(March 2012) I debated putting words on paper regarding the recent Chapter 11 filing by my airline. Bankruptcy has become so vogue that the flying public now yawns at the notion, knowing that very little will change from their perspective. Frequent flyer miles remain intact. Steerage class food remains inedible. Baggage mishandling remains an everyday occurrence.
Who among the nonairline readership of this magazine will really care that the livelihood of another overpaid and underworked pilot has been sacrificed? Although my colleagues at other airlines are empathetic, I am certain that they are also muttering under their breath that it was only a matter of time before we suffered the same indignities. So why discuss this issue within the context of the Jumpseat column?
The reason is simple: education. And not so much education for the GA public as for the wide-eyed kid that is seated right now in an aviation classroom with dreams of an airline career. I would never attempt to discourage that student, even at this dark moment.
Insight has been my goal for these writings over the past nine years. Unfortunately, such insight is not always wrapped with a pretty bow. Nor does the insight necessarily involve a flying experience. As much as I yearn for my industry to travel through a time warp back to the period depicted in the Pan Am TV series, reality has other plans. The Space Shuttle program has a better chance of being reinstated than the airlines have of returning to the days of my esteemed predecessor, Len Morgan.
Although our entire collective bargaining agreement is in jeopardy with a bankruptcy status, pilot pensions seem to garner the most attention. A lot is at stake. Specific laws apply that affect pension benefits.
Our current pension involves two separate funds — the A-fund and the B-fund. In simple terms, the A-fund is based on longevity. The longer a pilot is employed, the greater the monthly annuity upon retirement.
The B-fund, on the other hand, is dependent on a pilot’s income. Each month the company contributes a fixed percentage of a pilot’s paycheck to one large collective fund. Every pilot is entitled to a percentage of that fund in the form of units. A major portion of the fund is invested in equities. The fund’s value for any given month fluctuates with the stock market. The specific value given to a unit is similar to a stock price. For example, if one unit is given the value of $50 and a pilot has accumulated 1,000 units, the present value of his or her B-fund is $50,000. The greater the income, the greater the amount of accumulated units.
The intent and wisdom of 1960s union leadership were to diversify retirement such that the pension was not based solely on years of service (A-fund) or based solely on the stock market (B-fund). In addition, the option to receive both funds as a lump sum gave control to the retiree; whereas a monthly annuity presented the risk that, if the company ceased to exist, so might the pension. The A-plan lump sum payment is based on a mortality table that reduces the amount according to age. Younger pilots who retire early incur a reduction on the basis that, if the retiree had opted for an annuity, he or she would have been paid over a longer period of time.
Current pension law protects the B-fund. No creditor other than a pilot has rights to the asset. The A-fund, however, is a different story. Once the company files for Chapter 11 protection, various stipulations occur. One of the stipulations is that, if the A-fund is not 100 percent funded, the lump sum payment is no longer an option. And if the airline is granted termination of the fund (which historically has occurred), the PBGC (Pension Benefit Guarantee Corp.) may assume control.
The annuity guaranteed by the PBGC is usually a drastic reduction, especially for a younger pilot with many years of service. As a painful example, one of my very senior friends will suffer almost a $2 million loss if the A-fund disappears.
Of course, with my airline, as with most carriers, pilots are not eligible for retirement until age 50. Unfortunately, pilots under the age of 50 have few options. When the motor quits just after takeoff on a single-engine airplane, continuing straight ahead is usually the only alternative. Starting at the bottom of another airline’s seniority list is not a viable proposition for most — age being a major factor.
In bankruptcy, both the A- and B-fund contributions will most likely be terminated. In other words, if a pilot continues to work, the company no longer adds to the pension.
As mentioned earlier, every aspect of a collective bargaining agreement is in jeopardy. The court will direct management and labor to negotiate a contractual settlement because the old contract can be legally eliminated if petitioned as such by the company. If an agreement can’t be reached, one is imposed.
Compensation and work-rule productivity are major parts of the equation. Although judges are more tuned in to past employer atrocities, history does not favor labor groups.
As I reflect emotionally on this bankruptcy, the memory that inspired my career comes to mind. At 6 years of age I received a certificate signed by the captain of a Lockheed Electra after having taken one of my first flights. Twenty years from that date, the certificate entitled me to a pilot interview with the airline where I have now spent 27 years of my life. Can you imagine a company having the vision to encourage a generation of future pilots? What happened to that airline?
Like many others, the airline grew large enough to lose sight of its core purpose of not only transportation but also customer service. Without customer service, an airline is just another provider of aluminum metal tubes that fly from point A to point B. Any savvy Internet travel shopper will agree.
Customer service starts with front-line soldiers. Treat your soldiers with dignity and respect, and they will return the favor in the form of top-notch customer service one hundred times over. Ask former Southwest Airlines CEO Herb Kelleher or former Continental Airlines CEO Gordon Bethune. Even if their employee-friendly personae were facades, the positive perception that these leaders conveyed made all the difference.
If management considers its employees liabilities on a balance sheet rather than assets to the company’s future, or a necessary evil to be tolerated, customer service is doomed. Although that perception may be considered by some as typical rank-and-file rumblings, evidence suggests otherwise.
It doesn’t matter now. Management and labor alike, we lost our focus because both sides have grown accustomed to an adversarial relationship. And despite the declarations of self-proclaimed financial experts in the news media, labor was not the catalyst for this bankruptcy. The airline’s balance sheet was not sustainable — defined benefit pension plan or not.
My fellow pilots gave back 23 percent of their salaries in 2003 under the guise of keeping us away from the Chapter 11 precipice. And while we took one on the chin for the Gipper, our upper-level managers were compensated with a self-appointed bonus plan despite now nearly eight years of operating in the red. I didn’t begrudge them any of that money until now. Until now, they hadn’t failed their check ride.
When I fail a check ride, I am required to return for additional training. If additional training is not successful, my employment is terminated. Period. I am not given a monetary reward for failing to fulfill the responsibilities of my job. While researching prior airline bankruptcy proceedings, I found it curious that little mention was made of management sacrifice or restructuring. If the sacrifice occurred, then it was rewarded shortly upon exiting from Chapter 11 protection. In that regard, when United Airlines exited bankruptcy, former CEO Glenn Tilton was smiling for another reason.
Let’s face it. The world doesn’t owe pilots a living. I understand. I also understand that in this economic environment many are facing a much darker future than I am. But we planned for our future with an expectation. The expectation was that our professional efforts over the years would be fulfilled as per a contractual obligation. We fulfilled our end of the bargain. And it was a bargain agreed to by both parties — management and labor. Nobody held a gun to anybody’s head.
Because of our legislators, that contractual obligation can now be legally obliterated in bankruptcy court.
Many have flown the BK jet airway before me. And many may very well find themselves on the airway after me.
My advice to future airline pilots? It’s simple. Save. Don’t live beyond your means. Your retirement will be a 401(k). If you aren’t proactive, your ability to invest in the economy after retirement will be limited — soon to be an epidemic for employees of many companies that have eliminated their defined benefit plans.
For those of you who may board one of our airplanes, rest assured that the situation won’t prevent your crew from maintaining the professional standards that define us as airline pilots. Chapter 11 or not, we are always required to succeed.
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