Thursday, May 13, 2010

A merger saga from Ozark to TWA to AA to nothing
by Jerry Castellano on May 12, 2010

“What we learn from history is that people don’t learn from history.”Warren Buffett

Another merger, another promise of improved service, another CEO declaring that this will only add to the choices travelers already have. Lots of neat words like “efficiencies” and “synergies” throw around. If your B.S. meter isn’t pegging it’s time to check the batteries.

Merging any company, but especially an airline, is like taking the parts from two dissimilar cars and trying to build a single vehicle, but I guess they don’t teach this in the leading business schools.

*Charlie Leocha has already written a couple of excellent articles that I think pretty accurately describe what the outcome will be, especially for the employees. But having experienced two such mergers as an employee I thought I would add my two cents.

My airline career began with Ozark Air Lines in February of 1978. Little did I know how literally I was participating in the end of an era. In December, the Kennedy – Cannon bill became law and the long-debated concept of airline deregulation became reality. It would take a book or several to adequately describe the results of that single piece of legislation so let’s just say for now that all the rules were changed and what had been a relatively cozy business was thrown into a chaos that the industry is still trying to work through.

Thanks to many factors, Ozark Airlines did well in the new environment. We were already the hometown airline in St. Louis, which was at that time the twelfth largest urban region in the country. We expanded, but not too quickly nor too ambitiously, a strategy that ultimately proved fatal to a few other carriers.

As we reached the mid-1980s, signs were everywhere that airlines were clearly on their way to a new and not necessarily better destination. Some, like Braniff, simply shut down.

Concessionary contracts and “B Scale” agreements became the new standard. Because there was no longer an intrinsic value to a particular route since any airline could pretty much apply and fly anywhere. Airlines dropped many non-stop routes and began to form the hub and spoke models that persist today. Meanwhile TWA, which had always been a presence in St. Louis, decided after deregulation to establish a hub there as well, and therefore became our rival.

By late 1985 Ozark workers knew something was up, but virtually all of us were shocked when it was announced that had been purchased by TWA. The general feeling was “anyone but them.” TWA had just been taken over by Carl Icahn, who forced some tough concessions like 20-plus percent pay cuts on employees, and were on the verge of damaging strike by their flight attendants. (Another thing apparently not taught at business schools: If you’re in a customer service business and your front-line employees are not happy, your customers won’t be either and will go elsewhere.)

Employees of a merged company learn very quickly what “employment at will” really means. First to go were the “redundant” management and non-contract personnel. As union members, we flight attendants enjoyed at least the delusion of a bit more security, but were about to learn just how illusionary this was. Just for reference, in some prior acquisitions crew members and other contract personnel were merged using a “relative position” method,” meaning if you were say, in the 50th percentile of the seniority list in your smaller airline you would be placed in the same relative position in the new list.

As you might imagine, this created a lot of friction when pilots at the larger Pan American World Airways found themselves placed under the acquired National Airlines pilots with less actual seniority.In the end, those of us under contract held our date-of-hire seniority, which worked out all right for some groups, like the flight attendants, but not for others, like some Ozark pilots who at ten years seniority were now flying as captains.

Since TWA had not done a lot of pilot hiring during that time, these people “lost their seat” along with the pay and perks that went with it. Some in this position quit and went elsewhere, a very dramatic move in a seniority-based industry, which basically meant they felt they would be better off at the bottom of a carrier that was growing than at their present position at one that appeared to be stalled. For some this turned out to be true, at least for a while.As flight attendants, on the plus side we kept our seniority, though not our relative positions, and we were not displaced to another hub.

In fact, the options were expanded to fly from the TWA LAX and JFK hubs. On the down side, we wound up working a few days more a month for about 10% less pay and reduced benefits, for a company that was on a much shakier financial foundation than Ozark had ever been. And it is very difficult to quantify or even describe the cultural differences. Ozark had about 3,000 employees, and while it sounds like a cliché we truly enjoyed a family environment. We were not prepared for the divisive atmosphere that permiated TWA, though over time we got used to it.

Fast forward to early 2001. After fourteen years, two bankruptcies and years of financial struggle and pay cuts many former Ozark employees were still asking why it could not have been anyone except TWA that had purchased us and our future. Every other major carrier seemed to be in great shape, and we were continually concerned that we would be the next Eastern or Pan Am. So the announced acquisition by American Airlines sounded like our ship had finally come in. By this time, I had moved into a management position in Flight Operations Training, but like all crew members I still held my seniority rights.

But, if the TWA acquisition of Ozark was disappointing, the American acquisition of TWA was devastating.

The first sign that this was not going to be a good deal was when American’s management decided if we stayed in our training specialist positions (with no guarantee of continuing employment) we would have to relinquish our seniority, something they did not require of their own employees. Remember, seniority is the coin of the realm in the airline business, and compared to the American workforce, those of us with TWA were relatively senior. Even though previous TWA contracts had resulted in further reductions in pay and benefits, one of the trade-offs we managed to retain were very explicit scope clauses, which protected our seniority in an acquisition. However, one of American’s demands following the announced purchase was that TWA would have to yet again file chapter-eleven bankruptcy, which as Continental employees well know, abrogates all working agreements. Thus, virtually all contract groups were stapled to the bottom of their respective seniority lists.

So today, no former Trans World flight attendants, some with more than 40 years of experience and seniority, are employed by American. This move was later judged to be so egregious that it is prohibited in subsequent acquisitions, but this prohibition is not retroactive. So a better analogy might be the AA ship came to rescue us, after which the crew took our clothing and threw us overboard.

So I truly feel sympathy for the employees of what may very well soon be the former Continental Airlines, who, through commendable effort lifted the once great carrier from the depths back to the top. I feel the pain of those who weathered the disastrous Lorenzo years, the first time bankruptcy was used explicitly to abrogate agreements. (That tactic has since been outlawed as well.)

Sometimes it seems we’re all Sisyphus, doomed to continue trying to get the rock back up the hill, and you know how that story continues.

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