
1 of 1999, reelected in 2001, 2005 and 2009.
    As General Vice President of Transportation, 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. We always like to see people who win 
elections. Thank you for your testimony.

 TESTIMONY OF ROBERT ROACH, JR., INTERNATIONAL ASSOCIATION OF 
                MACHINISTS AND AEROSPACE WORKERS

    Mr. Roach. Thank you, Mr. Chairman and Ranking Member 
Franks for the opportunity to come and speak before this 
Committee. My name is Robert Roach, Junior. I am the General 
Vice President of the Transportation Department for the 
Machinists Union. I am appearing as the designated 
representative 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, covering more than 5,000 collective bargaining 
agreements in transportation, aerospace, ship building and 
defense-related industries.
    I am speaking to you today as a union representative with 
25 years experience in bankruptcy and with extensive bankruptcy 
experience, and as a retired airline employee who has 
personally felt the effects of airline bankruptcy. I have 
personally witnessed the destruction of tens of thousands of 
lives with the Chapter 11 process. The Machinist Union strongly 
supports the passage of H.R. 4677 to protect employees in 
corporate bankruptcies.
    While Chapter 11 bankruptcy can provide struggling 
companies an opportunity to regroup and avoid liquidation, it 
has increasingly been abused as a means to get a leg up on the 
competition.
    In 1984 Congress created section 1113 of the Bankruptcy 
Code in response to companies using bankruptcy as a weapon to 
eliminate employee collective bargaining agreements; however, 
section 1113 of the current law has deteriorated the collective 
bargaining process and not enhanced it. Recent court decisions 
actually incentivized employees not to reach an agreement with 
their unions. Good-faith bargaining can only be achieved when 
there is a level playing field and both parties have something 
to gain or lose at the bargaining table.
    The employee's right to withdraw services ensures that both 
the parties understand the consequences of failing to reach a 
negotiated agreement.
    The current inequitable bargaining process has dramatic 
consequences. United Airlines' IAM members were forced to 
sacrifice more than $4.6 billion. Workers lost wages, pensions 
and jobs.
    US US Airways,. In US US Airways,' first bankruptcy in 
2002, IAM members were forced in two rounds of contract 
concessions totaling $276 million per year, $1.8 being over 
6\1/2\ years.
    In the second US US Airways, bankruptcy, pay cuts of up to 
15 percent. Northwest bankruptcy, pensions were frozen 11.5 
percent, wage cuts, and jobs eliminated.
    At the same time, the executives who fail to operate these 
airlines as an ongoing concern, who put the airlines in 
bankruptcy in the first place, then reap benefits of high 
bonuses, stock options, lucrative salaries and perks.
    Since these bankruptcy cases focus more on what could be 
extracted from employees, rather than developing a new business 
plan, as a result these same carriers seem to be still 
struggling today. Bankruptcy carriers forced other airlines who 
were operating as ongoing concerns, like American and 
Continental, to threaten employees with bankruptcy if they 
didn't agree to cuts. The current bankruptcy laws were used as 
a bargaining weapon, not because of the need to restructure, 
but as an alternative to liquidation.
    In the end, somebody must pay. I think the Congress seems 
to understand that when people lose their jobs, when people 
lose their health insurance, that somebody pays. And these 
people either wind up on some social service program, Medicaid, 
Medicare, or the PBGC assumes these liabilities. And the PBGC 
today is some $30 billion underfunded. Auto, steel, banking, 
newspaper, cable television, and trucking companies are among 
the more than 100 publicly traded companies that seek Chapter 
11 bankruptcy protection each year.
    IAM members, at auto parts supplier Dana Corporation, saw 
their company eliminate retiree medical benefits in bankruptcy. 
IAM members at Kaiser Looms saw their pensions terminated in 
bankruptcy, resulting in the loss of some promised.
    Bankruptcy laws should be amended to ensure employees 
engaged in good-faith bargaining bankruptcy laws must strictly 
limit executive bonuses, stock grants and other executive 
compensation.
    Bonuses paid to executives after emerging from bankruptcy 
must be reviewed by the court and take into account the amount 
of pain inflicted upon employees during the filing of 
bankruptcy. The PBGC, the quasi-governmental agency, should 
have the financial resources available to guarantee all the 
vested benefits promised in a pension plan without reduction of 
maximums.
    Congress should make bankruptcy a less attractive mechanism 
to dump pension obligations onto the Federal Government. The 
PBGC needs to have the ability to enforce pension funding rules 
on a level playing field, increase the priority claims limit 
for wages, provide employees and retirees with the ability to 
recover pension losses, direct judges to consider how 
reorganization plans will impact jobs, collective bargaining 
agreements, pensions, and retiree benefits when approving 
reorganization plans.
    The MachinistS Union strongly supports comprehensive 
bankruptcy reform contained in H.R. 4677 that will protect our 
Nation's workers, require shared sacrifice among all 
stakeholders.
    Thank you for the opportunity to speak and for the 
invitation. I look forward to your questions.
    Mr. Cohen. Thank you, Mr. Roach.
    [The prepared statement of Mr. Roach follows:]

                Prepared Statement of Robert Roach, Jr.























                               __________
    Mr. Cohen. We have now concluded our testimony and we will 
go to the questioning period. I will recognize myself first for 
5 minutes.
    Mr. Sprayregen, I appreciated your testimony and I think 
you made some really good points. But in your testimony, you 
said that the debtor's perspective is different than the others 
testifying today, because the debtor is charged with the 
responsibility of weighing the interest of creditors, 
employees, retirees and consumers, among others. ``Employees'' 
includes the executives, I guess.
    Would you not see a conflict of interest in the executives 
who bring about, have to bring about, even if they think so, 
don't want to, to bring their companies into the bankruptcy 
proceedings, who hire the attorneys who represent the company, 
having their own compensation and benefits be part of what has 
to be. The debtor has its duty, being the responsibility of 
weighing those interests. Can the management really do that? 
Don't they have a conflict of interest?
    Mr. Sprayregen. Sir, yes, they actually do. And that is why 
in most situations those issues are actually handled at the 
board of directors' level rather than by management, because of 
that precise issue.
    Mr. Cohen. Let's face it. The board of directors are picked 
by the president. It is an incestuous situation.
    Show me an independent board, and I will show you a 
dysfunctional company.
    Mr. Sprayregen. I would tell you, sir, with all due 
respect, the boards that I have represented over the years have 
strived to do a very good job. But more importantly, they have 
to go before the court with notice and opportunity for all of 
the various stakeholders to have input on whatever the proposed 
plan is, and then there have been numerous tweaks to the 
compensation legislation over the years. And the judge takes 
into account all of those inputs from various parties.
    And my point on that is it is not that that system works 
perfectly, but more that it needs to be dealt with; with more 
like a scalpel than a sledge hammer, that I think this bill is.
    Mr. Cohen. Well, Mr. Sprayregen, you and Mr. Bernstein both 
take the position that this bill gives too much to labor. And 
you don't address too much--and let's say labor should take 
some hits. But the executives, they are labor too, they may not 
think it but they are--shouldn't just because they are not 
organized, because they don't have to be organized because they 
write the checks--shouldn't there be some changes to what their 
compensation is?
    And to be honest, what was it--in the United Airlines, how 
much was the package for executives; 40 million or 400 million?
    Mr. Sprayregen. Yes, there absolutely should be 
compensation cuts on the shared sacrifice and shared pain 
basis. And in fact, United Airlines is a good example. On the 
first day of the bankruptcy case, the senior management took 
double-digit pay cuts to lead the way.
    Mr. Cohen. Double-digit pay cuts. That was from what to 
what?
    Mr. Sprayregen. I don't have the specific numbers, but they 
took a percentage of pay reduction. Ultimately, everybody in 
the company, both unionized and nonunionized personnel, all 
took pay cuts. And then as part of the overall exit, there were 
various compensation packages approved in the plan of 
reorganization by the court.
    Mr. Cohen.. Mr. Bernstein, if it is a pro rata cut, is that 
what you generally see as pro rata, everybody gets 20 percent 
or something? Is that what happens?
    Mr. Bernstein. Do you mean among management and the labor 
groups?
    Mr. Cohen. Yes, sir.
    Mr. Bernstein. Not in all cases. I think the way companies 
tend to look at these issues is by labor market. In other 
words, what a company's goal is to do is to pay each group of 
its employees, from the most senior management to the lower-
level management to hourly employees and to the various 
represented employees, a wage and benefit package that is 
market-competitive; that is, that is commensurate with the 
market for those particular services.
    Mr. Cohen. So if Masa charges $300 for sushi, and in 
Memphis they only charge $30 for sushi, they should get more 
money to buy the sushi to benefit the sushi chefs?
    Mr. Bernstein. I am not sure, Mr. Cohen, that I understood.
    Mr. Cohen. The New York cost of living being outrageously 
high, and people live there and pay for things that, really, 
the costs are just insane--that we should pay those people to 
continue to foster those lifestyles of the rich and famous?
    Mr. Bernstein. What happens is if a company has employees 
in New York playing a certain role, it needs to look at what 
the going wage is for those services in that particular city 
for comparable companies.
    Now, obviously, the going rate for a CFO is different than 
the going rate for a mid-level manager, is a different rate 
than the going rate for a truck driver.
    But what a debtor in Chapter 11 can't do is to ignore the 
economic situation in which it operates, the competitive 
framework in which it operates. No debtor wants to pay 
materially more money than it needs to to any group of its 
employees.
    Mr. Cohen. I just have 10 seconds. I have to cut you off 
and ask Ms. Ceccotti to tell me what you think about their 
arguments and this idea that management is taking a fair cut.
    Ms. Ceccotti. I think, Mr. Chairman, what that we are 
seeing here and I think what your questions are alluding to is 
that the bankruptcy code is now harboring or fostering an 
indefensible double standard. The notion that executives can 
use bankruptcy to further various pay schemes, bonuses, 
retention, and the like is something that is not supported, 
certainly, by anything in the law.
    At the same time, what bankruptcy is supposed to do is it 
to provide a means for everyone to share the sacrifices. So if 
we are going to have shared sacrifice, then that means 
everybody shares. It doesn't mean we have a double standard 
where some groups are constantly sharing, and sharing to the 
point of changes to their living standard, while others are 
simply pocketing money or getting rewards under the guise of 
incentives or bonuses or however you want to phrase them.
    So I think that what we have to do is we have to get back 
to the notion that the purpose of bankruptcy is to restructure 
the business through shared sacrifice, and ``shared'' means 
everybody.
    Mr. Cohen. Thank you, Ms. Ceccotti.
    My time has expired, and I recognize the Ranking Member, 
Mr. Franks, for 5 minutes.
    Mr. Franks. Well, thank you, Mr. Chairman.
    Mr. Sprayregen, I would like to try to just, kind of, get 
to the bottom line here. The union leaders at the table with 
you assert that labor unions currently have too little power 
during the reorganization process. That is essentially, you 
know, the purpose of the bill here that is being offered.
    Tell me, do you agree with this assessment? And, if not, 
why not? Give us a little perspective on why you think that the 
unions either have too little or not enough power in the 
reorganization process.
    Mr. Sprayregen. Sir, I disagree with that perspective for 
numerous reasons. My experience in a number of cases and 
dealing with many of the witnesses at this table is there is 
tremendous power and tremendous leverage.
    And we have to remember that most of those situations are 
resolved in the conference room, not in the courtroom. So we 
hear a lot of citations to things being rejected by judges, but 
ultimately these statutes are intended to foster bargaining, 
which is exactly what has happened. And the reason why most of 
these situations get to agreements is because there is 
tremendous leverage among the employee bargaining units of the 
various industries that we are talking about. And management 
and the boards and the other stakeholders know that and have to 
deal with that.
    And, with all due respect to the folks at this table, the 
recoveries that are generated by these groups are healthy 
compared to the recoveries of other stakeholder groups. That is 
not to say they are good compared to what were the original 
promises, but the problem is there is not enough money to go 
around, by definition, in these situations.
    Mr. Franks. Mr. Bernstein, would you like to take a shot at 
that same question? Essentially, do unions have too little 
power in the reorganization process as it stands now?
    Mr. Bernstein. No, I think, actually, the balance of 
leverage is quite good now. And that is consistent with what 
Congress stated its intention to be when it enacted Section 
1113, to have a balance where each of the company and labor had 
risks, and that encouraged the negotiated resolutions.
    And if you look empirically to what is actually happening, 
the facts on the ground, so to speak, in fact the overwhelming 
majority of labor management situations in bankruptcy are 
resolved through consensual negotiation.
    We hear a lot about the Northwest Airlines case, and it was 
talked about today. But even in that case, which is held up as 
an example of a litigated case, in reality, six out of the 
seven labor unions reached an agreement with the debtor. It was 
consensually resolved in six out of seven. And, actually, even 
the seventh one, the flight attendants, was consensually 
resolved, except that the membership didn't agree with what its 
own union had done and vetoed its union's solution.
    The reality is that the litigated cases get a lot of 
attention, but what is actually happening is that the 
overwhelming majority of the situations are resolved through 
negotiation, precisely because there is a delicate balance of 
leverage that Congress achieved in 1113.
    What would happen in this bill is that we would upset that 
balance of leverage in many ways, some of which I alluded to in 
my written testimony. And, by doing so, it would result in more 
litigation and fewer negotiated solutions, which is 
inconsistent with Congress's goal.
    Mr. Franks. Let me go ahead and ask you another question. 
We have had several hearings related to labor unions and 
bankruptcies during which union leaders have asserted that 
companies file for bankruptcy simply to get out of their union 
contracts, that that is the main predicate.
    In your experience, do companies file for otherwise 
avoidable bankruptcies in order to force labor concessions?
    Mr. Bernstein. Absolutely not, Mr. Franks.
    There are some cases in which the labor cost burden is so 
great that a company must, in connection with its 
reorganization, restructure its labor costs and rationalize 
them in order to be able to remain competitive. But no company 
that can otherwise remain competitive chooses to file Chapter 
11 simply because they want to take potshots at labor. This is 
a very hard thing for a company to do. It is very hard to get 
approved by the courts. It affects morale, it affects 
relationships, and no company wants to do this.
    But there are companies that have no choice because they 
are paying above-market wages and above-market benefits, and 
their very survival as an entity depends on their ability to 
rationalize their labor costs.
    Mr. Franks. Mr. Sprayregen, I would like for you to take a 
shot at that same question. In your experience, do companies 
file for bankruptcy that, you know, would otherwise be 
avoidable in order to force labor concessions?
    Mr. Sprayregen. Companies file for bankruptcy because they 
are running out of money. And that is the reason that they 
file. It is not a decision taken lightly. It is not a fun 
process, even in the cases where there are no labor issues. It 
is a difficult process. I would also note that upwards of 65 
percent of management, senior management, gets changed out, 
historically, as bankruptcy cases proceed.
    So, no, that is not the purpose or the reason why 
bankruptcy cases are filed. And, as noted by Mr. Bernstein, if 
the cost structure of the company is not competitive, that is 
one of the things that is addressed through the bankruptcies, 
and that may be one of the reasons why the company is running 
out of money. But healthy companies very rarely file for 
bankruptcy.
    Mr. Franks. Well, thank you, Mr. Chairman.
    Thank all of you.
    Mr. Cohen. I now recognize the distinguished gentleman from 
the Bay State, Mr. Delahunt.
    Mr. Delahunt. Thank you, Mr. Chairman.
    You know, I can see this playing out, you know, that there 
has to be competition with those who are paying--or companies 
that find themselves in trouble because they are paying above-
market benefits, above-market wages. I can just imagine a 
continuum of bankruptcies so that the end result will be the 
lowering of wages and benefits in an entire industry. Not bad. 
It increases the disparity in income and wealth, and those 
companies that survive, that management team is going to be 
doing pretty well. That management team is going to be doing 
pretty well.
    I hear the term ``balance,'' and I think many of the 
witnesses have used that term.
    Mr. Bernstein, am I correct in assuming that you think the 
balance is right where it ought to be right now?
    Mr. Bernstein. Yes, sir, I do believe----
    Mr. Delahunt. Yes, thank you.
    And Mr. Sprayregen?
    Mr. Sprayregen. It is not perfect, but it is generally----
    Mr. Delahunt. Well, how would you improve it?
    Mr. Sprayregen. I believe that the amendments contained in 
this bill largely, as I said, would not improve the----
    Mr. Delahunt. But how would you improve it?
    Mr. Sprayregen. I do think there can be more concentration 
on the proper compensation structures for both union and non-
unionized employees----
    Mr. Delahunt. I would be very interested if you would, when 
you leave here today, if you could forward to the Committee 
just a list of your recommendations.
    Mr. Sprayregen. I would be happy to do so.
    Mr. Delahunt. I think it would be educational.
    You know, I think what is particularly sad or disturbing to 
me is not only the fact that this is really about people at the 
bottom line--that is my bottom line. And I think there is a 
particular segment that really have been done a terrible 
disservice, and those are the retirees, you know, men and women 
who thought they had a promise and that promise wasn't 
fulfilled, who thought they were going to get a pension that 
they didn't end up getting, that they thought that their health 
care coverage was going to continue and they went to the 
druggist and were told a day after or a day before the filing 
of a bankruptcy that they were no longer covered. I am thinking 
of a case in Massachusetts, the Polaroid company, who really, I 
thought--it was the ultimate in terms of callousness, et 
cetera.
    Would you all agree that it is Congress that really 
establishes the priorities, that, you know, maybe--and I would 
be interested in anybody--Mr. Conway, Mr. Prater--that there 
ought to be a different treatment to those who have retired 
that no longer--who oftentimes their skills are outdated, 
promises have been made to them, and they find themselves so 
disadvantaged that they are not in a negotiating position.
    I have to also allude to this consensual negotiation or 
resolutions. I mean, the truth is, Mr. Bernstein, you know, 
when you have a gun to your head, okay, you don't have a 
consensual relationship there. That is just sheer baloney. You 
have a choice of either saying, ``Pull the trigger and blow my 
head off'' or, ``I am going to do what you''--you know, I don't 
have a choice.
    In any event, let me just pose that last question out 
there. Mr. Prater? Mr. Conway? Anybody?
    Mr. Conway. I think, as I was listening to both Mr. 
Sprayregen and Mr. Bernstein describe all the settlements that 
are reached outside of the court, it is exactly why this law 
needs to be revised. Because the unions know you can't go in 
that courtroom because you are not coming out. So you do have 
that gun to your head, and you have to reach some deal as best 
you can that impacts all those retirees and all those people.
    And that proves the balance that we need restored here. It 
is so out of balance that to step in front of the judge in the 
courtroom, surrounded by all the lawyers and the bankers, the 
union stands little chance, so we cut our deals outside of----
    Mr. Delahunt. Who are being well-paid, by the way.
    Mr. Conway [continuing]. As best we can. And it speaks to 
the need for the change of this law.
    Mr. Prater. Congressman, I would agree with that. The 
balance has been completely destroyed. In fact, all you have to 
do is look at companies that have filed bankruptcy while they 
were profitable just so they could keep up with the Joneses 
across the street who had filed bankruptcy to destroy their 
labor contracts.
    The impact and effect on our retirees is critical, to watch 
a 58-, 59-, 60-year-old man or women be told that they have 
lost 75 percent of the income they have counted on. What we are 
missing here is, the CEOs and management teams don't stick 
around. It is the employees we represent that stick around for 
25, 30, 35 years. We are the most vested people wanting to see 
a company reorganize, but they have thrown it completely out of 
whack by the imbalance created by the judges.
    When 1113 was created, I was one of those employees in 
bankruptcy on strike to prevent Frank Lorenzo from throwing out 
our contract at Continental Airlines. 1113 was supposed to 
introduce fairness to the equation. However, under the recent 
court decision, it has been thrown out of whack. That is why we 
are here supporting this legislation.
    Mr. Roach. Yes, certainly, retirees, retirees at U.S. 
Airways lost their health insurance. At United Airlines, their 
health insurance costs were dramatically increased. At 
Northwest Airlines, there had to be a restructuring of health-
care benefits.
    And I think, again, I would like to say that many of these 
people wind up on programs funded by the government, and others 
just drift away. Pensions have been cut, and there is really 
nobody to speak for them.
    And when you say about negotiated agreements, well, the 
choice is either they give you a number--$950 million, $1.2 
billion--either you reach that number or they go into court, 
and the judge's alternative is to keep everything the way it 
is, which he is not going to do, or terminate that collective 
bargaining agreement and you start out with zero.
    So these things, there is no balance. And you have to 
argue--I would have to argue that, when somebody goes into 
bankruptcy and people lose their pensions and health insurance 
and salaries are cut anywhere from 10 to 25 percent, and the 
same people who put that company into bankruptcy come out with 
a $40 million pay package, and you say, ``Well, we need to keep 
these people around,'' those are the people you need to get rid 
of you. Those are not the put you keep around. They put them in 
bankruptcy in the first place. And so we pay them additional 
money to keep them around.
    You have every major bankruptcy in the airline industry 
where people have put airlines into bankruptcy--Dave Siegel 
from U.S. Airways, he stuck around for about 6 months and got 
$5 million. These are the types of things that we are talking 
about. We are not talking about talented people.
    When you talk about a level playing field for companies, 
you got American Airlines and Continental Airlines paying the 
same wages as United and U.S. Airways, but they didn't go into 
Chapter 11. The management ran the business, and so--but they 
were forced to go to their employees to get cuts because 
United, U.S. Airways, and Northwest, they go into bankruptcy 
and cut the wages of the people. Southwest Airlines, 95 percent 
unionized, pays the highest wages and benefits in this country 
to their airline employees, and they run a profitable airline.
    It has to do with somebody who is running the business has 
an ongoing concern, or somebody who is looking for the perks 
and the bonuses and the incentive packages that come along to 
putting a company into bankruptcy, hiring my good friend, Mr. 
Sprayregen, who I have spent many nights with, having to deal 
with the bankruptcy issues, and coming out. My allegiance is to 
the members, his allegiance to the client. And so, if the 
client says, ``You get me $40 million, $50 million,'' that is 
what his job is to do. And so my job is to protect the 
interests of members, and that is what I try to do to the best 
of my ability with people like my counsel, Sharon Levine from 
Lowenstein Sandler.
    Thank you very much.
    Mr. Cohen. Thank you, Mr. Roach. That was an interesting 
perspective. Sounds like maybe you had some experience in 
Japan, where the management does take responsibility for 
catastrophic consequences.
    Mr. Watt, you are recognized.
    Mr. Watt. Thank you, Mr. Chairman.
    Mr. Delahunt asked the primary question I wanted to ask, 
especially Mr. Sprayregen, about adjustments that need to be 
made to, particularly, Section 1113. So I would be interested 
in getting your written comments on that.
    Both you and Mr. Bernstein were pretty unhappy about the 
contents of this bill. Is there anything in it that is worth 
salvaging, from your perspective?
    Mr. Sprayregen. I don't believe this bill comes at it from 
the perspective of taking into account what happens in real 
life in these bankruptcy cases----
    Mr. Watt. I don't need a speech. I am just asking about, is 
there anything specific in the bill that you think is worth 
salvaging, either you or Mr. Bernstein? Any particular 
provision in the bill that you think is worth salvaging?
    Mr. Sprayregen. I have to admit, I don't have off the top 
of my head a provision I can refer to. But one----
    Mr. Watt. Okay. Would you mind addressing that question 
when you give us the written response?
    Mr. Sprayregen. Absolutely.
    Mr. Watt. Mr. Bernstein, anything in the bill that you can 
think of that is worth salvaging? Tell me ``yes'' or ``no,'' 
first. And if you have some ``yes,'' then I am happy to have 
you elaborate.
    Mr. Bernstein. I think there is one provision in the bill 
that, while it could causes problems, also has some merit, from 
a fairness perspective. And that provision would allow a 
rejection damage claim when a collective bargaining agreement 
is modified or rejected through the 1113 process.
    Mr. Watt. Okay. That is fine. We will look at that 
provision.
    Now, there is one provision in the bill, in particular, 
that accords wages up to $10,000 a higher priority. What was 
the rationale originally for making wages a lower priority than 
unsecured claims?
    Mr. Bernstein. Mr. Watt, the wages are not a lower priority 
than unsecured claims under the current code, and, to the best 
of my recollection, they never were.
    The question is, what amount of wages is a higher priority 
than any other claim? And that number has been going up and up.
    In a typical case, this is not a real-world issue, and the 
reason is because, typically, when companies file bankruptcy, 
they file----
    Mr. Watt. Don't give me a speech, Mr. Bernstein. I have a 
limited amount of time.
    Mr. Sprayregen, what was the rationale for making wages a 
lower priority than unsecured creditors?
    Mr. Sprayregen. Well, ordinarily, the wages are of a like 
priority, except there is a certain amount of them that 
actually get a higher priority. And the question there is, what 
should be the right amount? Should it go from $10,000 to 
$20,000? I think there is a legitimate judgement call as to 
what the right amount----
    Mr. Watt. Do you think that is one of those things that 
maybe needs to be adjusted?
    Mr. Sprayregen. I think that is something that can be 
looked at, and take into account inflation and the like.
    Mr. Watt. What about severance pay? Where should that fit 
in the order of priorities, from your perspective?
    Mr. Sprayregen. Severance pay, unfortunately, is a 
difficult concept because, as noted, many of these employees 
have worked 25, 30 years and have tremendous amounts of 
severance owed to them. Unfortunately, if that is made a high 
priority, that is the type of thing, while well-intentioned, 
will put a company in a position of not actually having the 
money to pay all that.
    Mr. Watt. What is the rationale for making that a lower 
priority than an unsecured creditor? I mean, I am not getting, 
you know, philosophical about this. I am just trying to figure 
out, why would anybody think that that would be a lower 
priority than an unsecured creditor?
    Here is somebody that has worked their entire life. They 
built up an entitlement, one would think, over time to these 
benefits. And, yet, they get a lower priority than an unsecured 
creditor. What is the rationale? I don't understand that.
    Mr. Sprayregen. They actually get a like priority. The 
problem is----
    Mr. Watt. Or even a same priority. You know, let's not get 
into the details of it. I don't understand how you can give 
that person a same priority as an unsecured creditor.
    Mr. Sprayregen. Unfortunately, in most of these cases, the 
unsecured creditors' recovery is very di minimus. So unless you 
give a higher priority to claims like severance or the wages, 
the recovery is not likely to be that great. And so----
    Mr. Watt. So you see agree with me? Is that--are you saying 
that you agree----
    Mr. Sprayregen. Philosophically. The problem is, the 
Congress has the right to set the priorities. But the capital 
markets----
    Mr. Watt. Well, that is what we are talking about here, 
whether we should adjust the priorities. I mean, you know, we 
are not talking about the world as it exists. We are talking 
about the world as it should exist, which is why I wanted to 
start with both of you and give you a chance to tell me what 
part of the bill we ought to be trying to salvage, going 
forward, rather than worrying about--I mean, nothing we can do 
about what has already happened back there. But we can adjust 
the status of these things, going forward.
    So my time has expired, Mr. Chairman. I appreciate it.
    Mr. Cohen. Thank you, Mr. Watt.
    And I now recognize the distinguished Chairman of the 
criminal law Subcommittee, Mr. Scott of Virginia.
    Mr. Scott. Thank you. Thank you, Mr. Chairman.
    Mr. Sprayregen, let me follow through on that a little bit. 
Where are wages, traditionally, in bankruptcy, in terms of 
priority?
    Mr. Sprayregen. Wages, traditionally, are even with general 
unsecured creditors, except there is a certain amount of wages 
that have a priority above unsecured creditors if they were 
earned at approximately 6 months prior to the filing.
    In most bankruptcy filings, wages are not the biggest 
problem, because wages are generally current in most of these 
companies. It is more of the other obligations, like health and 
severance and the like, that are more problematic.
    Mr. Scott. In a reorganization, the wages are kind of 
ongoing. What happens to wages in a reorganization?
    Mr. Sprayregen. Post the filing of the bankruptcy case, the 
wages have a very high priority, only below the secured 
creditors. And in very few cases are the post-bankruptcy wages 
impaired. In almost all cases, those are paid 100 percent.
    Mr. Scott. Somebody asked the question about filing 
bankruptcy to void collective bargaining agreements. Is that 
legal? Is it legal to file, use bankruptcy court simply to void 
a collective bargaining agreement?
    Mr. Sprayregen. There is a line of case law that has 
developed that says bankruptcy cases generally need to be filed 
in good faith, and if they are filed in bad faith, the court 
can dismiss the case.
    So if someone were to raise--if that were purely the only 
reason, which I haven't seen in my career as the only reason to 
file a case, someone could debate whether that is a good-faith 
reason to do that if the company didn't otherwise need to 
adjust its costs.
    Mr. Scott. And what happens to stockholders when there is a 
reorganization?
    Mr. Sprayregen. In most cases and I think in all of the 
cases we have discussed here, the stockholders have been wiped 
out.
    Mr. Scott. On reorganization?
    Mr. Sprayregen. In most of the cases. There are some where 
equity survives. But in most of the types of cases we are 
talking about here, the recovery to equity is either zero or 
virtually zero.
    Mr. Scott. When we talk about wiping out pensions and 
benefits like that, in a defined contribution plan is the 
account of the employee beyond the reach of the bankruptcy 
court? Is that an asset of the employee or an asset of the 
company? A defined contribution plan.
    Mr. Sprayregen. That is an asset of the employee and would 
not be impacted by the employer's bankruptcy.
    Mr. Scott. A defined benefit plan, on the other hand, is 
that subject to loss in bankruptcy?
    Mr. Sprayregen. Yes, it is.
    Mr. Scott. Is there any requirement that a defined benefit 
plan be guaranteed?
    Mr. Sprayregen. Guaranteed by?
    Mr. Scott. Well, you can fund a defined benefit plan with 
an annuity, so that the annuity would be the asset of the 
employee, beyond the reach of bankruptcy court.
    Mr. Sprayregen. Yes, there have been resolutions in some 
cases where annuities have been bought, generally not at 100 
percent of what is owed. But that has been a solution in some 
situations.
    Mr. Scott. And, about 20 years ago, the accounting rules 
required companies to put on their books unfunded liability for 
future benefits. Is that right? It used to be, about 40 or 50 
years ago, it wasn't counted as a liability. But wasn't it 
about 20 years ago, it is required to be placed in your 
financial statement what your unfunded liabilities are?
    Mr. Sprayregen. I am not an accounting expert, but 
generally I am familiar that that is now the case, yes.
    Mr. Scott. So that the liability of future benefits that 
have been promised are on the books but not funded and are 
subject to evaporation. Is that the present situation if it is 
a defined benefit, not a defined contribution plan?
    Mr. Sprayregen. Generally, yes. And there is no question 
that the lenders to the companies take into account whether 
they are on the books or not, what those obligations are, and 
the cash flow impacts of that.
    Mr. Scott. Is that something we need to look into on 
another Committee I sit on, the Education and Labor Committee?
    Mr. Sprayregen. I haven't seen that to be a particularly 
different problem than what we are talking about generally 
here. I think it is of the same problem. And there is no 
question that when defined benefit payments are interrupted to 
employees it causes terrible hardship to employees. And I have 
tremendous empathy for that. We keep getting back into the 
situation of, what do we do if there is not enough money to go 
around? How do we handle that?
    Mr. Scott. Yeah, but you don't have that problem if it is a 
defined contribution plan.
    Mr. Sprayregen. That is correct, yes. But most of these 
situations involve defined benefit plans.
    Mr. Cohen. Thank you.
    Ms. Chu of California, you are recognized.
    Ms. Chu. Thank you, Mr. Chair.
    Well, over the past decade, I have been becoming far too 
familiar with stories of companies that are squeezing massive 
concessions from their employees as a part of the corporate 
restructuring plans. And, to me, it is even worse that these 
sacrifices are not equally shared by management. And that is 
why I have, indeed, joined Chairman Conyers as a cosponsor of 
the ``Protecting Employees and Retirees in Business 
Bankruptcies Act,'' so that there is some fairness and equity 
in this process.
    But what I wanted to do was to see what Ms. Ceccotti had in 
response to some of the allegations by Mr. Bernstein that doing 
this bill would create new and potentially substantial claims, 
that it would slow down the 1113 process, that it would 
increase the amount of litigation, and that it would make it 
materially more difficult for Chapter 11 debtors to attract and 
retain talented management employees.
    Ms. Ceccotti. Thank you, Congresswoman. Certainly.
    I think what is interesting to remember about Mr. 
Bernstein's comments is that the various charges or 
contentions, I guess, that he brought up with respect to the 
bill really would not be borne out by the changes that are in 
H.R. 4677 because, by and large, those changes are actually 
designed to foster better negotiated solutions.
    Right now, of course, the bankruptcy code does require 
negotiations over proposed concessions. I think what the labor 
groups at today's hearing have said is that the system is now 
too unbalanced, so you do not get fair negotiated solutions.
    I don't think that by better specifying in the bill, as 
H.R. 4677 does, how the process will work, that the result of 
that process will be a slower system or a system that debtors, 
you know, may not want to participate in or that would, in 
fact, lead to fewer debtors participating in bankruptcy. If 
anything, with the rules more clearly spelled out, the parties 
will be better able to focus on exactly what it is that needs 
to be fixed and how the employees can participate in fixing it.
    And I will give you one example from the proposed changes 
to Section 1113, or a couple of examples, designed to do this.
    Right now, the current law does not require a debtor to 
specify a dollar amount. Very often, debtors do. They go to a 
labor group and they say, ``We need X from your group and Y 
from your group and Z from another group.'' However, that is 
not required. But the bill would require that there be, quote/
unquote, a ``defined ask,'' so that the labor groups and the 
companies could immediately focus on what is the amount; is it 
the right amount; and if it is the right amount, how it is that 
the employees will contribute that amount.
    What we saw, for example, in the auto sector particularly, 
you had large auto suppliers filing for bankruptcy with broad 
goals that were defined as labor transformation goals. And they 
would file 1113 motions and simply say, ``We need to change all 
this stuff.'' Therefore, you have a lengthy, protracted, and 
prolonged discussion over what it is that needs to be changed, 
and how much, and how much needs to come from the workers.
    So I actually think that, by adopting the changes that are 
in H.R. 4677, the parties would be able to quickly, much more 
quickly, get to the true issues that are at stake and figure 
out a way to resolve them. And in order to facilitate that, 
first, you need more defined rules. And I do think the bill 
provides that. But, second, you need to give the labor groups a 
sense that the playing field is balanced, for the reasons that 
you have heard today: We have had court decisions that say, you 
don't have a rejection damages claim. Or you have court 
decisions that say, certain employees can't strike.
    All of these court rulings have affected the negotiating 
process, in that workers do not have a sense that their 
solutions are being given equal consideration, that their 
solutions are being given credible consideration, despite the 
fact that, as one of our witnesses pointed out, it is the 
workers who are going to be with this company long after the 
bankruptcy has left the courts.
    So that the best way to get a truly negotiated solution 
that happens the business is, in fact, to make sure that the 
debtor and the non-debtor stakeholders each have interests that 
they legitimately--and that the bankruptcy system recognizes 
are legitimately protected even in bankruptcy, to figure out 
ways to direct the parties to get to the issues that need to be 
resolved.
    And that will lead the parties to roll up their sleeves and 
do the work to resolve them without the distraction of 
litigation, without undue efforts to try to uncover what it is 
exactly that the company is trying to do, and particularly 
without the distraction of management programs and bonuses and 
court time and litigation that is taken up needlessly with 
inflammatory proceedings that only poison the atmosphere while 
the workers are being asked to seriously consider measures that 
are needed to save the company and to allow it to survive.
    Ms. Chu. Well, thank you for that thorough answer. I see 
that my time is up.
    Mr. Cohen. Thank you, Ms. Chu.
    We have concluded our first round. Mr. Franks, do you--if 
anybody has any questions, or we will conclude. Or do you want 
to go to a second round?
    Mr. Franks passes.
    Mr. Delahunt?
    He is a lame duck; he is eager to get in some more 
questions before he goes into mothballs.
    Mr. Delahunt, you are recognized.
    Mr. Delahunt. Well, thank you.
    Mr. Sprayregen, you indicated, in your experience--I think 
it was Mr. Scott that posed the question about is it legal, and 
you indicated that, you know, a bankruptcy that is not filed in 
good faith clearly would violate the statute, and you had never 
seen it in your own career.
    I mean, the reality is, to establish a lack of good faith 
is extremely difficult to prove. Would you agree with that?
    Mr. Sprayregen. Generally, yes, but for good reasons, the 
reasons basically being that companies don't really want to 
file for bankruptcy unless they have a reason to do it.
    Mr. Delahunt. Well, I would suggest that that is still an 
open question. But the proof of good faith or lack thereof is 
almost an impossible burden of proof, in the real terms, you 
know, in a courtroom situation.
    I guess I would direct this to you, as well. I think it was 
earlier referenced. How do you feel about when concessions are 
made, in terms of workers, as far as pension and health 
benefits, et cetera, that there be--when the company is 
restored to vitality and is operating and establishing a 
process, that the promises that were made to the workers in 
terms of benefits and health and wages are restored? 
``Deference,'' I think that was the term that was used. Do you 
have an issue with that?
    Mr. Sprayregen. Conceptually, I don't. But it is another 
one of those with unintended consequences. Because to get the 
company to be able to come out of bankruptcy, some investor or 
lender needs to give it money. And burdened with that type of 
obligation in the future--it is sort of an unknown obligation, 
depending on the performance--will make it much more difficult 
for the company to attract that capital.
    Mr. Delahunt. But we could direct, you know, benchmarks. I 
mean, clearly, we want to make sure that, you know, capital is 
respected and there is a good return on the investment.
    But, in terms of a bankruptcy plan, a reorganization plan, 
I really find it difficult not to understand why that is not 
more frequently offered, as far as a consensus reorganization 
plan.
    Mr. Sprayregen. Well, I will--oh, I am sorry.
    Mr. Delahunt. But having said that too, you know, what is 
missing here in terms of--I would put this out for anyone that 
wants to respond--it is always the worker, the retiree, that is 
going to end up costing the taxpayers.
    Mr. Roach referenced in his testimony that we are going to 
have to pick up the Medicaid bill. We are going to have to go 
to the Pension Benefit Guaranty Trust to take care; it is 
already $30 billion in deficit. So, you know, the creditors are 
clearly in a different financial position. They are investors. 
They are going to survive. Management is going to survive 
rather well--a $40 million bonus. We read about these retention 
bonuses that absolutely boggle my mind, because I think Mr. 
Roach is right, you get rewarded for mismanaging the company 
because somehow it is necessary that you stay on. But, neither 
here nor there.
    When we are reviewing what priorities ought to be 
established, would you think that we should consider the burden 
on the taxpayer? Because it is the worker that is costing--to 
keep the worker and his or her family, you know, from drowning, 
the taxpayer, the American taxpayer is picking up the bill for 
the creditor, for the financial markets. It is another form of 
a bailout, I would suggest.
    Anyone? Mr. Conway? Does anyone have--Mr. Roach? Does 
anyone have--Mr. Sprayregen?
    Mr. Sprayregen. I would absolutely say that the burden on 
the taxpayer should be taken into account. But what I would 
urge the Committee to consider in that is, I always call it 
``compared to what?'' If these companies had liquidated, the 
burden on the taxpayer would have been tens of thousands more 
workers with those issues. These companies did things that 
people don't like and were very painful and very hard, but they 
did save tens of thousands, if not hundreds of thousands, of 
jobs.
    And it is the ``compared to what'' that needs to be taken 
into account, because the alternative is not that they get 
their old benefits, because, unfortunately, there are just not 
available.
    Mr. Roach. May I respond to that?
    I think part of this law is to make corporations make 
better decisions. And let me give you an example. United 
Airlines is a very typical example. United Airlines proposed to 
the machinists union an increase of 40 percent in pension 
benefits. And, as we reviewed the books and reviewed their 
pension plan, we rejected that pension increase. Because we 
said, ``You will never pay it, and people will go out on a 
promise that you will never pay.'' And they continued to insist 
that we take this pension increase, to the point that they 
testified on the record at the Presidential Emergency Board at 
United Airlines that they wanted to give this pension increase 
because, under that current law, they don't have to pay for it, 
because they have credits in pension.
    So people took this--we took the pension increase. How long 
can you say no? People went out, retired based on what they 
were promised by United Airlines. And once they got out there, 
the pension plan was terminated because it had ballooned 
because of this massive pension increase to a $6 billion 
deficit. And now that deficit, part of that deficit, a 
majority, belongs to the Federal Government, and somebody is 
going to pay.
    But this was a plan--now, had they been thinking or had 
they realized or recognized that, you know, maybe we shouldn't 
make this promise in the first place, had we had a law like 
this in existence then, that we shouldn't make this ludicrous 
promise, maybe United Airlines would not have went into 
bankruptcy.
    That is the point we are trying to make. We don't want 
people to go into bankruptcy. We don't want laws that make it 
difficult or hard to go into bankruptcy. We want people to 
understand, when you make promises to people and they base life 
decisions and their family decisions on the promises that you 
make, then they should be expected to keep those promises.
    Mr. Prater. And one just very quick anecdote. In the Mesaba 
case, when the judge was informed that, in fact, his decision 
to cut the wages down below the Federal standards, that, in 
fact, they would put pilots with a family of three onto the 
Federal subsidy rolls while working full-time, he said his 
concern was not with the workers, his concern was only with the 
debtor.
    Mr. Cohen. Thank you, Mr. Delahunt.
    Our final questioning will be by Mr. Issa from California.
    Mr. Issa. Thank you, Mr. Chairman. And I apologize for my 
absence, but I am shuttling between two Committees today.
    Mr. Sprayregen?
    Mr. Cohen. ``Sprayregen.''
    Mr. Sprayregen. Like ``Ronald Reagan.''
    Mr. Issa. Oh, okay. I would not spray Reagan.
    But anyhow, I heard your testimony, and let me ask you some 
questions, because I am former businessman--I guess I am still 
a businessman, but I am recovering by spending other people's 
money here, to where my friends in business don't actually want 
to associate with me anymore.
    But over the years, watching bankruptcy, particularly cram-
downs and Chapter 11s, it appears to me, as a Member of this 
Committee and as a businessman, that we have a culture that 
does need to be dealt with, which is the culture of ``I will 
disburse to my stockholders in the good times, and then I will 
use Chapter 11 in the bad times.''
    Certainly, we are seeing it in real estate. We have 
certainly seen it in the repeat offenders in the aviation 
business. With the exception of Southwest, basically--and I 
know there is a lot of aviation-related people here--but, 
basically, you are in an industry that doesn't plan for profit; 
they plan for bankruptcy.
    Would you like to tell me, in your opinion, what we could 
do, if not this bill, what we could do to actually break that 
cycle of Chapter 11s being part of the business plan of the 
aviation industry?
    Mr. Sprayregen. Now, I am not----
    Mr. Issa. Briefly.
    Mr. Sprayregen. Yeah. I was going to say, I am not an 
economist, and I am not sure it is an economic question. But I 
think----
    Mr. Issa. Well, let me narrow it. And you actually can give 
me the answer for the record, if you would like, as all of you 
could.
    What could we change in the bankruptcy law that would cause 
the penalty of haphazardly going into bankruptcy, not just once 
because of an event but multiple times because it is part of 
business plan, to stop? What could we do to stop that?
    Now, many of you were talking about how we can keep 
employees from losing pension benefits. From this side of the 
dais, I want to know what I can do to cause companies, instead 
of to beat each other into endless losses, to actually run 
their companies for a profit because Chapter 11 would be more 
onerous.
    So that is what I would like each of you, from both sides 
of it, all of you, please, to consider answering for this 
Committee. Because I don't actually like the legislation before 
us, but I don't like the idea that Chapter 11 is a part of the 
cycle of the aviation industry.
    If you would like to answer, as long as the Chairman gives 
me plenty of time.
    Mr. Cohen. All the time you need.
    Mr. Issa. Thank you, Chairman.
    Mr. Sprayregen. I can try. And maybe I will try coming at 
it the opposite way. Let's assume there was no bankruptcy law 
whatsoever and it just wasn't option and it didn't exist----
    Mr. Issa. If we did away with 11 and made it 7 only, and 
the other airline companies, if they had cash or capital, the 
capability, came in and bought you out when you failed, would 
that be better? Maybe that is where I am going.
    Mr. Sprayregen. That is what I am approaching it as.
    I would submit we would end up with a worse system and more 
damage and less jobs and less airlines if we didn't have it as 
an alternative. It is an unfortunate part of the business cycle 
that this occurs, but, again, I call it ``compared to what?'' 
At least a number of these airlines are able to reorganize and 
go back out and prosper again. I am not sure we can eliminate 
the cycle.
    Mr. Issa. Well, I am going to take my moment and say, if 
you call what the airlines are doing today prospering, you are 
just not reading their balance sheets the way I read them. It 
is a cyclical investment for every stockholder, there is no 
question at all. Although they are merging, so we are going to 
get a lot less. And we will be considering Continental, I 
guess, shortly.
    But let me change a little bit. I was a former member of 
the International Association of Machinists and Aerospace 
Workers. Nothing so lofty as aerospace; I was working for 
General Motors in Cleveland a long time ago. But I was 
interested in your comments on your union pushing back on an 
unsustainable pension promise.
    Not only do I commend you for doing that, but let me ask 
you in the form of a question: As Congress looks at future 
pension reform, should we, in fact, pattern after many of the 
other unions, such as NECA and so on, where the pension is 
external, truly external to the employer; the pension, if there 
is a defined pension, is portable; and its vesting is 
essentially as we go, meaning if the company goes out of 
business or stays in business, it doesn't really affect the 
vested amount?
    Is that a reform that you would like to see on behalf of 
your workers, particularly if your workers may in their career 
go from American to United to, well, whatever amount of 
airlines are left?
    Mr. Roach. Yes, we--and the International Association of 
Machinists is a national pension plan, multi-employer plan 
which is 100 percent funded. And through the airline 
bankruptcies, we were able to put all of our airline members--
we went through United, U.S. Airways, Northwest--into that 
multi-employer plan. And that is the plan we were proposing to 
United Airlines, sort of, pay as you go rather than make 
promises you can't keep. And if United Airlines were to go out 
of business or liquidate, whatever the case may be, where 
people leave, those benefits are there. And if they went to 
another airline that had that plan, if they went from United to 
Northwest, they would continue to get benefits.
    We think that should be looked at very closely, because the 
idea of corporations or airlines managing pensions seems to be 
a useless proposition, with $30 billion of the PBGC 
underfunded. So I think that is something that certainly should 
be looked at. We have worked very closely with the PBGC and 
have moved numerous airlines into that plan, and we think that 
that is a better alternative than what has happened in the 
past.
    Mr. Issa. Okay.
    Mrs. Rook, you are in the opposite situation. I fly United 
almost exclusively. And AFA, of course, represents most of the 
airlines, but they represent United, and they got screwed. And 
they got screwed on a contract that you negotiated where they 
are still working and, retroactively, they lost promises, as 
they view it. They are completely disgruntled, and they hold 
the airline responsible. But the truth is, you had the 
accountants and the lawyers and all the people to know exactly 
what would happen on a daily basis if they defaulted.
    How is it you are changing your union's approach on behalf 
of the people you represent? Now, you have come to us for a 
bankruptcy change that changes the residual assets, but there 
won't always be residual assets. An airline could end up with 
nothing more to distribute, without a reorganization or with 
one, particularly if the debtor in possession of money isn't 
there because we have changed the rules, which is what the 
other witnesses talked about.
    So assume for a moment that that 11 was a 7. What have you 
done to change the outcome for United retirees and workers who 
have 25, 30 years with the airline, who today are getting less 
money and are looking forward to less retirement than they were 
promised under a union contract?
    Ms. Rook. I can definitely provide more information about 
the United bankruptcy. Myself, I am the MEC president for 
Northwest Airlines. However, I do know that a lot of our newer 
contracts, we are negotiating contribution plans rather than 
the typical----
    Mr. Issa. Defined contribution rather than defined benefit.
    Ms. Rook. Correct. Correct.
    Mr. Issa. Which would make this whole bankruptcy argument 
we are having here today somewhat less significant because you 
would have every nickel, every payroll, that you are entitled 
to, at least as to pension, right?
    Ms. Rook. That is right. And, additionally, at least in the 
Northwest contract and I imagine in the United contract, they 
have negotiated profit sharing. However, unfortunately, profit 
sharing has been----
    Mr. Issa. In your industry?
    Ms. Rook [continuing]. A bit of a--it hasn't been much 
lately.
    Mr. Issa. No CEO of an airline ever negotiated something 
that was based on profits. They always find a way to do it on 
stock price or something else that they actually can make 
happen.
    Ms. Rook. It does seem more and more that the pension 
programs that were promises made to these employees are little 
more than a piggybank, and the airlines are just using them 
when times are hard. And that is why the unions have moved more 
toward these contribution plans.
    Mr. Issa. Well, I commend you for making that move on 
behalf of the people that you represent. I think it is long 
overdue.
    I will mention that both the State of California and the 
Federal Government and our Social Security system continue to 
be mostly underfunded or unfunded promises that we hope to keep 
if we don't end up like Greece. So, from this side of dais, let 
me assure you I don't have high confidence in my pension plan 
right now either, but, then again, I am in the minority.
    Mr. Chairman, thank you for the indulgence. I yield back.
    Mr. Cohen. Thank you, sir. Appreciate your joining us.
    And now for our final questioner, we recognize once again 
the esteemed gentlelady from California, Ms. Chu.
    Mr. Issa. Is that the final final?
    Mr. Cohen. Yes. It is, once again, the final final. I am a 
softie.
    Ms. Chu. Thank you, Mr. Chair.
    Mr. Cohen. You are welcome.
    Ms. Chu. Well, this question is for Mr. Sprayregen, and I 
would actually be interested in what anybody else has to say on 
this, too.
    Mr. Sprayregen, in your testimony, you argue that this bill 
would actually hurt employees in the long run by making it 
difficult for companies to emerge from bankruptcy. So let me 
ask you, how is cutting the wages and benefits of the people 
that actually produce this service, while rewarding the very 
management that was responsible for that bankruptcy through 
their decision-making, be in the best interest of employee 
morale and ensuring that the corporation exits bankruptcy?
    Does management have any responsibility for the bankruptcy? 
I mean, the assumption seems to be that these are talented 
management employees. I know Mr. Bernstein said that this bill 
would make it difficult to retain talented management 
employees. But my question is, does the management have 
responsibility for the bankruptcy?
    Mr. Sprayregen. Absolutely. And management, if they have 
made poor decisions, should be held responsible. And, as I 
mentioned earlier, often in these bankruptcy cases there is a 
change in management during the case or shortly after the case 
exits the bankruptcy.
    I would submit to you, though, if we just had a rule that 
current management is fired on the filing of the bankruptcy, 
all of these very difficult issues that we are talking about 
would still exist. So, management can be the problem sometimes, 
or part of the problem; they can be part of the solution 
sometimes. But the focus on that doesn't necessarily address 
the larger issues of, is there enough money to go around to 
handle the obligations that the company has promised?
    Mr. Bernstein. I would only add that no company that files 
bankruptcy wants to cut wages and benefits of employees. 
Companies do this as a last resort because they have no choice 
if they are going to remain viable. So the alternatives are 
continue to pay above market in unsustainable wages and 
benefits to employees, not be able to attract new investment 
capital and end up in liquidation, where the retirees that 
somebody mentioned earlier and the employees lose their 
benefits; or do something that is quite difficult, which is 
modify the labor costs structure but, in the process, save the 
company so that it can continue to employ people and continue 
to do business and continue to compete and continue to provide 
services and pay taxes.
    Ms. Chu. Well, I would like to call on Captain Prater. But, 
Mr. Sprayregen, you said we shouldn't be firing all the 
management, but this bill doesn't do that. I just want to point 
that out. The bill is basically saying that the needs of the 
employees should be balanced against these excessive bonuses 
that are being paid to the management.
    Captain Prater.
    Mr. Prater. I just need to respond to Mr. Bernstein's 
categorization that managements don't want to file--or they 
file bankruptcy not with the intention of lowering wages. I am 
going to say most managements that go into bankruptcy, 
especially in the airline industry, have used this as a 
business tool, a business plan, in fact, to get around 
collective bargaining.
    It is to get rid of an employee contract and to use not 
only the threat of bankruptcy, where we normally negotiate 
concessions to try to prevent companies from going into 
bankruptcy, but then filing and getting a second bite at the 
apple. They have completely used it to destroy collective 
bargaining, especially under the the Railway Labor Act, that 
they then seem to trumpet the fact is we can't seem to recover 
because we are under bankruptcy rates for maybe 5, 6 years and 
then another 3 years under the Railway Labor Act to amend those 
contracts. So we live with the era of bankruptcy over us for 8 
years, up to a decade.
    Ms. Chu. Thank you.
    Mr. Cohen. Thank you, Mr. Chairman.
    Mr. Delahunt, I appreciate all the Members who attended 
today. It was obviously a hearing that had a great deal of 
interest, and I thank the witnesses for their testimony. It was 
very enlightening.
    Without objection, Members have 5 legislative days to 
produce other questions that they will submit to you and we ask 
that you respond to them as quickly as possible. They will be 
made a part of the record.
    Without objection, the record will remain open for 5 
legislative days for the submission of any other material.
    I thank everybody for their time and patience, particularly 
Mr. Delahunt for asking more questions, so I can continue to 
learn from him and improve my own legislative style and career 
once he moves on.
    This hearing of the Subcommittee on Commercial and 
Administrative Law is adjourned.
    [Whereupon, at 12:57 p.m., the Subcommittee was adjourned.]


                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

       Response to Post-Hearing Questions from Babette Ceccotti, 
                       Cohen, Weiss and Simon LLP

















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     Response to Post-Hearing Questions from John Prater, Captain, 
                   Air Line Pilots Association, Intl.







                                

    Response to Post-Hearing Questions from James H.M. Sprayregen, 
                         Kirkland and Ellis LLP









                                

         Response to Post-Hearing Questions from Janette Rook, 
                  Association of Flight Attendants-CWA








                                

        Response to Post-Hearing Questions from Thomas Conway, 
                    United Steel Workers of America





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     Response to Post-Hearing Questions from Michael L. Bernstein, 
                          Arnold & Porter LLP









                                

          Post-Hearing Questions posed to Robert Roach, Jr., 
     International Association of Machinists and Aerospace Workers*







------
*The Subcommittee did not receive a response to these questions.

                                

   Prepared Statement of the International Union, United Automobile 
      Aerospace & Agricultural Implement Workers of America (UAW)





























                                

           Letter from Brian Cove, Chief Operating Officer, 
                     Commercial Finance Association












                                 
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