ARBITRATION OPINION AND AWARD
RICHARD R. KASHER, ARBITRATOR
In the Matter of an Arbitration Between
TRANSPORT WORKERS
And
INTERNATIONAL ASSOCIATION OF
MACHINISTS AND AEROSPACE WORKERS
And
AMERICAN AIRLINES
Involving the Integration of Seniority Lists
Of the Mechanics and Related Employees,
Fleet Service Employees, Stock Clerks and
Flight Simulator Technicians
Introduction and Jurisdiction
During the first
quarter of 2001 the Transport Workers Union of America (hereinafter the “TWU”)
became aware of American Airlines’ (hereinafter “American” or the “Carrier”)
proposal to acquire the majority of the assets of Trans World Airlines, Inc.
(hereinafter “TWA” or “TWA-LLC”) and to offer employment at American to TWA’s
represented employees.
During this same
period of time the TWU and American were engaged in contract negotiations
pursuant to Section 6 of the Railway Labor Act. AS part of those negotiations
and in consideration of the closing of the TWA transaction on
Following
ratification of the American-TWU agreement, the parties engaged in good faith
negotiations at which time they discussed issues concerning the integration of
the TWA employees represented by the International Association of Machinists
and Aerospace Workers (hereinafter the “IAM”) into American’s workforce whose
employees were represented by the TWU,
The American-TWU
collective bargaining agreement was the only agreement on the property which
contained language providing for seniority integration using the Allegheny-Mohawk
provisions.
As a result of
this agreement, the TWU and the IAM met in an effort to reach agreement
regarding merged seniority lists for the four (4) crafts or classes they
represented, those being the Mechanics and Related Employees, Fleet Service
Employees, Stock Clerks and Flight Simulator Technicians. When these
meetings/negotiations proved unsuccessful the integration process was submitted
to arbitration in accordance with Sections 3 and 13 of Allegheny-Mohawk.
The
below-signed Arbitrator was designated to take evidence and consider the
parties’ respective positions, and to confine the Opinion and Award to the
single question at issue, that is:
How
the system seniority lists of each of the respective employee groups shall he integrated for purposes of occupational
seniority In light of the applicable provisions of the AA-TWU collective
bargaining agreements?
The parties
further agreed that the arbitration “shall be organized and conducted pursuant
to Article 1(h) of the Mechanics and Related collective bargaining agreement,
Article 1(e) of the Fleet Service collective bargaining agreement, Article 1
(1) of the Stock Clerk collective bargaining agreement and Article 1(e) of the
Plight Simulator Technician collective bargaining agreement, and the standards
and procedures respectively of Sections 3 and 13 of Allegheny-Mohawk, 59
CAB 22 (1972).” The above- cited articles in the four (4) American-TWU
collective bargaining agreements provide as follows:
(1)
The integration of seniority lists of the respective employee groups will be
governed by the provisions of Sections 3 & 13 of Allegheny-Mohawk,
59 CAB 22 (1972), provided that no employee on the master seniority list will be adversely impacted in rates of pay, hours, or
working conditions by the integration.
(2)
The rates of pay, rules, and working conditions contained in the Basic
Agreement, as amended, will not be open for collective bargaining in the event
of a merger nor will the TWU or the Company have any obligation to bargain upon
changes thereto except as provided in Article 47 - Duration of the Basic
Agreement.
Arbitration
hearings were conducted on February 27 and 28, March 1 and
Appearances
Arthur M. Luby,
Esquire
Richard S. Edelman, Esquire
O’Donnell,
Schwartz & Anderson
for the TWU
Robert S.
Clayman, Esquire
Guerrieri, Edmond & Clayman
for the IAM
Thomas K. Reinert, Jr., Esquire
Morgan, Lewis & Bockius
For American
Witnesses:
For the TWU:
Arthur Luby, Esquire
Mr. James
Little, International Vice President
Mr. Dave Davis,
Consultant, Organizational Concepts
Mr. Gary
Peterson, President, Local 567
For the IAM:
Mr. Stephen
Sleigh, Director of Strategic Resources
Mr. Al Calhoun,
General Chairman, District 142
Mr. Sito
Pantoja, Grand Lodge Representative
Mr. Thomas
Stalnaker, Principal, Eclat Consulting
For American:
Mr. James Weel,
Managing Director, Employee Policy and Relations
Background Facts
Many of the facts recited. Herein are
the product of stipulations by counsel.
The TWU, as noted
above, is the representative of American’s Mechanics and Related Employees,
Fleet Service Employees, Stack Clerks and Flight Simulator Technicians.
The IAM is the
representative of TWA-LLC’ s Mechanics and Related Employees, Fleet Service
Employees, Stock Clerks and Flight Simulator Technicians.
Through bankruptcy
proceedings, American purchased certain assets of TWA. On April 10, 2001, a new
company, TWA-ILC, was formed to hold the purchased assets of TWA. TWA-LLC is a
subsidiary of American and the assets and employees of TWA-lie are being
integrated into American’s operations. American will be the surviving carrier
in the transaction. (American Airlines, Inc. /Trans World Airlines LLC,
March 27, 2002, 29 NMB 240 at 243)
On December 12,
200], the TWU filed an application with the National Mediation Board
(hereinafter the “NMB”) seeking a finding of single carrier status of American
and TWA-LLC for the crafts and classes of Mechanics and Related Employees,
Fleet Service Employees, Dispatchers, Stock Clerks and Stores Employees,
Instructors, Simulator Technicians and Technical Specialists. (TWU Ex. 5.)
The approximate
number of employees covered by this seniority integration case are as follows:
Mechanics and
Related: AA - 13,229,
TWA-LLC - 3,272
Fleet
Service:
AA - 13,206, TWA-LLC - 3,082
Stock Clerks:
AA - 1,382,
TWA-LLC - 316
Simulator
Technicians: AA -
108,
TWA-LLC - 20
(Jt. Ex. 6 at 2; American
Airlines. Inc/Trans World Airlines, LLC 29 NMB 240 at 245.)
On March 27, 2002, the
NMB issued its determination that American and TWA-LLC operate as a single
transportation system for representation of the Mechanics and Related
Employees, Fleet Service Employees, Stock and Stores Employees, Dispatchers and
Meteorologists. Flight Simulator Technicians were determined to be included in
the class of Mechanics and Related Employees. In finding to file
American/TWA-LLC to be a single transportation system for representation
purposes for the Mechanics and Related, Fleet Service and Stock and Stores
Employees, the NMB granted the IAM 30 days representation applications.
Pursuant to the agreement to arbitrate, the IAM’s participation in this
arbitration is not affected by the NMB’s decision.
The collective
bargaining agreements between American and the TWU for the four (4) crafts and
classes include identical provisions concerning procedures and standards for
seniority integration.
These four collective
bargaining agreements were dated March 1, 2001, were agreed to between late
June, 2001 and August, 2001; and were ratified in October, 2001.
The identical
provisions in these agreements provide as follows:
(h)
Merger, Purchase, or Acquisition of Another Company: In the event of a merger,
purchase, or acquisition of another company, involving that entire company or a
substantial portion of that company, by the Company, the TWU and the Company
will meet to discuss the merger, purchase, or acquisition. The Company will
provide the TWU with information concerning the proposed merger, purchase, or
acquisition at the earliest feasible time to allow for the Union to prepare for
those discussions. Those discussions will include the impact of the merger, purchase,
or acquisition upon the TWU represented employees.
(1)
The integration of the seniority lists of the respective employee groups will
be governed by the provisions of Sections 3 & 13 of the Allegheny-Mohawk
provided that no employee on the master seniority list will be adversely
impacted in the rates of pay, hours, or working conditions by the Integration.
(2) The rates of pay, rules,
and working conditions contained in the Basic Agreement, as amended, will not
be open for collective bargaining in the event of a merger nor will the TWU or
the Company have any obligation to bargain upon changes thereto, except as
provided in Article 47 - Duration of the Basic Agreement.
(3)
The parties agree to submit to final and binding arbitration by an arbitrator
approved by the National Mediation Board all disputes between the TWU and the
Company which are not settled in the meetings provided above within six (6)
month of the effective date of the merger. The costs of the arbitration will be
shared equally by the parties and there will be only one such arbitration
proceeding which will be the sole and exclusive remedy for all such dispute.
(4)
It is understood that the provisions of Article 1(b) (1), (2) and (3) will not
apply to the Company’s purchase of assets of another airline which does not
result in the integration of employees.
Sections 3 and 13
of the Allegheny-Mohawk Provisions read as follows:
3.
Insofar as the merger affects
the seniority rights of the carriers’ employees, provisions shall be made
for the integration of seniority lists in a fair and equitable manner,
including, where applicable, agreement through collective bargaining between
the carriers and the representatives of the employees affected In the event of
failure to agree, the dispute may be submitted by either party for adjustment
in accordance with section 13.
13.(a)
In the event that any dispute or controversy (except as to matters arising
under section 9) arises with respect to the protections provided herein which
cannot be settled by the parties within 20 days after the controversy arises,
It may be refereed by any party to an arbitrator selected from a panel of seven
names furnished by the National Mediation Board for consideration and
determination The parties shall select the arbitrator from such panel by
alternatively striking names until only one remains, and be shall serve as
arbitrator. Expedited hearings and decisions will be expected, and a decision
shall be rendered within 90 days after the controversy arises, unless an
extension of time is mutually agreeable to all parties. The salary and expenses
of the arbitrator shall be borne equally by the carrier and (i) the
organization or organizations, representing the employee or employees or (ii)
if unrepresented, the employee, or employees or group or groups of employees.
The decision of the arbitrator shall be final and binding on the parties.
(b)
The above condition shall not apply if the parties by mutual agreement
determine that an alternative method for dispute settlement or an alternative
procedure, for selection of an arbitrator is appropriate in their particular
dispute. No party shall be excused from complying with the above condition by
reason of having suggested an alternative method or procedure unless and until
that alternative method or procedure unless and until that alternative method
or procedure shall have been agreed to by all the parties.
The four
collective bargaining agreements provide that in a seniority integration, no
TWU-represented employee on the seniority list “will be adversely impacted in
rates of pay, hours, or working conditions by the integration.” These “no
adverse impact” clauses in the collective bargaining agreements were intended
to “hold harmless” the TWU membership in a seniority integration with an
acquired carrier.
This “no adverse impact”
provision was included in the collective bargaining agreements specifically as
a result of American’s acquisition of TWA, based upon concerns expressed by the
TWU membership and to ensure that TWU seniority list employees were not put in
a worse position than the position they were in prior to seniority integration
with a group of employees from an acquired carrier.
The
principal focus of the TWU bargaining committee in proposing the language
regarding a seniority integration was not on the condition of TWA itself but
rather on what the impact [of this merger with TWA] was going to be on their
members?
TWU
believes that there are no methods other than establishing an April 10, 2001 seniority
date for all TWA employees that can satisfy the requirements of the seniority
integration provision of the American-TWU collective bargaining agreements.
Effective
January 1, 2002, TWA-LLC employees were transitioned to American
classifications for pay purposes. This required American to “map” TWA-LLC
positions to comparable American positions. Soon after the American acquisition
of TWA was finalized, American’s Employee Policy and Relations department
analyzed how job classifications at TWA-LLC matched up to those at American.
Job descriptions from the relevant collective bargaining agreements were used
in this task.
In
November, 2001 TWA-LLC employees were notified of how their positions “mapped”
to American positions for purposes of determining appropriate pay rates,
because some TWA-LLC positions do not exist in the American structure for those
positions, the TWA-LLC positions were mapped to the nearest equivalent function
performed by American employees. Pay scales for each position were included,
indicating the pay scale changes that were planned for implementation in 2002,
in order to bring TWA-LLC employees up to American pay rates. Notification of
the mapping for pay purposes of TWA-LLC Mechanics mapped to the American’s
Overhaul Support Mechanics (hereinafter OSMs) position was provided in
subsequent documentation.
TWA-LLC
Lead Systems Technicians are equivalent, for purposes of seniority integration,
to American’s Technical Crew Chiefs. In general, these employees provide
technical guidance to maintenance personnel; analyze repair issues and
coordinate with crew and maintenance personnel.
TWA-LLC
Crew Chiefs are equivalent, for purposes of seniority integration, to American
Crew Chiefs. Crew Chiefs are responsible for leading, directing and assigning
work to employees and have the overall responsibility for the performance of
their crews, including ensuring that work is completed in a timely and
satisfactory manner through proper and efficient crew utilization.
TWA-LLC
Flight Simulator Technicians are equivalent, for purposes of seniority
integration, to American Flight Simulator Technicians. The responsibilities for
these employees include the maintenance, modification and enhancement of visual
flight crew training devices as well as other related mechanical
equipment.
TWA-LLC
Inspectors are equivalent, for purposes of seniority integration, to American’s
inspectors. This position is responsible for the overall inspection of all
mechanical operations of the aircraft and power plant.
TWA-LLC
Mechanics are equivalent, for purposes of seniority integration, to American’s
Mechanics. This category covers all work generally recognized as mechanic work
in Carrier shops, maintenance or overhaul bases and other buildings.
TWA-LLC Stores Clerks
are equivalent, for purposes of seniority integration, to American’s Stores
Clerks; Employees in this position are responsible for all general storeroom
and stockroom tasks and other related duties.
TWA-LLC Fire
inspector duties are being incorporated into the broader job category of
American’s Plant Maintenance Man position for purposes of seniority
integration. The job responsibilities of the TWA-LLC Fire Inspector, including
testing, inspection, operation and training of fire prevention and control
equipment will be incorporated within the existing job duties of American’s
Plant Maintenance Man position; which include semi-skilled to
moderately-complex facilities and automotive equipment work, including clean
up, storage and removal duties.
TWA-LLC Ramp
Service employees are equivalent, for purposes of seniority integration, to
American’s Fleet Service Clerk positions. Employees in these positions are
responsible for airport operations related to transportation and
loading/unloading of cargo and supplies.
TWA-LLC Mechanic
Helpers are equivalent, for purposes of seniority integration, to American’s
Parts Washers. Responsibilities of these positions generally include moving and
cleaning of airplane parts and equipment.
Because American
contracts out its security function work, there are no American positions
equivalent to TWA-LLC’s Guard position, which is responsible for guarding of
gates, patrolling of certain areas and other passenger screening issues.
TWA-LLC Fleet
Service Helpers are equivalent, for purposes of seniority integration, to
American’s Aircraft Cleaners and, in some cases, American Fleet Service
employees. Employees in these positions are responsible for cleaning of
aircraft, including certain automotive equipment.
TWA-LLC Janitors
are equivalent, for purposes of seniority integration, to American’s Building
Cleaners. These positions are responsible for cleaning buildings of all types
as well as limited outdoor responsibilities such as lawn mowing and sweeping.
TWA-LLC
Mechanics who do not possess an A or P license were mapped to American OSMs.
This action has been protested by both the TWU and the IAM. All TWA-LLC
Mechanics mapped to the American OSM’s position are to be assessed in early
2002; some will continue to perform OSM work and others will be assigned as
Aircraft Maintenance Technicians. Pending resolution of that issue, TWA-LLC
Mechanics without A or P licenses will be treated as both Mechanics and OSMs
for purposes of seniority integration.
TWA,
Inc. suffered long term financial problems, including prior bankruptcies.
As
early as March, 2000, TWA and the IAM began making efforts to determine
ways in which TWA and its finances could be restructured that would keep the
company “afloat”.
Starting
in mid-June, 2000 the IAM periodically had meetings with TWA’s officials and
investment bankers to consider possible methods of refinancing TWA.
In
Fall 2000, TWA presented a proposed “turnaround plan” to the IAM for their
review.
By
December, 2000 TWA was no longer a viable carrier and bankruptcy was not far
off.
While
the IAM never finalized a restructuring model or plan that it presented to TWA,
it engaged in discussions with stakeholders of the airlines, including the
Airline Pilots Association and determined that, as a form of protection from
going into liquidation, TWA would have to go into some form of
bankruptcy over the next couple of months.
In
December, 2001 the IAM presented a “Restructuring Process Term Sheet” drafted
with the assistance of Jay Alix and Associates, to the President and Chief
Executive Officer of TWA, William Compton.
This
Restructuring Process Term Sheet included commitments by the Company’s Board of
Directors, the TAM, the Air tine Pilots Association, the Company and its
lessors, refinancing and restructuring commitments and other provisions
concerning the overall restructuring of TWA.
The
finalized restructuring plan was presented to TWA’s Board of Directors for a
vote on January 5, 2002, but the plan was not voted on prior to the announcement
that American had agreed to enter an agreement to purchase certain assets from
TWA.
Despite
the IAM’s efforts to assist TWA in finding a financial alternative for
remaining independent, TWA determined that it had no viable alternative to a sale
of certain of its assets to American through bankruptcy.
In
January, 2001 TWA again filed for bankruptcy. American is a financially secure
carrier.
During
the course of the bankruptcy proceedings, TWA and the IAM entered into an
agreement for TWA-LLC to recognize the IAM and to continue the IAM collective
bargaining agreement with certain revisions. The resulting agreement between
TWA and the IAM is embodied in the Transition Agreement executed between these
two parties, dated April 4, 2001. The Transition Agreement removed scope and
successorship provisions that required application of the Allegheny-Mohawk
seniority integration procedures in the event of a merger or acquisition.
On
March 13, 2001 TWA sent a letter to the IAM explaining American’s plans and
intentions concerning American’s acquisition of TWA’s assets. That letter
stated that TWA-LLC would adopt the rates of pay in the then-current TWA labor
contracts, that American would transition the TWA-LLC employees to American pay
rates and benefits no later than January 1, 2002, that work rules would be
revised to make them compatible with American’s work rules and that all of
TWA’s U.S. - based represented employees who meet the qualifications described
in the Asset Purchase Agreement would become American employees as quickly as
possible.
The
parties did not negotiate or adopt a no-furlough clause as part of either the
Transition Agreement or the collective bargaining agreements applicable to
TWA-LLC employees- As of April 3, 2001. TWA and the IAM recognized that, while
American had undertaken to use its “reasonable best efforts to assist TWA-LLC”
to provide employment, in fact, there could be furloughed TWA-LLC employees as
of the date of the American/TWA-LLC integrations. The parties expressly
provided that the furloughed TWA-LLC employees would be included in the
integration process.
On
April 9, 2001 American acquired certain assets of TWA, Inc. pursuant to an
Asset Purchase Agreement approved by the Bankruptcy Court. This acquisition was
completed on April 10, 2001.
The
assets purchased by American from TWA, Inc. were received by American and its
wholly-owned subsidiary, TWA-LLC, which was certified by the Federal Aviation
Administration (hereinafter the “FAA”) and the Department of Transportation
(hereinafter “DOT”) as a Part 121 direct air carrier pursuant to 14.C.F.R. Part
119.
It
has always been American’s publicly stated intention to combine TWA-LLC into
American. Since December 2, 2001 the two systems have been held out to the flying
public as a single carrier.
Effective
January 1, 2002 TWA-LLC employees began to receive pay and benefits equivalent
to American pay rates and benefits.
American
was motivated to purchase TWA in order to maintain market position through
acquisition, specifically in reaction to a pending United Airlines-U.S. Airways
transaction -
TWA’s
St. Louis hub was value brought to American by TWA. This hub provided a
substantial portion of the market share increase in the form of a mid-Continent
hub to supplement American’s Dallas-.Fort Worth and Chicago, O’Hare hubs, and
opened up St. Louis, one of the big markets in the U.S. with a number of
corporate headquarters.
TWA’s
Kansas City maintenance/overhaul base provided an additional large maintenance
facility with a skilled workforce for American.
During
the summer of 1999, the IAM was instrumental in funding the Kansas City
maintenance/overhaul base by successfully lobbying Kansas City residents to
approve a proposal to issue a bond to finance improvements for the TWA
maintenance facility.
At
the time American purchased TWA’s assets, only 5 or 6 of 14 bays were being
used by TWA at the Kansas City facility. The IAM has estimated that by 2005
approximately 8 of the bays would be in use and that by 2010 approximately 11
of the bays would be in use.
Although
American had panned to expand its Alliance Fort-Worth maintenance base and
facility by the addition of 3 hangar bays, these growth plans were deferred as
a result of American’s acquisition of TWA and the added capacity provided by
the Kansas City maintenance facility.
As a part of the
transaction, American acquired a 26% interest in Worldspan, 171 slots at four
restricted airports worth approximately $194 million and 138 gates at key
airports valued at $73 million.
American decided
to close TWA’s JFK operation, including the termination of routes and closing
of a maintenance facility.
American took over
the operation of many of the routes and frequencies TWA had operated at JFK.
Other portions of
the TWA operation have been pared back by American to those operations which
American believes will constitute the best operational synergies with the
Carrier, including the elimination of duplicative routes.
American/TWU and
TWA/IAM employees differed in the types of seniority and methods of seniority
accrual. American/TWU employees accrue occupational, classification and company
seniority; TWA/IAM employees accrued only classification and company seniority.
This arbitration
addresses only integration of occupational seniority.
American/TWU
occupational seniority reflects time spent in a classification of work within a
Title Group starting from the first day an employee reports to that Title
Group. Occupational seniority is used for reductions-in-force, all facets of
promotion and demotions and transfers.
TWA/IAM
classification seniority is the length of service for which an employee
receives credit, regardless of location, in any of the classifications covered
by the agreement. Classification seniority applies to reductions-in-force,
preference of shift, days off, vacation period selection, bidding for vacancies
or new jobs and promotions, demotions or transfers.
TWA/IAM
company seniority is defined as the date of hire and is used for credited
service for pension benefit calculations and also as a classification Seniority
tiebreaker. Unlike TWA/IAM company seniority, company seniority at American is
adjusted for specific periods of time when an employee is not on the active
payroll (primarily furloughs and leaves of absences). Because of these
differences in seniority, in the process of converting TWA/IAM employees to
American/TWU employees, TWA/IAM employees’ company seniority was adjusted to
reflect American policies. American company seniority is used, and will
continue to be used, for purposes of vacation accrual and selection,
eligibility for certain benefits, retirement eligibility, vesting, length of
service awards and service-charge-waived travel.
April
10, 2001 has been used for seniority integration purposes by other groups on
American property, specifically including pilots, flight attendants and agents.
On
November 8, 2001 the Allied Pilots Association and American entered an
agreement awarding TWA-LLC pilots American seniority dates retroactive to April
10, 2001. The agreement also held that: (1) American and TWA pilot
seniority lists were to be integrated on a basis of approximately 1 TWA pilot
to every 8.17 American pilots until only TWA pilots remain and (2) that the
small group of American pilots who have a seniority date of later than April
10, 2001 would follow all TWA-LLC pilots on the combined American seniority
list. Special provisions were adopted for St. Louis-based positions.
On
December 17, 2001 the Association of Professional Flight Attendants and
American entered an agreement granting all TWA-LLC flight attendants an
occupational seniority date at American of April 10, 2001. Later seniority
dates would be granted to TWA-LLC employees who had not completed training or
who had not commenced flying as of the April 9, 2001. The American seniority
list shall be combined with the revised TWA-LLC seniority list. Special
provisions were adopted for St. Louis-based flight attendants.
On
August 9, 2001 American announced its plan for combining the work forces of
American’s and TWA’s reservation agents and passenger service representatives.
American’s agents and passenger service representatives are not represented by
a labor organization. American determined that the occupational seniority date
for TWA’s agents and passenger service representatives would be April
10, 2001. Company seniority will not be altered, other than the revisions
required to comply with American policies concerning company seniority.
Additionally, TWA agents and passenger service representatives will be
moved up to the American pay scale.
As of April, 2001
American had 13,679,000 available seat miles (hereinafter “ASMs”) compared to
TWA’s 2,919,000 ASMs. TWA’s ASMs represent 21% of American’s total ASMs. ASMs
represent the relative size of each carrier, as measured by seats available for
revenue passengers multiplied by miles in a flight.
TWA-IAM employees
were paid less than the average of what comparable employees at other major
airline carriers were paid.
Effective January
1, 2002 TWA-LLC employees began to receive pay and benefits equivalent to
American pay rates and benefits, and American work rules became applicable to
TWA-LLC employees. The details of the increased pay scales applicable to TWA-LLC
employees effective January 1, 2002 were provided to those employees in late
2001. These pay increases were applied to approximately 90% of the TWA-LLC
employees.
American‘s
conversion of TWA-LLC employees to American pay scales translated to substantial
percentage hourly pay increases for Store Clerks, Fleet Service Clerks and
Mechanics and Related Employees.
American
has assumed an incremental cost of $104.6 million for calendar year 2002 as a
result of its decision to implement pay increases in order to bring TWA-LLC
employees up to American pay rates.
Between
1992 and American’s acquisition, TWA incurred an operating loss of over $1.7
billion,
Without
the cash provided by American in connection with the acquisition, TWA lacked
the liquidity necessary to meet its immediate obligations of approximately $40
million. Paying these obligations would have placed TWA in a cash
balance deficit of $20 million.
In
its purchase of TWA, American made a total purchase commitment of $2,825
billion. This total is comprised of $313 million paid in cash for assets, $312
million expended as debtor-in-possession financing, for an immediate, upfront
cash cost of $626 million. American also assumed $2.2 billion in aircraft lease
obligations.
Over
the next five years, American will incur additional costs as a result of
integration and labor costs. The integration costs will consist of fleet
modifications, facility integration and updates, training, systems conversion
and severance/relocation. The labor costs, estimated to be $260 million per
year, will consist of the application of American wage rates and work rules to
the TWA-LLC workforce. Together, these two costs will total over $2 billion
through 2005.
A
significant portion of the increase in labor costs is attributable to the
increase in the wage rates for the IAM-represented TWA employees. For
example, the wage rate increase for mechanics will be 44% (from $20.04/hour to
$28.85/hour) and 33% for ramp servicemen (from $16.59/hour to $22.05/hour). These
wage rate increases do not include subsequent increases that took effect on
March 1, 2002.
Additional
integration costs have not been quantified, but are anticipated; such costs
will include those associated with merging technology systems and databases,
merging back office processes, addressing customer loyalty issues and the
downgrading of American and AMR debt that occurred as a result of this merger.
Revenue
synergy refers to incremental revenue that will be realized by the resulting
company that would not have been realized by either company on a stand-alone
basis. Revenue synergies from the integration of TWA into American will result
from share shift/city presence enhancement, yield improvement, scheduling
efficiencies, the elimination of the Karabu ticketing agreement, the creation
of a stronger frequent flyer program and the expansion of the alliance with
foreign flag airlines. One of the most critical revenue synergies will result
from the additional route connections associated with combining the two
carriers’ networks. The combination of TWA’s and American’s networks will add
1,910 new markets and 16.7 million more passengers to the merged airline.
The
TWU’s estimate of annual revenue synergies, not adjusted for the September 11
effect (which would reduce the synergies), ranges from$400 million to $500
million. The IAM estimates that the annual revenue synergies, not adjusted for
the September 11 effects, will exceed$700 million. These synergies would not be
automatic, but rather would be phased in over time.
Mr.
Stalnaker testified that TWA as a stand-alone carrier will provide
approximately $2.4 billion in revenue to American Airlines; and, combined with
the $700 million generated by the network synergies, TWA will add approximately
$3.1 billion in revenue to American, which represents a 33% increase to
American’s revenue.
Cost
synergies are additional savings available to the combined entity that would
not otherwise be available to either carrier on a standalone basis. In
American’s acquisition of TWA, cost synergies mainly result from reductions in
TWA’s cost structure and are expected to range from $250 million to $400
million per year through 2005. These cost savings are made up of operating cost
savings and lower lease rates resulting from American’s better credit rating
and stronger purchasing power. The operating cost savings include elimination
of duplicative overhead and facilities, lease obligations and utilization of
American purchasing power and fuel hedging programs, amounting to approximately
$150 million in annual savings. The reduction in lease rates, due to American’s
superior credit rating and purchasing leverage, is estimated to translate to an
annual savings of approximately $200 million.
In
July, 2001 the IAM received its first notice of furloughs of LAM- represented
employees. These furloughs were to be effective September 2 and October 6,
2001.
American
closed TWA’s JFK operations because they had been reduced to the point that
they were no longer economical. The decision was made to close JFK because,
based on the downturn in the air industry in general, it was determined that
there was no need for dual operations, that is, services provided by both
American and TWA, at that location. This decision resulted in the ceasing of
services as well as the closing of facilities, including the TWA hangar and
terminal at JFK. The impact from the JFK closing accounts for somewhat less
than half of the total TWA furloughs.
Between
April 10 and September 11, 2001, TWA-LLC employees were furloughed as a result
of work rule changes being imposed as well as a result of the closing of TWA’s
JFK operations. In addition, according to the testimony of Mr. Calhoun,
American subcontracted or transferred all or a portion of the work TWA
employees had been performing at 27 different locations to American.
Mr. Stalnaker
testified that American also transferred or removed work from the combined
networks in 101 markets in which TWA had operated flights.
During this time,
no American employees were furloughed. Following September 11, additional
furloughs were made, to both the American and TWA-LLC workforces as a result of
the changes in the airline industry due to the impact of September 11. On the
TWA side, additional furloughs were made based on marketing route and aircraft
utilization decisions.
On September 27,
2001 American and TWA-LLC layoffs were announced, effective September 28, 2001.
Additional layoffs
were announced in February 2002, affecting 84 TWA- LLC/IAM employees.
As of March 4,
2002 the following was the most current furlough and recall data for American
TWU-represented and TWA-LLC employees overall:
3,542 American TWU-represented
employees had been furloughed compared to 1,627 TWA employees, for a total of
5,169 furloughs. These furlough figures include those employees who were
subsequently recalled.
1,272 American-TWA-represented
employees had been recalled compared to 12 TWA employees, for a total of 1,234
recalls.
The recall numbers are a result of
gradually rebuilding the operation and schedule.
To iterate, the
single issue for the Arbitrator to determine is how the system seniority lists
of each of the respective employee groups shall be integrated for purposes of
occupational seniority in light of the applicable provisions of the
American-TWU collective bargaining agreements?”
Position of the Carrier
The Carrier
submits that there should be no dispute concerning TWA’s financial condition
and the transaction that gave rise to this seniority integration proceeding.
The Carrier asserts that TWA suffered long term financial problems, including
prior bankruptcies. The Carrier asserts that TWA had no alternative to a sale
of certain assets to American, and that the Carrier, as a “white knight”, through
the asset purchase, provided the best hope for continued employment for TWA’s
IAM-represented employees.
The Carrier
contends that the American-TWA transaction was “not a marriage of equals”. The
Carrier maintains that American was the substantially larger and much more
financially secure carrier.
The Carrier
contends that TWA did, however, contribute valuable assets to the transaction.
The Carrier asserts that two assets of TWA are of particular value: (1) the St.
Louis hub, which provided a substantial portion of the market share increase
and a mid-Continent hub to supplement American’s Dallas-Fort Worth and Chicago
O’Hare hubs; and (21 the Kansas City maintenance base, which provided an
additional large maintenance facility with a skilled workforce.
However, the
Carrier contends that other TWA assets were not of particular value to
American, and points to American’s decision to close TWA’s JFK operation, to
terminate certain routes and to close a maintenance facility. The Carrier
maintains that, additionally, it pared back other portions of the TWA
operation. The Carrier submits that these decisions of American management
resulted in the furloughing of certain IAM-represented TWA employees.
The Carrier
maintains that, while the TWA transaction brought value to American, the value
must be assessed realistically in terms of those specific operations and
employees which are being integrated into American’s operations.
In the context of
the collective bargaining agreements, the Carrier points out that there are
identical agreement provisions which adopt the Allegheny-Mohawk
Provisions, and which establish a substantive requirement that no
TWU-represented employee “will be adversely impacted in rates of pay, hours, or
working conditions by the integration”. The Carrier further points out that the
instant proceeding is an interest arbitration type of process, limited to the
one issue recited above.
The Carrier
maintains that there is no dispute regarding the intent of the controlling
contractual provisions. The Carrier points out that TWU Counsel Arthur Luby and
American Representative James Weel testified that the contract clauses were
intended to “hold harmless” the TWU membership in a seniority integration with
an acquired carrier. The Carrier submits that, while the procedures of selected
paragraphs of Allegheny-Mohawk have been adopted, those paragraphs are
only relevant to the extent they can be applied while holding harmless TWU
represented employees from any adverse impact. Accordingly, the Carrier
contends that the only way in which TWA employees’ seniority may be addressed
is in a manner that does not adversely impact the rates of pay, hours or
working conditions of American’s seniority list employees.
The
Carrier submits that it is not an advocate for any specific seniority
integration method, and suggests that there could be ‘range of approaches”
which would meet the contractual standard and the parties’ interests.
The
Carrier states that its interest in the seniority integration arbitration is
that the outcome “be issued immediately”, and that the resolution be (1)
reasonable, understandable, practical and acceptable, (2) crafted so as to
minimize the operational and cost impact of avoid unnecessary integrating the
workforces and (3) structured so as to morale problems among employees.
The Carrier
submits that it is difficult to understand how “dovetailing” the TWU and IAM
seniority lists, as the TAM has proposed, could be implemented consistent with
the contractual requirement of no adverse impact upon the
TWU-represented employees. Additionally, the Carrier suggests that one could
argue that, under traditional Allegheny-Mohawk standards, TWA was a
“failed carrier”, and thus dovetailing of seniority lists would be an
inappropriate seniority integration methodology.
The Carrier points
out that the TWU has argued for a April 10, 2001 seniority date for all TWA employees,
as that was the date of American’s acquisition of TWA assets. The Carrier
further points out that April 10, 2001 has been the date used in integrating
the seniority of other groups on American’s property, and thus would appear to
be consistent with the contractual standard to “hold harmless” TWU employees.
The Carrier
maintains that a April 10, 2001 date may be appropriate, and posits that
special provisions should be made to protect seniority expectations of TWA
employees concerning the St. Louis hub and the Kansas City maintenance
facility. The Carrier submits that it is necessary for some mechanism to be in
place which would minimize the impact of integration upon TWA employees at
those facilities. American suggests that such protections are justified as a
matter of equity, given the particular contribution to the transaction made by
the workforces at those two facilities, and in view of the fact that American’s
presence prior to the acquisition at both locations has been very modest. The
Carrier also states that it has an interest in maintaining continuity of
operations and avoiding excessive costs at those facilities by insulating TWA
employees from the adverse impact of seniority integration at those two
locations.
In
conclusion, the Carrier suggests that there should be a range of solutions that
would protect Two-represented employees from adverse impact, protect
TAM-represented employees at the St. Louis hub and at the Kansas City
maintenance facility from displacement by American employees with relatively
less experience at those unique locations and provide a workable and acceptable
method for integrating the two workforces.
Position of the lAM
The
IAM submits that “date of entry” into the classification or “length of service”
is the seniority integration method which achieves a fair and equitable
resolution, and satisfies the specific terms of the applicable collective
bargaining agreements.
The IAM contends
that Date of Entry is intrinsically fair; since it credits each employee for
every year he has worked in his job without regard to whom his employer may
have been. The IAM argues that treating each year of service the same is the
only method that gives full recognition to the fundamental principle, as stated
by a TWU witness, that “seniority is a cornerstone” for all unionized
employees. The IAM asserts that anything less than using a Date of Entry
methodo1ogy would result in a portion of an individual’s tenure being
nullified. The IAM submits that, since an arbitral ruling cannot extinguish an
employee’s work experience, the methodology established in this case should not
cause an employee to lose the primary benefit of that service or experience.
The IAM maintains that if the TWU’s proposal is accepted then virtually all of
the seniority accrued by more than 6,000 TWA employees would be erased.
The IAM contends
that, if it is necessary to look beyond the equities inherent in a Date of
Entry methodology, the facts and circumstances unique to this case require that
the seniority lists be integrated using such methodology. The IAM submits that
the value which TWA has provided will redound to American’s benefit in terms of
assets, a trained and experienced workforce, increased revenues and, most
importantly insofar as TWU-represented employees are concerned, additional job
opportunities
The IAM points out
that the TWU-American collective bargaining agreements, cited above, provide
for the integration of seniority lists to be accomplished through the governing
principles of the Allegheny-Mohawk Provisions. The IAM further points out that Allegheny-Mohawk
provides that the method for integrating seniority lists shall be “fair and
equitable”. Citing the seniority integration decision involving the flight
attendants of Pan American World Airways and National Airlines, the IAM points
out that arbitrators have uniformly determined that the fair and equitable
standard is satisfied if the integration preserves the job expectations and
relative bidding positions that employees held prior to the merger or
acquisition. The IAM asserts that a TWU witness acknowledged that this
objective is equivalent to the contractual requirement that “no employee on the
master seniority list will be adversely impacted. . . by the integration.”
The IAM maintains
that the beneficial effects of the merger, both to American and its employees,
require that Date of Entry be used to integrate the seniority lists. The IAM
submits that those effects have, in large part, already been realized, since
American has devoted the past year to rationalizing the networks and operations
of the two airlines. The IAM points out that its expert witness, Mr. Thomas
Stalnaker, testified that American has changed the level of flight operations
performed by TWA or American at 113 different markets. Therefore, the IAM
submits that, as of today, the two airlines overlap on only two city-pairs.
The IAM contends
that American, beginning on April 10, 2001, undertook a process that has
resulted not only in a shift of flights but in an equally, if not more
extensive, transfer of work between the two carriers. The IAM points out that
IAM Representative Al Calhoun testified that American has transferred
substantial amounts of work from TWA either to itself or to a third-party
contractor at 29 different stations. The IAM contends that the magnitude of
this reallocation of Job assignments is expressed by the number of employees
currently furloughed at each carrier. The IAM submits that the record reflects
that six months after September 11, 2001 all but 8% of American’s employees axe
at work, while 24% of TWA’s employees are still furloughed. The IAM submits that
this discrepancy is explained, at least in part, by the fact that American has
taken jobs away from TWA employees and transferred them to American workers.
The IAM asserts
that, as a result of American’s year-long rationalization process, TWA today provides
the Carrier with $2.4 billion in new revenue and has added 4,848 positions to
the job classifications here under consideration. The IAM also contends that
TWA’s benefit to American is not limited to its current contributions, but
extends to the projected effects of the merger. The IAM points out that Mr.
Stalnaker testified that, once the two operations are fully integrated,
American will realize an additional $700 million in revenue and $350 million in
cost reductions. The IAM further points out that American will have the
opportunity to fully exploit all of the hard assets it acquired, including the
valuable Kansas City overhaul base, a facility the IAM was instrumental in
saving through its legislative/political efforts.
The
IAM submits that this transaction, unlike other mergers and acquisitions,
involves a situation where at the point of the actual integration the
purchaser, American, will have stripped the acquired carrier of all routes and
employees it considers to be surplus, and will have retained only those assets
it deems essential to a merged operation. The IAM submits that, as a result,
every additional job TWA brings to American is of incremental value to the
Carrier; and, by causing the pool of job opportunities to expand, the merger has
the concomitant effect of preserving the relative bidding position that each
employee held prior to the integration.
In conclusion, the
IAM argues that Date of Entry is the methodology that should be adopted based
upon its inherent equities and the overwhelming evidence that this merger has
created new job opportunities which will ensure the preservation of an
individual’s bidding position. The IAM maintains that Date of Entry satisfies
both the fair and equitable standard of Allegheny-Mohawk as well as the
requirements of the applicable collective bargaining agreements.
Position of the TWU
The
TWU submits that, in contrast to most arbitrations, there is no dispute
between the parties regarding the meaning of Article 1(h) of the Mechanics and
Related collective bargaining agreement or the companion provisions in the
other TWU contracts. The TWU points out that witness Arthur Luby testified that
these contract clauses represent “hold harmless” provisions, which specify that
TWU represented employees are not to be placed in a “worse position” or
deprived of what they would have “legitimately expected” if there had been no
merger and no seniority integration.
The
TWU points out that Mr. James Weel, American’s Chief Spokesperson involved in
the negotiation of the above-referenced provisions, corroborated Mr. Luby’s
testimony concerning the meaning and intent of Article 1(h) and the companion
provisions.
The
TWU further points out that TWU International Vice President and Airline
Director James Little testified that the TWU had several practical reasons for
seeking protection from adverse impact in the seniority integration process.
The TWU points out that Mr. Little testified that the TWU was concerned that
TWA employees were senior, and such circumstance could lead to the
displacements of large numbers of less senior TWU-represented employees,
particularly if the transaction turned out to he less advantageous than
American had hoped. The TWU submits that such concern was justified because
American was acquiring a “chronically, indeed terminally, ill carrier that
could be a drag” on American.
Insofar as the
“equities” are concerned, the TWU submits that the IAM had specifically waived
the successorship and merger protection provisions in its collective bargaining
agreement with TWA in order to obtain certain other rights with TWA
post-bankruptcy; and that TWA employees had gained substantial benefits as a
result of their becoming American employees. The TWU points out that Vice
President Little testified regarding TWU’s concern that American would forego
its plans to expand the Alliance-Fort Worth repair facility, and would transfer
work from that facility to TWA’s Kansas City maintenance base, which had excess
capacity for the repair and maintenance of aircraft. The TWU submits that it
was justifiably concerned that TWU-represented employees at Alliance-Fort Worth
would be disadvantaged by an inability to follow their work to Kansas City
because of the comparatively greater seniority of the IAM-represented workforce
at Kansas City.
The TWU submits
that, based upon these considerations, the TWU has proposed that incoming TWA
employees be provided an April 10, 2001 seniority date, “a position mirroring
the final settlements made by other unions on the property”. The TWU submits
that, while the contract does not dictate such a result, the TWU is “open” to
any resolution which protects the interests of the IAM workforce, provided
that the contractual “ho1d harmless” guarantee to TWU workers is
respected. (Emphasis by the TWU)
The TWU submits
that the IAM demanded that the Arbitrator ignore the above-cited contractual
standard, and argued that a dovetailing arrangement would be appropriate
because TWA purportedly brought enhanced work opportunities “to the table”, and
that the IAM otherwise had an equitable right to such an arrangement. The TWU
argues that the IAM never explained how its seniority integration plan could be
implemented without adversely affecting American employees in violation of the
collective bargaining agreements. The TWU contends that the IAM, rather than
presenting argument regarding this issue, attempted to demonstrate that
dovetailing by date of entry should be adopted as the integration methodology
because TWA purportedly had a realistic chance of survival on its own, and
because American’s acquisition of TWA allegedly created cost reductions,
revenue opportunities and great growth potential for American.
The TWU contends
that the “painful truth” is that TWA had no future, and would have been
liquidated if not for the American acquisition. The TWU submits that the record
established that TWA was on the verge of declaring bankruptcy, for a
third time, and that TWA had not been profitable between 1994 and 2001. The
TWU points out that the IAM’s witness, Mr. Sleigh, who testified concerning
alternative arrangements TWA may have entered into, acknowledged that such
alternative arrangements would have been conditioned upon substantial
concessions by the IAM, including a possible sale of TWA’s Kansas City heavy
overhaul facility. The TWU points out that, in lieu of such an arrangement,
TWA’s employees ax-e far better off at American, especially because of the
massive improvements they are beneficiaries of in terms of pay and benefits.
The
TWU contends that the notion that TWA brought great opportunities and synergies
to American “falls under the weight of the actual evidence.” The TWU submits
that Mr. Stalnaker, on cross- examination, acknowledged that many of the cost
savings he had attributed to the acquisition by American were actually
reductions in high overhead and other costs “of TWA alone”, and that such cost
reductions were accomplished solely because of American’s size and
credit-worthiness. The TWU also points out that Mr. Stalnaker conceded that the
main value obtained by American was largely due to the Carrier’s acquisition of
TWA’s St. Louis hub.
The TWU submits
that its expert economic witness, Mr. Davis, demonstrated that. TWA had been in
chronic fiscal distress for over a decade with three bankruptcy filings: that
TWA was “bleeding cash” as of 2001; and tat American not only paid $313 million
to acquire TWA, but also assumed $312 million in “debtor-in-possession
financing” and assumed aircraft lease obligations of $2.2 billion.
The TWU further
points out that Mr. Davis testified that the pay increases given to TWA
employees, as a result of the application of the American-TWU collective
bargaining agreements cost American approximately $260 million per year. The
TWU argues that Mr. Davis’ testimony establishes that Mr. Stalnaker
overestimated the possible increased revenue synergies when compared to
American’s awn estimates, and that the only real value obtained by American in
the form of revenue synergies will occur as a result of the acquisition of the
St. Louis hub and the Kansas City maintenance facility.
The TWU submits
that American concurred entirely with the TWU regarding the bargaining history
and the purpose of the seniority integration provisions in the TWU-American
collective bargaining agreements. The TWU iterates that TWA employees received
very significant pay increases just by becoming American employees, and that
the primary value gained from the TWA acquisition was the St. Louis hub and the
Kansas City maintenance facility.
In
conclusion, the TWU submits that providing an April 10, 2001 occupational
seniority date for incoming TWA employees is the only result which guarantees
that American employees will be held harmless. The TWU contends that whatever
occupational seniority rights are provided to ex-TWA employees through the
seniority integration process must be consistent with the fundamental promise
to TWU-represented workers on the American master seniority lists that they
will not be adversely impacted in rates of pay, hours and working conditions.
Findings and
Opinion
After
reviewing the entirety of the evidentiary record, it is clear that there are
certain, critical, undisputed facts that have a controlling effect upon the
Award in this case.
First,
and most importantly, this Arbitrator’s jurisdiction is limited by the
collective bargaining agreement provisions cited above, in which American and
the TWU agreed that “no [American] employee on the master seniority list[s]
will be adversely impacted in rates of pay, hours, or working conditions by the
[seniority] integration[s].” The provisions in the four (4) collective
bargaining agreements applicable to Mechanics and Related Employees, Fleet
Service Employees, Stock Clerks/Stores Employees and Flight Simulator
Technicians are identical insofar as the “no adverse impact’ principle is
concerned.
When
these provisions were incorporated in the tri-partite Arbitration Agreement,
Joint Exhibit No. 1, this Arbitrator’s jurisdiction was severely limited. Thus,
while the Arbitration Agreement also calls for the application of Sections 3
and 13 of Allegheny-Mohawk, which make provision for a fair and
equitable seniority integration, this Arbitrator’s flexibility in divining a
“fair and equitable” methodology for establishing occupational seniority for
TWA employees is limited.
As
a matter of arbitral notice, seniority integration proceedings in the airline
industry were, for many years, initiated as the result of labor protective
provisions which were imposed by the Civil Aeronautics Board (hereinafter the
“CAB”) when air carriers sought approval to merge, coordinate, purchase assets
one from another or to enter other similar transactions. These provisions were
imposed and a seniority integration and arbitration process was provided,
because it was recognized that there would be a melding of employees’ seniority
with the probability that a number of employees would be adversely affected and
would likely “lose” some of the seniority they had acquired on their respective
carriers. The labor protective provisions imposed by the CAB, beginning with
the United-Capital merger, 33 CAB 307 (1961), and ten updated by the
provisions imposed by the CAB in the Allegheny-Mohawk transaction,
reaffirmed the principle, earlier established under the Interstate Commerce Act
by the Interstate Commerce Commission, that the integration of seniority lists
in such transactions should be effected in a “fair and equitable” manner. The
parties here have adopted that principle, albeit constrained by the no adverse
impact condition referred to above.
This
Arbitrator also takes arbitral notice of the fact that in typical airline
seniority integration proceedings the “competing” groups of employees
place in evidence the “equities” which they allege they have brought to the
transaction. These equities are ordinarily presented in terms of the financial
condition, assets, route structures and other characteristics possessed by the
carriers involved in the transaction. When the weighing and balancing is
completed and one set of equities is found to be more significant than the
other, the employees who have brought the greater equities to the transaction
ordinarily find that their seniority is less adversely affected/impacted than
the seniority of the employees from the carrier that was less endowed in terms
of financial condition, fleet size, modernity of the fleet, route structure end
the other indicia of viability ordinarily considered by airline analysts and
Wall Street in the context of bond ratings, present profitability status end
the likelihood of future profitability.
The
second significant, uncontroverted fact is that TWA, at the time of the
acquisition of its assets on or about April 10, 2001, was in financial
extremis. TWA was on the verge of declaring its third bankruptcy in less than a
decade, it ranked in the lower half of the major carriers in the industry in
terms of financial viability and the prospects for its survival were, at best,
bleak.
While
this Arbitrator is not prepared to adapt American’s characterization of itself
as a “white knight”, nevertheless it is clear that American’s offer to purchase
TWA’s assets saved the careers of TWA’s employees. American made a broad offer
of employment to virtually all TWA’s employees, and most of those employees who
were able to retain employment reaped significant advantages in terms of
increased rates of pay and benefits.
In
this context it must be recognized that TWA’S IAM-represented employees were,
in the main, “granted new life” as their careers were “saved” by the
acquisition. In contrast to the broad-based offer of employment by American to
TWA’s employees, this Arbitrator takes arbitral notice of the circumstances
that were extant with the demise of the other great United States international
air carrier, Pan American World Airways, Inc. (hereinafter “Pan Am”).
Not unlike TWA,
Pan Am suffered greatly from the effects of deregulation. Unlike TWA, Pan Am
was not able to survive. Valuable pieces of Pan Am, such as its Pacific routes
and its London routes, were sold off; eventually the entire remaining valuable
assets were also sold; and while some small numbers of Pan Am flight crew and
cockpit crew employees were able to obtain employment with the
acquiring carriers, albeit with substantially reduced seniority, Pan Am’s
TWU-.represented Mechanics and Related Employees and employees in other
associated crafts or classes, also represented by the TWU, acquired no benefit
from those transactions as thousands received no offers of employment.
The
third significant, uncontroverted fact is that TWA brought two valuable
physical assets to the transaction; the St. Louis hub and the Kansas City
maintenance base.
Both
of those assets are providing and should continue to provide a substantial
benefit for all of American’s employees in terms of expansion of the Carrier’s
route system as well as the increased capacity to maintain and repair aircraft
for the Carrier. TWA also brought to the transaction a group of highly-skilled
employees in the crafts or classes whose seniority is being determined in this
proceeding.
This
Arbitrator served as chairman of the TWA-IAM System Board of Adjustment, and
heard several cases which concerned aspects of the concessions made by the IAM
during TWA’s two prior bankruptcies. It is clear that but for the IAM’s
leadership it is not likely that TWA would have survived as an operating air
carrier into the year 2001. The commitment by the IAM’s leadership and its
legislative efforts, testified to by IAM Vice President Calhoun, not only
provided American with the opportunity to acquire valuable assets but also
contributed substantially to the preservation of the vast majority of jobs now
held by farmer TWA employees on the American system.
With
these facts in mind, it is clear that the TWU recognized its responsibility, as
a labor organization long involved in transactions that effected the seniority
of employees, to provide some credit for TWA service in terms of occupational
seniority.
The
issue for this Arbitrator is the extent to which TWA service will count for
purposes of occupational seniority for former TWA employees, represented by the
IAM, who are working under various American/TWU collective bargaining
agreements.
In
order to resolve this issue, as noted above, this Arbitrator is required by the
Arbitration Agreement to apply the merger, purchase and acquisition provisions
of the applicable American-TWU collective bargaining agreements. Thus, while
striving to fashion a “fair and equitable award”, insofar as incoming TWA
employees are concerned, this Arbitrator must respect the contractual condition
that the TWU represented workforce will not be adversely impacted in rates of
pay, hours and working conditions by the integration of the seniority lists.
The
provision in the American-TWU collective bargaining agreements, referred to
above, has been correctly characterized by the TWU and American as a “hold
harmless” clause.
Initially, it must
be observed that the “hold harmless” clause requires, at the very least, that
upon integration TWU-represented American employees cannot be displaced from
the positions they now hold by TWA employees.
As a corollary,
equity requires that IAM-represented employees also have rights to retain the
positions they held, unless displacement is necessary to comply with the no
“adverse impact” clause.
The enabling
language of the American-TWU collective bargaining agreements requires that the
seniority integration award provide protection against harm, but it does not
guarantee increased seniority benefits as a result of the integration process.
Nor does the “hold harmless” provision protect employees from the adverse
consequences of downturns in the economy or catastrophic events, such as the
terrorist attacks of September 11, 2001.
Therefore, while
this Arbitrator recognizes that there are some TWU-represented American
employees on furlough or otherwise displaced, these adverse developments
occurred as a result of the contraction of the airline industry after September
11, 2001, and not as a result of this seniority integration proceeding.
Accordingly, this
Arbitrator finds no contractual justification for permitting American employees
displaced as a result of the ramifications of September 11, 2001 to displace TWA
employees from the positions they now hold performing the work they brought
with them. To permit such displacement by American employees would be
particularly unfair and inequitable, in view of the fact that TWA employees
were laid off in significantly greater proportions since September 11, 2001
than were their American counterparts.
The
record evidence indicates that, beyond the initial integration, American and
TWU, in their collective bargaining agreements, intended to protect the
legitimate expectations of American’s TWU-represented employees in terms of
bidding and advancement, and to ensure that the acquisition and seniority
integration process did not deprive American’s TWU-represented employees of
work opportunities they could legitimately expect.
However,
as noted above, the contractual language and the bargaining history does not
disclose that there was any guarantee for American’s TWU-represented employees
that there would be additional work opportunities created for them by the
acquisition and integration, nor does the language dictate that American’s
TWU-represented employees benefit at the expense of the IAM-represented
workforce.
The
“fair and equitable” standard is, by necessity, a subjective one. As past
seniority integration awards in the airline industry have demonstrated, there
are a variety of methods that may be used to achieve a “fair and equitable”
result; and, clearly, what is “fair and equitable” in the eyes of one employee
will not, necessarily, be “fair and equitable” to another.
In
many merger, acquisition, consolidation and other similar transactions, both in
the transportation and non-transportation industries, seniority lists are often
merged using the “Date of Entry” methodology advocated here by the IAM.
In
a perfect world, that is if two merging airlines were nearly identical in terms
of financial condition, fleet sizes, aircraft types, route structures, ASMs and
other indicia and characteristics of the carriers’ operations, then date of
entry might be considered the most fair and equitable methodology for
integrating the seniority lists. Date of entry might also be considered a fair
and equitable methodology where the equities were arguably comparable, or where
there was general agreement by the competing groups of employees that their
service with their respective carriers was of equal value.
However,
in the instant case, even if American and TWA brought with them identical
values to the acquisition, the terms of the Agreement to Arbitrate would
restrict this Arbitrator from adopting a date of entry methodology for
integrating the seniority lists, because it is clear that doing so could not
avoid adversely impacting American’s TWU represented employees in terms of
rates of pay, hours and working conditions.
This
Arbitrator has also considered the possibility of adopting a pure ratio system
for integrating the seniority lists of the American and TWA employees involved
in this proceeding. So that, for example, if a three to one ratio was adopted,
after the first three “slots” were filled by American’s TWU-represented
mechanics then the next “slot” would be filled by a TWA IAM-represented
mechanic, and “so forth” down the list.
Such
a methodology for integrating seniority lists has been used in the past when
crafts or classes of employees have been merged by agreement of the parties or
as the result of an arbitration award. While the ratio methodology of
integrating seniority lists may be implemented and applied in a reasonably
simplistic manner, it is difficult to conceive how a ratio methodology in this
case could, under any circumstance, avoid violating the collective bargaining
agreements’ prohibition concerning adverse impact upon American’s
TWU-represented employees.
As
noted above, TWA did bring certain valuable assets to the transaction. However,
the record reflects that TWA had virtually no presence in and brought no work
to the vast bulk of American’s system; specifically American’s major bases and
hubs in Tulsa, Alliance Fort Worth, Dallas, Chicago and Miami.
Accordingly,
it is this Arbitrator’s opinion that, to the extent TWA employees are permitted
to use their TWA seniority to bid on positions in locations such as
those referenced in the above paragraph, it is more than likely they would
secure such work opportunities at the expense of American’s TWU-represented
employees on the master seniority lists.
On
the other hand, American had no presence at TWA’s overhaul facility in Kansas
City and a very limited presence in St. Louis. As discussed above, the record
reflects a general agreement that the St. Louis hub and the Kansas City
overhaul facility were valuable assets which American assessed would contribute
to the Carrier’s growth, and were the assets “at the heart” of American’s
decision to acquire TWA.
This
Arbitrator is also persuaded that no American TWU represented employees, except
for a few with recall rights in St. Louis, could have legitimately expected job
opportunities in either of these two locations if not for the acquisition by
American.
Accordingly,
this Arbitrator finds that there is no basis to conclude that any American
TWU-represented employee will be harmed by providing that TWA seniority will be
fully honored in both of these locations. Likewise, it is clear that limiting
TWA IAM-represented employees their rights to exercise their full seniority in
St. Louis and Kansas City would be inequitable, and would fail to recognize the
substantial contribution made by TWA to the acquisition.
St.
Louis and Kansas City represent the vast majority of TWA TAM- represented
positions brought to the acquisition by TWA IAM-represented employees. However,
there are a number of stations at which both American and TWA conducted
operations in competition with each other prior to the acquisition on April 10,
2001.
The
TWU has contended that at these stations TWA’s operations were de minimis,
and that few, if any, of those stations would have been staffed under the
American agreements, and that those stations which were legitimately staffed
were largely duplicative. The IAM has argued that, in many of these stations,
American employment is presently at levels which would never have existed
absent the new “synergy” with TWA, as the result of TWA’s contribution of
gates, aircraft and TWA traffic, and that it would be inequitable to reserve
such opportunities exclusively to American’s TWU-represented workforce.
It
is this Arbitrator’s finding that there is some merit in both of these claims.
It
is this Arbitrator’s opinion that a reasonably accurate benchmark for
determining a carrier’s “contribution” to a city or station, where two or more
carriers compete, is the percentage of either carriers ASMs compared to the
whole.
Based
upon a review of the economic and operational data, in the record, and in
view of TWA’s concentration of operations in St. Louis and Kansas City, it is
this Arbitrator’s finding that TWA’s contribution will be considered more than de
minimis only where the contribution of TWA in terms of ASMs is greater than
ten percent (10%) of the total ASMs at any city or station as of April 9, 2001.
At such city/stations TWA IAM- represented employees will be provided with a
seniority date that represents twenty-five percent (25%) of their acquired TWA
seniority.
This
twenty-five percent (25%) calculation is based upon this Arbitrator’s finding
that as of April, 2001 American had 13,679,000 ASMs as compared to TWA’S
2,919,000 ASMs. TWA’s ASMs represent 21% of American’s total ASMs. This
Arbitrator has also factored in an additional four percent (4%) credit to be
given to TWA employees in view of the additional job opportunities that should
be provided to American employees by the synergies referred to in the facts
recounted above at the cities/stations where TWA’s ASMs meet or exceed the de
minimis benchmark.
If
the ten percent (10%) benchmark at any city/station is reached or exceeded,
then once all American employees have been recalled, TWA employees will have
the right to exercise their seniority, as adjusted above, to available positions
at such city/station. These positions will be reserved for bid by TWA employees
with recall rights, and they shall be permitted to use twenty-five percent
(25%) of their TWA seniority.
At
cities/stations where TWA’s ASMs contribution is less than ten percent (10%)
based upon the above-referenced calculation and where there are resident
American TWU-represented employees in the same craft(s) or class(es) as
the TWA-IAM represented employees, TWA’s contribution will be deemed de
minimis, and such TWA IAM-represented employees will acquire an April 10,
2001 seniority date.
In
conclusion, this Arbitrator recognizes that the TWU was the only organization
on American’s property which determined that its counterpart union representing
TWA employees in the Mechanics and Related Employees, Fleet Service Employees,
Stock Clerks and Flight Simulator Technicians crafts or classes should be
afforded the opportunity to present arguments in an arbitration process as to
what it considered to be fair and equitable in terms of seniority integration.
While
the above rationale does not adopt either of the unions’ positions, it does
represent, in this Arbitrator’s opinion, a fair and equitable result that at
the same time recognizes the requirement to ensure that no American employees
on the master seniority lists will be adversely impacted in rates of pay, hours
or working conditions.
In
a dispute of this type, where the seniority of nearly 35,000 employees is being
addressed, it is not unlikely that there may be future claim(s) by an
employee(s) that the Award is not being properly implemented or applied.
Accordingly, this Arbitrator directs the parties to establish a Dispute
Resolution Committee for the purpose of resolving any such future disputes. The
Committee shall be chaired by a single arbitrator, selected through the
processes of the NMB or otherwise.
Award:
1. In the implementation of the above
principles, no TWU-represented American employee will be adversely
impacted in rates of pay, hours or working conditions by this seniority
integration.
2. At TWA’s
3. At a city/station where TWA’s ASM
contribution was ten percent (10%) or more when compared to the combined ASMs
TWA and American had at that station as of
4. At a city/station where TWA’s ASM
contribution was less than ten percent (10%) when compared to the combined ASMs
TWA and American had at that station as of April 9, 2001, TWA employees will be
awarded a April 10, 2001 seniority date for purposes of bidding and advancement.
5. As a result of the initial
implementation of this Award, there will be no “system flush” that is,
displacement of presently working employees in the crafts or classes here under
consideration.
6. A Dispute Resolution Committee will
be established for purposes of hearing and resolving any disputes regarding the
proper interpretation and implementation of this Award.
This
Award was signed this 29th day of April, 2002.
Richard R. Kasher,
Arbitrator