BEFORE THE MCCASKILL-BOND AMENDMENT SECTIONS 3 AND 13 ARBITRATION BOARD
DANA E. EISCHEN, IRA F. JAFFE, M. DAVID VAUGHN, Arbitrators
______) In the matter of the seniority list ) integration involving the Pilots of ) NEW AMERICAN AIRLINES ) ______)
Post-Hearing Brief of the US Airways (East) Pilot Seniority Integration Committee TABLE OF CONTENTS
INTRODUCTION ...... 1
Factual Background: Restoring American Airlines to Preeminence Through the Merger With US Airways ...... 11
1. American’s path into bankruptcy ...... 12
2. American seeks to impose a concessionary agreement on its pilots that would gut the APA agreement and reduce the active American pilot group by 15 percent; the American pilots choose a merger of American and US Airways as their best strategic alternative ...... 14
3. US Airways’ pursuit of a merger with American ...... 19
4. USAPA initiates bargaining for a four-party memorandum of understanding ...... 21
5. American receives permission to reject the American pilot contract under Section 1113 ...... 22
6. Labor negotiations resume after the end of the merger blackout, leading to a ratified APA contract and then to the final four-party Memorandum of Understanding ...... 23
7. American and US Airways announce and gain approval of their merger and later resolve a challenge to the merger by the United States ...... 29
8. APA and USAPA engage in negotiations with American for a joint collective bargaining agreement; the APA, after its certification as the single pilot representative, establishes a negotiating committee that included former USAPA negotiators to conclude a JCBA ...... 31
9. The American-US Airways merger dramatically increased the value of the bankrupt American, improving value for all shareholders including the American pilots, and providing the financial strength for the $1.73 Billion JCBA ...... 33
SUMMARY OF ARGUMENT ...... 35
ARGUMENT ...... 36
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I. The East Pilot Committee Proposal Fairly and Equitably Balances the Actual Seniority Equities of the Three Pilot Groups and Should Be Adopted by the Board ...... 36
A. The East Pilot SIC proposal is properly based on the December 9, 2013 equities and a “static fleet” assumption; the Board should not base the ISL on an artificial and nonexistent business plan or fleet plan ...... 38
B. The record establishes that length of service must be used as a basis for integrating the pilot groups in this proceeding ...... 41
C. The Board should adopt the East Pilot Committee’s method of calculating length of service ...... 45
1. Service time at legacy carriers not counted in the pre-merger seniority systems ...... 45
2. The Board should adopt the East Pilot Committee’s position that service time at US Airways’ “MidAtlantic Division” is included in the calculation of length of service for certain East Pilots ...... 49
3. Time in service by American pilots at American Eagle should not be included in the length of service calculation ...... 52
D. The Board should adopt the East Pilot Committee’s construction of category and status groups including the treatment of American and West pilots on furlough on the Snapshot Date ...... 53
1. The East Pilot Committee correctly constructed a furloughed category 9 among American pilots with 1,165 furloughed pilots on the Snapshot Date and 61 furloughed pilots among West pilots on the Snapshot Date since both pilot groups brought more pilots with rights to jobs than available jobs in their system ...... 53
2. The Board should adopt the East Pilot Committee’s construction and ordering of Category and Status groups ...... 58
E. The East Pilot Committee Proposed ISL is fair and equitable to all the pilot groups ...... 61
ii
1. The East Proposal functions like a proper seniority list by exchanging the benefits of the ISL among the three groups over time ...... 62
2. The East Proposal maintains or enhances the time in position of American and West Pilots while maintaining a reasonable career progression for East Pilots ...... 66
3. The East Pilot Committee’s proposed Group 4 position condition is a reasonable and necessary measure to safeguard the legitimate near-term pre-merger career expectation of American and East Pilots to Group 4 positions in the anticipated final operational integration of the carriers ...... 73
4. The East Proposal maintains the integrity of career progression in the separate pre-merger seniority lists by integrating pilots with their appropriate peers and maintaining the strong correlation between length of service and pre- merger seniority progression ...... 76
II. The Board May Not Adopt the Nicolau Award ISL As the Basis for Ordering East and West Pilots Under the ISL ...... 79
III. The West Committee Proposal’s Impermissible Use of the Nicolau Award List Creates An Inequitable and Unjust ISL That Must Be Rejected By the Board ...... 96
IV. The AAPSIC Proposal Must Be Rejected Because It Ignores the Reality of the American-US Airways Merger, Strips Away the Seniority Equities of US Airways Pilots and Grossly Exaggerates the Seniority Equities of Premerger American Pilots; It Is Contrary to the Fundamental Purpose of Section 3 to Establish a Fair and Equitable Seniority List by Its Arbitrary Disregard of the Pilots’ Length of Service, Devaluation of Jobs Held By Premerger US Airways Pilots, and Manipulation of Nonexistent Fleet Plans and Staffing Assumptions ...... 110
A. The AAPSIC use of an alleged pre-merger pay analysis to integrate the pilots is contrary to Sections 3 and 13 and has been rejected by every arbitrator who has considered the notion ...... 112
B. The AAPSIC proposal grants massive windfalls to American pilots while severely and permanently prejudicing East Pilots in the ISL and must be rejected ...... 121 iii
V. East Pilot SIC Position On Certain Outstanding List Build Issues ...... 130
A. West “Letter T” proposal ...... 130
B. The Board should use the job counts established by the East Pilot Committee ...... 133
C. Pull and Plug method for reinserting inactive pilots ...... 134
VI. The Board Should Reject Certain Conditions Proposed By the American Pilot Committee and West Pilot Committee ...... 135
A. AAPSIC Group 4 position condition ...... 135
B. The Board should reject AAPSIC’s proposed restriction on the displacement rights of pre-merger US Airways pilots ...... 136
C. AAPSIC proposal concerning extension of the retirement age should be adopted ...... 138
D. The Board should reject AAPSIC’s effort to enhance Supplement C rights in this arbitration ...... 138
E. The Board must reject the West Committee’s effort to obtain enhanced recall rights for “dual lister” pilots ...... 139
VII.The Board Should Adopt Step 6 of the Continental-United Award ISL Methodology To Update the December 9, 2013 Premerger Seniority Lists To Remove All Pilots Who Have Left The Company’s Employ Since the Snapshot Date Prior to Populating the Final Hybrid ISL ...... 139
VIII.While the East Proposal Is the Only Fair Basis for Integration of the Pilot Groups, If the Board Believes Adjustments Should Be Made to Specific Areas of the ISL, Those Adjustments Should Be Limited and Targeted to the Portion of the ISL Where the Concern Arises and Not Result In Changes in Relative Seniority Ordering Across the Entire ISL ..... 140
CONCLUSION ...... 145
APPENDIX 1 METHODOLOGY EXPLANATION ...... 146
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INTRODUCTION
This seniority list integration proceeding is governed by the McCaskill-
Bond Amendment, Section 3 of the Allegheny-Mohawk Labor Protective
Provisions, Paragraph 10 of the 2012 Memorandum of Understanding and the
Section 13(b) protocol agreement established by the Allied Pilots Association, the
Company and the US Airline Pilots Association, the former bargaining representative of US Airways pilots. McCaskill Bond, through its incorporation of
Section 3, requires this Board to integrate the seniority lists of the covered employees in “a fair and equitable manner.” That outcome -- creation of a fair and equitable integrated seniority list from the pre-merger seniority lists covering the pilots -- is the purpose of this process.
The American-US Airways merger resulted from the bargaining of the four parties, American, US Airways, the APA and USAPA under the four-party
December 2012 Memorandum of Understanding. Each party to that agreement
weighed its strategic alternatives and elected to pursue the merger. Each had its
reasons for doing so. The American pilots and US Airways chose first -- entering
a “Conditional Labor Agreement” in April 2012. That CLA then influenced all the
subsequent negotiations for the American pilots. USAPA evaluated the potential
gains for US Airways pilots in a merger and, after identifying shortcomings in the
US Airways-APA agreement, presented to US Airways the concept for a four-
party agreement to allow the merger. It negotiated the first structure for the MOU
in August 2012 with improvements over the APA agreement. 1
The APA and American then joined the MOU concept in December 2012
after the Unsecured Creditors Committee urged the airlines to obtain consensual
agreements to facilitate reorganization of American. The MOU process
culminated in December 2012 with the four-party agreement negotiated by the
airlines with APA and USAPA, which was then approved by the APA Board and
the US Airways pilots. The airlines’ formal merger agreement followed in
February 2013 with approval by American’s creditors; and it was ultimately
approved by the bankruptcy court in October 2013 and closed on December 9,
2013. As the economic results since December 2013 have shown, the merger of
American Airlines and US Airways has exceeded all expectations. Indeed, as
APA President Keith Wilson stated in his 2015 Labor Day message to the pilots of New American,
Dissatisfied with our pilots' prospects under AMR's proposed stand-alone plan, the APA leadership decided that the combination of American Airlines and US Airways would create a potent marketplace force and result in a brighter professional future for our pilots. Given the enhancements to our contract we subsequently secured and the airline's post-merger financial performance, there's little doubt about the wisdom of that decision
East Pilot SIC Exhibit 001 (“East 001”)
The merger restored American to its formerly preeminent position. Indeed,
it was the only way American could achieve again its status as the largest airline
in the world; the changed landscape of the U.S. airline industry from the
Delta/Northwest, Continental/United and Southwest/AirTran mergers made a
merger for American and US Airways a matter of “when, not if.” East 052, at 6-7 2
(“Your APA leadership strongly believes that when it comes to the possibility of
American Airlines merging with another carrier, it was always simply a question of not “if ” but “when”)(emphasis in original). And that merger has not simply allowed American to grow larger than Delta or United, it has dramatically reversed the downward spiral of American that saw the carrier descend from the largest airline in 2000 to a distant third behind Delta and United by 2011, and, far worse, incur over $10 billion in net losses during that period even as its major airline competitors returned to profitability.
For American’s pilots, the merger allowed them to realize their ambition to once again be on par with the pilots of Delta and United in pay and work rules.
Despite the claims of AAPSIC, the American pilots’ 2012 agreement did not achieve parity with their peers, but imposed almost $1 billion in losses even after the pilots received an equity offset to their concessions. Only the merger with US
Airways could attain that goal, as American made clear in seeking bankruptcy court approval of its merger plan of reorganization. Tr. 2201 (J. Johnson acknowledging 2012 CBA was net loss to American pilots of over $900 million);
JE 032, at 69 (AMR Disclosure Statement to Plan of Reorganization stating that
the merged company expected to “Provide its employees with improved job
security, better opportunities for advancement, better pay, and a path to
compensation and benefits comparable to those enjoyed by their counterparts at
Delta and United.”). And it has secured the American pilots’ careers that were at greater and greater risk due to American’s deteriorating financial condition -- a 3 risk that was not materially reduced either by American’s bankruptcy or its standalone plan, which neither the Allied Pilots Association nor outside observers believed could work. East 052, at 6 (APA Flightline Fall 2012, “Industry analysts agree that the competition will not stand still, and the post-bankruptcy AMR plan -
- its stand-alone plan -- is simply a double-down on the same Cornerstone Plan that failed prior to bankruptcy. As Wolfe Trahan’s airline analyst, Hunter Keay, said: “We continue to believe that AMR has a low likelihood of emerging from bankruptcy as a viable stand-alone airline.”)
Through this merger, with the significant expansion of American’s network by the addition of the highly valued, dominant East Coast operation of US
Airways, American pilots can look far more securely to future careers culminating in wide-body flying than they faced under American’s standalone plan, which
contemplated the further reduction of American pilot jobs and the greater
outsourcing of flying. Indeed, the American pilots have benefited already from
the delivery post-merger of many wide-body Boeing aircraft. East 036.1, at 15.
The American pilots have also secured their accrued pensions, which they
retained in bankruptcy when American froze rather than terminated the plan.
Already, American has contributed $816 million since the merger into its pension
plans for the pilots and other American employees. East 045. Funding those
pensions will continue to make multi-billion dollar cash demands on New
American into the future. Id. US Airways pilots will not share any benefit from those pension contributions. 4
US Airways pilots achieved through the merger their goal of returning to the level of their peers at Delta and United. While US Airways East pilots had no concern for the security of their careers given the robust pre-merger financial condition of US Airways, they recognized that the merger of American and US
Airways would accelerate their return to parity with their peers in a way that could not be achieved without the merger.
The American and US Airways pilots have both gained significantly
through this merger. The pilots will move forward under one contract as equals
in contributing to the success of the largest airline in the world. The opportunities
in the merged operation must be shared fairly among them to reflect that fact.
The reality is that airlines choose to merge because it is in their rational
economic interest to do so. Air carrier transactions since deregulation
demonstrate uniformly that each carrier brings strengths to a merger just as each
had needs that were best addressed by a merger. If that were not the case, the
airlines would not have chosen a merger as the best option available to advance
their businesses. Indeed, every major interstate air carrier that existed on the
effective date of the Airline Deregulation Act has either merged or shut down
since 1978; even Southwest Airlines, which was only an intra-state carrier then,
has undergone multiple mergers in the ensuing years.
The seniority list integration proposal by the East Pilot Committee is
grounded in the reality that both airlines and both pilot groups chose the merger
of American and US Airways as the best course to achieve their goals. As 5
American CEO Doug Parker noted in advocating for a merger, the combination of
US Airways’ strong and lucrative East Coast business travel network with
American’s domestic and international network was the best and only way to restore American to its former preeminent position. East 015, at 5-7; East 016, at
2-3. This merger was also the only way for American pilots to avoid severe changes to their contract terms that they faced from American’s Section 1113 proposal before entering the CLA with US Airways and the loss of even more jobs under that proposal on top of those they lost in the prior decade. East 007,
at 1-2; East 053. Instead of the prospect of further decline, the merger allows
American pilots to advance their careers to the level of their peers at Delta and
United. For US Airways and its pilots, the merger provided an unmistakable opportunity to achieve their parallel ambitions of becoming a larger international carrier than Delta or United and returning to parity with their mainline peers.
The East Pilot Committee proposal also recognizes that the three pilot groups had different pre-merger positions owing to the differing nature of their operations, hiring patterns and the demographics of their groups. It seeks to balance the three principal seniority equities traditionally identified in pilot seniority proceedings (i.e., length of service, category and status (position) and pre-merger career expectations) by using the “hybrid weighting” length of service/category and status methodology adopted by the arbitration panel in the seniority list integration dispute between the pilots of Continental Airlines and
United Air Lines. That methodology, by its weighting of the length of service and 6 category and status equities of each pilot, allows for proper recognition of the two objective seniority equities and permits a reasonable balancing of those equities in view of the pilots’ pre-merger expectations. The two equities will at a point come into conflict given the inevitable differences within and between different pilot groups. Like the positive ends of two magnets, length of service and category and status can push back against each other since they reflect different measures of a pilot’s career. Seniority, though, ultimately reflects an employee’s time in service for his employer. And for pilots, seniority is expressed in the position achieved through its exercise in competitive bidding. The East Pilot
Committee agrees with the arbitration panel in Continental-United that both equities must be used in integrating the pilot seniority lists in this case.
The equity of pre-merger career expectation is the most challenging to fairly and accurately characterize given that it embraces both quantifiable and subjective elements. And the competing pilot groups frequently make inaccurate and self-serving characterizations of the other pilot group’s prospects while inflating their own. The East Pilot Committee tries to avoid such mischaracterizations of the pre-merger situation of the airlines and pilot groups by adhering to the stipulated Snapshot Date of December 9, 2013. At the same time, the Board is integrating the three seniority lists into a single list for a merged operation. The evaluation of pilot equities cannot be made on the basis of what did not happen but in recognition that the merger occurred. The Board
7 will need to evaluate the contributions of the respective carriers and their pilot groups to the merged operation.
And the Board should also recognize that the differences among the pilot groups in age, length of service, attrition and positions mean that certain pilots, principally the East Pilots, will have shorter careers in the merged carrier than pilots from American and the West. Balancing the starting point in view of these different end points, which assure that American and West pilots will enjoy the benefits of the merged carrier longer, must occur to achieve a fair and equitable solution.
The East Pilot Committee proposal gives greater weight to length of service, under a formula of 55 percent to length of service and 45 percent to category and status, due to the crucial contribution of the East Pilots’ pre-merger operation in securing American’s return to preeminence, the positions they bring to this transaction and their large, near-term attrition. More than 50 percent of
East Pilots will retire by 2022, enjoying five years or less at the merged carrier.
East 037. The majority of those pilots will leave the relative seniority range for
Group 4 Captain, both opening those jobs for other pilots, mainly American and
West Pilots, and removing themselves as competitors for those jobs. Id. As the
East Pilot Committee made clear throughout the hearing, the accelerated attrition among East Pilots requires they be advanced in relative seniority on the ISL in order to avoid losing positions brought to the merger. But under the East Pilot
Committee Proposal, the East Pilot group turns over that relative seniority 8 advancement to the American and West pilots within five years of implementation.
Even under the East Pilot Committee’s proposal favoring length of service,
East Pilots’ share of Group 4 jobs in the merged carrier could quickly and inequitably deteriorate. See, e.g., East 041.1 at 24. The East Pilot Committee therefore proposes a condition that will establish a priority for American and East
Pilots in Group 4 positions, enabling them to maintain at a minimum the number of Group 4 Captain and First Officer positions they brought to the merger for five
years, while leaving the remaining Group 4 positions in excess of these minimum
numbers open to bidding according to ISL seniority. Currently, both AA and US
East Pilots have Group 4 positions in excess of the minimum numbers proposed
by the East Pilot Committee. As the testimony of Dean Colello made clear, the
“no bump, no flush” condition gives no protection against this threat of job loss
arising from the inevitable displacements that will occur with final integration of
the operations. East 062; Tr. 3563-3598 (D. Colello Rebuttal Testimony). The
East Pilot Committee Group 4 condition is necessary to address this potential for
Group 4 job loss arising both in vacancy bidding and from displacements.
Affording greater weight to length of service will in turn benefit the
American and West pilots in the lowest deciles of the integrated seniority list.
The American pilots in this portion of the ISL have less length of service than
expected for their seniority dates owing to furlough and that many of them arrived
at American through the American Eagle flow-through agreement or TWA 9
merger, in which numerous TWA pilots were stapled to the bottom of the
American pilot seniority list. These pilots’ pre-merger relative seniority has less
bidding power than that of East pilots who may have less length of service.
Similarly, West pilots at the lower point of their pre-merger seniority list also have
less bidding power than East Pilots, even as they have more length of service
than either equivalent American or East Pilots, due to lack of growth in the West
operation. Greater emphasis on length of service works to the benefit of
American and West pilots in this portion of the ISL, mitigating one-third of
American Snapshot Date furloughs and allowing the most junior West pilots, who were also on furlough, to move hundreds of places up the ISL.
The East Pilot Committee’s proposal yields a list that strikes the balance among the three pilot groups fairly. The quick exit of East Pilots from the merged operation requires that they be advanced in relative seniority placement on the
ISL, like the runner on the outer lane of a track, or they will in fact be left behind.
Even under the East Pilot Committee proposal, Dr. Peter Gall’s analysis shows that most East Pilots fall behind their pre-merger seniority progression due to sharing their significant near-term attrition with American and West pilots. Most
American and West Pilots, by contrast, surpass their pre-merger seniority progression and enjoy more time in the merged carrier ahead of their anticipated pre-merger progression. See East 040, 040.1. It is not possible to avoid
“winners” and “losers”, of course, given that seniority integration ultimately becomes a zero sum game among some pilots, but the East Pilot Committee 10
proposal reasonably distributes the gains and losses among the pilot groups. It thus achieves the Section 3 requirement for “the integration of seniority lists in a fair and equitable manner.”
Factual Background: Restoring American Airlines to Preeminence Through the Merger With US Airways
The airlines, as well as their pilots, recognized that a merger of American Airlines and US Airways was the best strategic choice for their futures. The two carriers took different paths to reach that point. American had suffered a decade of decline that saw it fall further and further behind Delta and United as well as
Southwest Airlines and other low cost carriers. It faced an increasingly uncompetitive position with the prospect of even greater competition from
Southwest in its Dallas-Fort Worth fortress hub following the expiration of Wright
Amendment restrictions on Dallas-Love Field. American could only restore itself
to preeminence by solving its substantial network and revenue problems through
a merger with US Airways. Linkage to US Airways’ dominant and lucrative East
Coast operation was essential. Though highly profitable, US Airways recognized
a merger with American as the path to achieve the size needed to compete with
Delta and United. The following summary presents significant events leading up
to the merger of American and US Airways.
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1. American’s path into bankruptcy
American filed for bankruptcy in November 2011 after suffering a decade of decline in which it shrank from being the largest airline in the world to a distant third behind Delta and United. It described the history that compelled its bankruptcy case in various filings submitted to the bankruptcy court.1/ American saw its unit costs rise relative to its competitors and its unit revenue fall relative to its competitors. East 002 (Goulet Decl.) at 4. Over that period, while other
network carriers moved to profitability, American suffered more than $10 billion in
net losses. Id. at 5. Its negative competitive position was exacerbated by the
Delta/Northwest and Continental/United mergers. Id. 5 (¶29, ¶36). As of 2011,
American had the highest overall unit costs and could not invest and grow its
airline to compete with its larger rivals. Id. at 5 (¶8), 27 (¶34). Also, it had
borrowed heavily to fund its obligations. Id. at 5 (¶7). In 2011, American was the
only major carrier to lose money, with net a loss exceeding $1 billion. Id., at 6
(¶9). See also, East 048 (Campbell Merger Analysis §§ 3, 4, 11); East 048.1
(Campbell Rebuttal Analysis, § 1.0).
American was not able to keep pace with the improving operational
performance of its competitors either. As Delta, United, US Airways and
Southwest carried more passengers shown by higher “load factors”, as Dr.
1/ See East 002 First Day Declaration of American Airlines Chief Financial Officer Isabella Goren, Section II and East 003, Updated Declaration of Beverly Goulet in Support of American Airlines Section 1113(c) motion to reject the collective bargaining agreement of the Allied Pilots Association, at 2-33. 12
Campbell testified, American was only able to improve its load factors by cutting
capacity, thereby carrying fewer passengers overall, even while its competitors
increased capacity. East 048.1 (Chart R-57). From 2002, American consistently
declined in available seat miles as its network dwindled. Id. By contrast, US
Airways significantly outperformed American in profitability, costs and yield. East
048 (Campbell Merger Analysis §§ 4.0, 5.0, 6.0,10.0)
In addition to falling behind Delta and United, American faced significant
competition from low cost carriers, with 49 of its top 50 revenue routes
penetrated by LCCs, putting a substantial percentage of its revenue at risk. Id.. at
10 (¶13), East 048 (Campbell Analysis § 8.0); East 048.1 (Campbell Rebuttal
Analysis, §§ 1.0–1.6). It also faced the prospect of Southwest Airlines competing
even more strongly in Dallas with the expiration of Wright Amendment
restrictions at Dallas Love Field in 2014 and posing a severe threat to American’s
revenue. Id. at 13, n. 5; East 048.1 (Campbell Rebuttal Analysis, Chart R-38).
US Airways was much more strongly positioned against LCC competition. East
048 (Campbell Merger Analysis, §§ 7.0, 9.0).
American filed for Chapter 11 after exhausting, without success, all efforts
outside bankruptcy to restructure its business to permit investment and growth,
including leveraging its remaining assets to obtain necessary liquidity. East 003,
at 6 (¶9), 31 (¶39), 33 (¶42).
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2. American seeks to impose a concessionary agreement on its pilots that would gut the APA agreement and reduce the active American pilot group by 15 percent; the American pilots choose a merger of American and US Airways as their best strategic alternative
In April 2012, American filed a motion under Section 1113(c) of the
Bankruptcy Code to reject collective bargaining agreements with its employees, including the pilots represented by APA, and impose the terms of a Section 1113
Term Sheet. East 004 at 24-84. American sought $1.2 billion in annual concessions from its employees, with $370 million of that amount sought from its pilots. East 003, at 41 (¶54); East 004 at 25 (¶50).
The American standalone business plan required substantial changes to the labor contracts of American’s employees. American’s restructuring advisor,
David Resnick of Rothschild, Inc., stated in support of AMR’s Section 1113(c) motion:
Upon emergence from Chapter 11, AMR will require significant capital investment to support its restructuring strategy and business plan (“Plan for Success” or “Business Plan”);
AMR’s decision to freeze rather than terminate its defined benefit pension plans will necessitate sizeable pension cash contribution and increase its long-term obligations post emergence;
AMR will require an adequate liquidity cushion post-Chapter 11 and to thereafter sustain a successful reorganized operation;
The labor cost reductions requested in the 1113 Motion are necessary to ensure AMR’s successful reorganization without which AMR will be unable to attract the requisite capital investment and have insufficient liquidity and financial flexibility.
East 005 (Resnick Declaration) at 4.
14
The business plan underlying the Section 1113 proposal projected growth
only in the out years of the plan; meaning that American pilots’ immediate
prospect was of stagnation while the Company’s pilot headcount shrank. East
003, at 35 (Goulet Declaration, ¶ 47)(“The result of this plan is mainline growth of
2.6% and AMR growth of 3.4% between 2011 and 2017, with the substantial
majority of that increase occurring in the last three years of the six-year plan.”).
And American also made clear that the growth American needed to compete
could only be achieved by outsourcing more American pilot flying through
codesharing. East 004, at 34 (Newgren Declaration, ¶ 70)(“The most cost-
effective way -- indeed, in the current environment, the only way -- for American
to expand its network to the required size in time to stabilize and revitalize the
airline is through codesharing with other domestic and international carriers.”).
See also, West Rebuttal Exh. A-023, at 3 (C. Schubert Written Testimony, ¶
7)(“American has stated that ORD is overgauged in that it would be better served
with more large, regional aircraft (e.g., EMB-175, CRJ-900) flown by commuter
partners, rather than more mainline narrowbody aircraft.”) That increased
codesharing would have further reduced American pilot jobs.
The APA viewed American’s Section 1113 proposal as an attempt to gut
the American pilots’ 2003 agreement, which would leave American pilots with the
worst labor contract in the airline industry. East 007 at 1-2 (APA Public News,
“AA-US Airways: Our Best Alternative”). It also viewed the standalone business
15
plan presented by American in tandem with the Section 1113 proposal as inadequate and unable to fix American’s revenue and network problems. Id. at 2.
It concluded the plan did not make good business sense and carried too much risk, while also reducing pilot jobs at American. Id.. See also, East 048 (Chart
5)(reciting statements of outside analysts that American had dim prospects under standalone plan); East 048.1 (Campbell Rebuttal Analysis, § 2.0)(“American’s
‘stand-alone’ business plan was not working at the time of the merger”). APA’s advisor Lazard summed up the Standalone Business Plan as follows,
The Business Plan seeks labor concessions that are neither market- competitive nor necessary for AMR to reorganize and emerge with a healthy and competitive financial profile but, rather, are “backsolved to make AMR the most profitable airline in the industry. Simply stated, rather than addressing its competitive and strategic disadvantages as a standalone airline, AMR is seeking to create a new competitive advantage for itself on the back of labor by demanding new long-term collective bargaining agreements that, in the case of pilots, lock in unnecessarily deep labor concessions, including extensive cutbacks in contractual “scope” provisions.
East 071, at 5 (Andrew Yearley Declaration ¶ 9). This was the future the
American pilots faced on a “standalone” pre-merger basis.
Instead, the APA concluded that the best alternative to secure the careers of American pilots was a merger between American and US Airways. Tr. 4684
(Roghair Testimony); East 007, at 3-7; East 052. US Airways management approached the American pilots to explore a merger with American. East 007 at
2; East 053, at 19, 22. From those discussions, the APA and US Airways developed terms that would be included in a pilot agreement after a merger. It
16
presented to its pilots the conclusions of an extensive analysis by APA’s
professional advisors, which stated both that the American standalone plan
would not work and the merger with US Airways was the best outcome for
American pilots. East 007, at 3 (“We’re confident that a merger between
American Airlines and US Airways would be best possible course of action for
both our profession and for the future of our airline.”)
APA concluded that a merger with the complementary US Airways
network, which had a “formidable” East Coast presence of high-yield business
travel, for example, would best address the revenue and network problems that
were the primary challenges facing American and create a comprehensive
network on a scale with Delta and United. Id., at 4-5. See also East 008 (Report
of Thomas Bacon to Board of Directors of the Allied Pilots
Association.) Throughout 2012 and 2013, the APA then pursued a strategy in
AMR’s bankruptcy case and in negotiations to bring about a merger of US
Airways and American. East 009 (APA President D. Bates letter to pilots); East
053, at 19, 22. The Conditional Labor Agreement that arose from APA’s
negotiations with US Airways leveraged a US Airways merger to improve the
contract and career prospects of American pilots and affected all of APA’s
subsequent negotiations. East 053; Tr. 4646 (Roghair testimony).
While pursuing a merger with US Airways, the APA also responded to
American’s Section 1113(c) proposal. It relied on a potential US Airways merger
17
in arguing American’s demands were unnecessary. Andrew Yearley noted about
APA’s Section 1113 counterproposal,
APA’s willingness to agree to meaningful and competitive labor and scope concessions that will facilitate a realistic and successful restructuring is demonstrated by the fact that APA negotiated and concluded an agreement on the terms of a new labor pact with US Airways, based on serious evaluation of the pros and cons of potential consolidation as a means of exiting Chapter 11. Importantly, the APA agreement with US Airways includes a mechanism whereby future pilot compensation, benefits and productivity will be indexed to AMR’s closest competitors, Delta and United.
East 071, at 7.
Even under the APA’s counter-proposal, however, the American pilot
contract was to be significantly diminished and American would be able to
eliminate 1,100 active American pilot jobs -- approximately 15 percent of total
pilot jobs -- over the six-year period of the proposal. East 010, at 11 (N. Roghair
Declaration ¶29). See also, East 011 (AMR § 1113(c) Exh. 1817). While
AAPSIC attempted to downplay this substantial reduction of the American pilot
group proposed by APA, it unquestionably would have led to stagnation for
American pilot careers since even the December 2012 CBA that APA obtained
after leveraging the US Airways merger still contained work rule changes that
APA concluded prejudiced the career progression of American pilots. East 077, at 17 (Arb. Goldberg Award in APA Equity distribution proceeding)(“Both of these changes [increased work hours and changes in the contractual Scope clause] disproportionately harmed junior pilots because they reduced the amount of
18
flying by AA pilots (Scope) and required AA pilots to work more days and longer
hours, thus reducing the need for manpower, in either event delaying junior pilots
from advancing into more lucrative flying positions.”)
And Yearley’s declaration shows that from the outset of negotiating the
CLA with US Airways, APA understood the only path for American pilots to
achieve parity with their peers was through a merger between American and US
Airways. East 071, at 6 (“Importantly, the APA agreement with US Airways
includes a mechanism whereby future pilot compensation, benefits and
productivity will be indexed to AMR’s closest competitors, Delta and United.”)
3. US Airways’ pursuit of a merger with American
The least surprising player in pursuit of the American-US Airways merger
was US Airways’ management. New American’s CEO, Doug Parker, has long
been the foremost industry advocate of consolidation, not simply for his own
airline, but among all major airlines. As early as May 2006, while in the midst of
the US Airways-America West merger, Parker stated his desire for further
consolidation. East 012. Later, Parker endorsed the merger of Delta and
Northwest as beginning what he viewed as needed consolidation and
rationalization among major carriers. East 013. Parker pursued a merger with
United in 2009 for the same reason. East 014. And US Airways’ management
began examining a merger with American when AMR filed bankruptcy. East 015,
at 4-5. Parker’s consistent advocacy for industry consolidation, under varying
economic conditions, both at his own airline and in the industry as a whole, 19
shows that modern airline managers choose mergers as a matter of business
strategy, not survival.
Parker explained in a National Press Club speech in July 2012 why the
merger of American and US Airways made sense. East 015. Merger
transactions had been effectively used by Delta, United and Southwest to
strengthen their networks and market position. Id., at 4. Because American sat
out that round of major airline mergers, it had been surpassed by Delta and
United, with their larger and much better developed route networks. Id., at 5.
Parker asserted that American’s revenue problem could not be fixed by
bankruptcy. Id. It could only cure its network weakness by a merger with US
Airways. Id.
American was the number four or five carrier in three major regions in the
United States. Id., at 6. A merger with US Airways would make American the number one carrier in the lucrative East Coast travel market, number one also in the Midwest and expand it to the number three carrier on the West Coast. Id. A combined American-US Airways would have a stronger network and provide greater value to shareholders, employees and customers than either carrier standing alone. Id. US Airways’ agreement with the APA and other unions of American employees was its first step in pursuit of the merger. See also
East 016 (Senate testimony of D. Parker). It then entered formal discussions with
American management after it negotiated the tentative MOU with USAPA in
August 2012, which led to the formal merger agreement entered February 2013. 20
4. USAPA initiates bargaining for a four-party memorandum of understanding
Shortly after the announcement of the conditional agreement between US
Airways and APA in April 2012, the APA Board of Directors met with the USAPA
Board of Pilot Representatives. USAPA itself evaluated the potential merger and pursued negotiations with US Airways during the Summer of 2012 for a
“Memorandum of Understanding” to facilitate the merger. See, East 017, 018,
019.
Also, during the same period, American presented a final offer for an
amended contract to APA, which APA submitted for pilot ratification. The APA’s
advisor Lazard recommended approval of the July 2012 TA “most importantly”
because it would “clear the way” for serious consideration of the US Airways
merger. East 082, at 8,10, 12 (“Perhaps most importantly, APA leadership and
its advisors believe the Tentative Agreement changes the strategic dynamic of
the AMR bankruptcy…the Tentative Agreement will clear the way for open
consideration of the US Airways proposal by AMR.”) It was part of an overall APA
strategy that preferred an American merger with US Airways to American
emerging as a standalone airline. Tr. 4654-55 (Roghair). The American pilots
nonetheless rejected the proposed agreement in August 2012.
USAPA concluded a tentative agreement for a Memorandum of
Understanding on August 20, 2012, which provided merger protection for US
Airways pilots and enhanced the economic provisions of APA’s Conditional Labor
21
Agreement and was submitted to the USAPA BPR for approval. East 020. The
USAPA BPR voted to send the MOU TA out for membership ratification with a
recommendation to reject the agreement and instructed its negotiators to
continue bargaining. Tr. 167-68 (Colello Testimony). As seen by the start of
formal American-US Airways merger negotiations at the end of August 2012,
however, it was the USAPA-US Airways MOU that created the framework for
resolution of the labor issues surrounding the merger negotiations. On August
30, 2012, American and US Airways entered merger talks, which resulted in the
suspension of merger-related labor negotiations with their pilot groups. East 021
(USAPA NC negotiations update 09/2/12); Tr. 169-70 (Colello Testimony).
5. American receives permission to reject the American pilot contract under Section 1113
In August 2012, American’s initial attempt to reject the APA agreement
was denied by the Bankruptcy Court on the basis that the Section 1113 proposal
was unnecessarily broad concerning expanded codesharing and its abolition of all furlough protection for American pilots. East 022 (AMR Renewed § 1113(c)
Motion). In August 2012, American renewed its motion to reject the APA contract. Id. Under the renewed proposal, American offered narrower terms for codesharing and outsourcing of American flying and dropped its demand to eliminate all furlough protection for American pilots. Rather, it proposed that 77 percent of all American pilots would continue to have furlough protection -- meaning, of course, that up to 23 percent of American pilots would be vulnerable
22
to a potential future furlough under American’s plan. The bankruptcy court
granted American’s renewed motion on September 12, 2012. East 023 (Bench
ruling granting AMR Renewed § 1113(c) Motion).
6. Labor negotiations resume after the end of the merger blackout, leading to a ratified APA contract and then to the final four-party Memorandum of Understanding
Until November 2012, a “blackout” on labor negotiations was in place while
the carriers pursued their merger negotiations. After the blackout ended, US
Airways and USAPA agreed to resume negotiations over the Memorandum of
Understanding. As explained by former American CEO Tom Horton in a Fortune
Magazine interview, American pursued an agreement with the APA in an effort to
gain bargaining leverage in the merger negotiations with US Airways for the
benefit of its shareholders. East 024 (Fortune Magazine April 2014 interview with
Tom Horton). Following negotiations influenced by industry developments,
especially the prospect of a transaction with US Airways, Tr. 1594-98, 1621
(Brown Testimony); Tr. 4608, 4646 (Roghair Testimony), APA and American
reached tentative agreement in November 2012 for an amended pilot contract
that was then submitted for a pilot vote.
APA expressly cast the tentative agreement as necessary to facilitate the
American-US Airways merger. Its advisor Lazard presented its analysis of the
tentative agreement in November 2012, and highlighted that “Ratification of the
proposed TA improves the chances of an AMR and US Airways merger.” East
23
072, at 1. Lazard stated specifically that the lack of a new APA pilot contract
would endanger the potential merger: “[w]ithout an APA labor agreement, there is
considerable risk that AMR will point to undefined labor costs as a reason to
abandon merger discussions and instead seek to emerge on a stand-alone basis
with an imposed pilot contract.” Id. So, contrary to AAPSIC claims and the false
assumptions underlying Jalmer Johnson’s “analysis”, APA never intended the
December 2012 contract to apply in a standalone American operation, but to
bring about a merger with US Airways.
In early December 2012, the American pilots approved the tentative
agreement for a new American pilot contract. Immediately thereafter, American,
US Airways, APA and USAPA, with the active involvement and pressure by
counsel for the Unsecured Creditors, Jack Butler, Tr. 4628 (Roghair Testimony),
then negotiated the four-party MOU from the baseline of the ratified American
pilot contract. East 026 at 3 (Statement of AMR Unsecured Creditors Committee
in Support of Approval of amended American pilot contract; “the standalone
business plan [of American] serves as a baseline against which the Debtors and
Committee…can evaluate strategic alternatives…the collaborative exploration is
well underway, and the ratification of the new APA CBA will bolster these
efforts.”) See also, East 053, at 19 (“Mr. Butler carefully began setting the stage
for AMR to be locked into a path that would ultimately result in the merger.”)
In mid-December, the four parties and representatives of the Creditors
Committee met in Dallas-Fort Worth to negotiate terms for a MOU covering the 24
pilots in the event of a merger. They agreed to use the recently ratified APA
agreement as the baseline for their negotiations. Tr. 4661 (Roghair). The APA
and USAPA negotiating committees worked closely throughout these
negotiations and USAPA was a full participant in the bargaining in order to
maximize the chance that the merger would successfully occur and prevent
Horton from exploiting any division among the pilots to scuttle a merger. Tr.
4658-60 (Roghair). See, e.g., East 027 (USAPA 12/5/12 MOU counterproposal).
If USAPA had not participated in the bargaining, that would have played into the
hands of Horton to avoid the merger. Tr. 4661 (Roghair). The negotiations
resulted in a MOU signed by all parties and supported by the Creditors
Committee, which set the improved terms that would apply to American and US
Airways pilots in the merger. Of course, all the parties involved in that bargaining
sought to fully exploit whatever leverage was available to them to maximize their
interests. Tr. 4649, 4667 (Roghair).
The labor negotiations were strongly supported and encouraged by the
Official Committee of Unsecured Creditors of AMR, which believed consensual labor agreements between the airlines and their respective unions were crucial for a successful merger and reorganization of American. East 025 at 2-3
(Statement of UCC in Support of Approval of Memorandum of Understanding; “in
November 2012, the Committee encouraged both airlines and their respective labor organizations to commence negotiations concerning employment terms
25
that would prevail in the event of a merger…the MOUs are a critical component
of the Merger”)
Building on MOU 1, the MOU provided for $522 million dollars in
contractual improvements to the APA December 2012 agreement over six years.
East 028 (APA Negotiating Committee summary of MOU). But American pilots
would receive those substantial enhancements to their concessionary agreement only if the merger went through. Tr. 4664-65 (Roghair). APA Negotiating
Chairman Neil Roghair set forth the contractual gains for American pilots in the
MOU in the March 2013 APA FlightLine. East 053, at 25 (“MOU Contractual
Improvements”). The MOU also provided that on the effective date of the merger, US Airways pilots would enjoy the same terms and conditions as the
American pilots. In particular, the MOU modified the December 2012 APA contract and made it effective as of the merger closing date as the “Merger
Transition Agreement.” It provided for retroactive pay for US Airways pilots at the
APA contract rates back to the date they ratified the MOU in February 2013. The
MOU also enhanced the December 2012 APA agreement, and the earlier APA-
US Airways Conditional Labor Agreement, by establishing a wage adjustment procedure that pegged rates for New American pilots to the average of Delta and
United pilot pay rates after three years from the six-year period of the APA-US
Airways conditional agreement. East 029. The MOU further provided that following the merger, New American and the pilot representatives would enter into negotiations for a Joint Collective Bargaining Agreement covering all pilots. 26
The APA Board of Directors approved the MOU on December 29, 2012.
The USAPA Board of Pilot Representatives unanimously voted on January 4,
2013 to send the MOU out for pilot ratification with a recommendation to
approve the agreement. The USAPA negotiating committee provided extensive
information on the value of the MOU to US Airways pilots during the ratification
vote. East 030 (USAPA ratification document “What the Memorandum of
Understanding Means to You”). USAPA valued the economic improvements to
US Airways pilots over their current contracts at $1.6 billion for the six-year term.
Id. at 9. The US Airways pilots approved the MOU in early February 2013.
To achieve the economic gains in the MOU, US Airways pilots made
important concessions in the rates of pay, rules and working conditions set forth in their pre-merger East and West agreements that had been insisted upon by management. These concessions are described in the testimony of Dean
Colello, Chairman of the USAPA Negotiating Advisory Committee, and later a member of APA’s Negotiating Committee, as well as in Exhibit East 64. The most important among them, in terms of securing the Merger Transition
Agreement, can be summarized as follows:
Waiver or modification of certain job protections, such as codeshare
restrictions, wage snapback protections conditioned on a change in
control of US Airways which when triggered would return East pilot
wages to pre-bankruptcy wage levels, daily minimum utilization and
27
minimum fleet requirements East 029, §§ 9, 14; Tr. 180-81, 3618,
3624 (Colello Testimony); East 64, at 2, 9;
Elimination of the US Airways pilots’ profit sharing plan and
substitution of AA’s less generous plan East 64, at 10-16; Tr. 3627
(Colello Testimony);
Elimination or modification of scheduling rules in the US Airways
East and West Agreements, relating to sequence protection and
pay, minimum day limitations and long-rate rig pay, deadhead travel
priorities and payment of international override on all credit earned
by International Bid pilots Tr. 181, 3624, 3622 (Colello Testimony);
East 64, at 6-7;
Reductions in sick leave and vacation benefits Tr. 3619 (Colello
Testimony), East 64, at 3-4;
Loss of premium Instructor Pilot positions to non-seniority pilots,
elimination of pay override for check airmen and limitation of
proficiency flying available to check airmen Tr. 3620 (Colello
Testimony); East 64, at 5;
Benefit reductions in Company-paid Life Insurance, Medical
Insurance, Flight Pay Loss and Furlough pay programs Tr. 3623
(Colello Testimony); East 64, at 8.
In contrast, legacy AA pilots were not asked for and did not give additional concessions in the December 2012 MOU negotiations Tr. 3615 (Colello 28
Testimony); Tr. 1639-40 (Brown Testimony); see also, Tr. 4632-33 (Roghair
Testimony).
7. American and US Airways announce and gain approval of their merger and later resolve a challenge to the merger by the United States
Following ratification of the MOU, the airlines officially announced their
merger in February 2013. The MOU was later approved by the Bankruptcy Court
in the AMR bankruptcy case. The MOU was a critical component of the airlines’
merger. East 024 at 3. A final plan of reorganization of American providing for a
merger with US Airways was approved by the Bankruptcy Court in early April
2013. East 031 (UCC Statement in Support of American-US Airways merger agreement). Both pilot unions submitted statements to the court supporting the merger. East 032 (APA statement in support of merger agreement). See also
East 053, at 6-8 (March 2013 APA Flightline, “AA-US Airways Merger
Summary”)(“But it is clear from a network competitive basis, the merger enables each airline to rapidly achieve more than either could achieve as a stand-alone airline.”)
In August 2013, the United States Department of Justice filed suit against the American-US Airways merger asserting it failed to satisfy antitrust requirements. Notwithstanding the DOJ antitrust lawsuit, AMR, supported by the
Creditors Committee, asked the Bankruptcy Court to confirm the Merger Plan of
29
Reorganization. East 080, 081. The UCC stated in requesting immediate
confirmation by the Bankruptcy Court,
Months of intensive negotiation and collaboration between the Debtors, the Committee, the Ad Hoc Committee, and numerous other stakeholders have culminated in a consensual Plan that will deliver substantially superior value to the Debtors’ creditors and equity interest holders than any other alternative the Debtors and Committee have explored…Despite full disclosure of these risks [from the DOJ antitrust challenge] economic stakeholders have registered their overwhelming support for the Plan.
East 081, at 1,13.
And the American Pilots worked aggressively under the direction of US
Airways management to defend the merger. East 074, 075; Tr. 1704 (T.
Daudelin Testimony). While expedited litigation of the DOJ challenge was
ongoing, the airlines and government reached a settlement in November 2013 to
resolve the DOJ challenge and permit the merger to proceed. The Bankruptcy
Court formally approved the merger plan of reorganization on October 21, 2013.
JE 043, p.1. It later approved the DOJ settlement on November 27, 2013. JE
042. The merger closed on December 9, 2013 and the “Merger Transition
Agreement,” consisting of the MOU and the incorporated December 2012 APA
Agreement that the MOU modified, became the new collective bargaining
agreement governing the employment of all pilots on “New American.”
The notion that the merger was “in doubt” until it formally closed on
December 9, 2013 is meritless. As the UCC noted, all economic stakeholders
supported the merger plan. American’s employees, including the APA, lobbied
30
hard in support of the merger and the only expectation of American pilots was
that American would emerge under a merger with US Airways. Tr. 1707-08
(Daudelin Testimony). The DOJ challenge was resolved barely three months
after its filing, a contingency the merger agreement already contemplated.2/ And the Bankruptcy Court approved the merger plan in October 2013, legally requiring AMR to complete the merger. It was a done deal before December 9,
2013 and everyone concerned not only knew it, but wanted it.
8. APA and USAPA engage in negotiations with American for a joint collective bargaining agreement; the APA, after its certification as the single pilot representative, establishes a negotiating committee that included former USAPA negotiators to conclude a JCBA
After the merger closed, the pilot unions began preparation and consultation under the JCBA process established by the MOU. Their negotiating committees coordinated positions for joint proposals to management. Over the second half of 2014, JCBA negotiations occurred including American and US
Airways (East and West) pilot negotiators. In late December 2014, American presented a final offer to the APA, which was then the single representative after
2/ The Creditors Committee explained in its filing supporting confirmation of the merger plan in August 2013 that the merger agreement authorized American and US Airways to make necessary modifications to the structure of the merger to obtain regulatory approval and therefore the DOJ challenge did not pose a material risk to the merger. East 081, at 3-4, 11 (“the Debtors and US Airways are contractually obligated to shed assets or modify the operation of their businesses if necessary to achieve government approval of the Merger.”) 31
its NMB certification on September 16, 2014. The offer made substantial
improvements even above those contained in the Merger Transition Agreement.
The APA Board of Directors voted in early January 2015 to submit the
Company’s final offer to the pilots for a ratification vote. Both American and US
Airways pilots participated in the ratification vote. The APA negotiating
committee provided a detailed summary of the final offer, including pay rate
increases over the MOU pay rates of approximately 23 percent which put
American pilot pay rates an average of 7 percent higher than Delta Air Lines
pilot pay rates, and improvements to retirement benefits, work rules and other
terms. East 033 (APA negotiating committee briefing of JCBA). It also included
a mid-term adjustment of pay rates to account for improvements at Delta and
United Air Lines. The APA valued the proposed JCBA at a net increase in value
of $1.73 billion over the contract established by the MOU for its five-year term.
Id. at 58. The pilots voted in late January to approve the final offer and it
became effective to cover the pilots of both American and US Airways on
January 31, 2015. Through the MTA and JCBA, therefore, American pilots
obtained $2.3 billion in contractual improvements over their December 2012
CBA. East 033, at 58; East 053, at 25.3/
3/ The APA’s December 2012 CBA imposed approximately $315 million dollars in annual concessions on the American pilots. American’s Section 1113 demand would have imposed $370 million in annual concessions. Compared to the Section 1113 proposal that the American pilots faced absent the merger with US Airways, the MTA and JCBA delivered more than $2.6 billion in contract improvements to American pilots. 32
9. The American-US Airways merger dramatically increased the value of the bankrupt American, improving value for all shareholders including the American pilots, and providing the financial strength for the $1.73 billion JCBA
Dr. Campbell showed that while American was mired under $550 million in
market capitalization during its bankruptcy,4/ upon its merger with US Airways and exit from bankruptcy, American’s market cap skyrocketed.
4/ Dr. Campbell also showed US Airways had a much higher market capitalization than American from 2011-2013. East 048.1 (Chart R-96). 33
APA’s advisor Lazard showed the APA Board of Directors that the merger with US Airways would likely yield a significant increase in the value of APA’s equity share. Although APA’s share of equity with other creditors was capped at
$1 billion for purposes of determining the number of shares received in the distribution to creditors, the subsequent value of those shares could increase with the market value of American. See East 073 (Lazard equity presentation).
Lazard noted that at $45 per share, the pilots’ equity stake would rise to $1.3
Billion. Id., at 7. As Dr. Campbell’s analysis showed, American’s pilots reaped stock gains from the merger as much as $160,000 each. East 048, (Campbell
34
Merger Analysis, Chart 23); East 048.1 (Campbell Rebuttal Analysis, Chart R-
129, p. 4)(“The APA pilots realized a stock-value windfall of $86,000 per pilot as of the merger date and almost $160,000 as of December 10, 2015”).
SUMMARY OF ARGUMENT
In resolving this seniority list integration dispute, “the matter falls to be determined on the basis of what happened, not what ‘might have been.’” Air
Canada and Canadian Airlines, at 9 (Mitchnick 2000). Only the proposal of the
East Pilot Committee is premised on the actual events and actual seniority
equities of the three pilots groups on the McCaskill-Bond effective date and
stipulated Snapshot Date of December 9, 2013. The American pilot proposal is
premised on a denial that the merger of American and US Airways is
determinative of the expectations of the pilots and instead relies on a nonexistent
standalone American business plan and manufactured fleet plans which have
never applied to the Company’s operations. The West Pilot Committee proposal
predictably reflects their long, unyielding and uncompromising insistence on
implementation of the integrated seniority list under the Nicolau Award in the
America West-US Airways merger, even though that award was never
implemented in accordance with the America West-US Airways transition
agreement, whether by court order or otherwise; it never governed the seniority
of US Airways pilots; and that transaction was not covered by McCaskill-Bond.
35
Given that only the East Pilot Committee proposal is based on the actual events of the merger and the pilots’ actual seniority equities, it should come as
no surprise that only the East Pilot Committee proposal provides a fair and
equitable basis for integration of the three pilot seniority lists. The East Pilot
Committee’s proposed integrated seniority list, unlike the lists proposed by the other committees, reflects a balance of the seniority equities among the pilot groups, rather than preferring its pilot group over the others, and actually functions like a true seniority list -- alternating the benefits of seniority among the
pilot groups over time to ensure that all pilots “have their turn” as their careers
progress in the merged system. The East Pilot Committee respectfully submits
that the Board should adopt its proposal for integration of the three pilot seniority
lists.
ARGUMENT
I. The East Pilot Committee Proposal Fairly and Equitably Balances the Actual Seniority Equities of the Three Pilot Groups and Should Be Adopted by the Board
Part III of the East Pilot Committee Prehearing Position Statement, pp. 28-
46, contains a thorough explanation of the Committee’s proposed methodology.
For the Board’s convenience, that section is appended to this post-hearing brief in Appendix 1 (Methodology Presentation). Further detail is provided in East
Exhibit 38 and in the September 30, 2015 testimony of First Officer Rick Brown.
Tr. 320-355. In the interests of economy, the East Pilot Committee’s post- hearing argument in favor of adoption of its proposal will be directed to the 36
analysis of the proposals developed in the record and certain methodology
issues in dispute.
The record before the Board establishes that the East Pilot Committee
proposal should be adopted as the framework for integration of the three pilot
groups. It alone is premised on the actual events of the merger and the real,
identifiable seniority equities of the three pilot groups on the stipulated Snapshot
Date. It conforms to the statutory requirements governing this process as well as
the agreements controlling the seniority list integration. And it alone conforms to
the Section 3 requirement to integrate the “seniority lists” in a fair and equitable
manner. It recognizes that the reasonable career expectations of all pilots on
December 9, 2013 had for many months been to fly for a merged American and
US Airways, a result the pilots’ unions had worked assiduously to bring about
since April 2012. None of the pilots involved, therefore, expected to finish their
careers in a standalone operation.5/ Recognizing that all pilots desired and expected to fly for a merged New American, the East proposal does not advance any one group at the expense of the other, and does not use the fact of the merger as a pretext to discount one group’s seniority equities, but rather fairly shares among the three groups the benefits of the merger over time.
5/ Given the perhaps unusual factual setting to this SLI proceeding, in which the airlines’ merger was the result of the active participation of the pilots’ unions and was the last of the major airline mergers, this case presents an exception to what may be the truism that “no recitation of career expectations ever includes a merger.” Delta-Northwest at 15. 37
A. The East Pilot SIC proposal is properly based on the December 9, 2013 equities and a “static fleet” assumption; the Board should not base the ISL on an artificial and nonexistent business plan or fleet plan
The parties’ stipulation agrees that December 9, 2013 is the “Snapshot
Date” for measuring the pilot groups’ respective seniority equities. McCaskill-
Bond mandates this result by applying its requirements to the occurrence of a
“covered transaction.” JE 055A, at 2. But only the East Pilot Committee complies with the stipulation in the construction of its proposal. The West
Committee relies on the Nicolau Award ISL that was never in effect, rather than the actual effective seniority lists referenced in Section 3 and in Paragraph 2(b) of the Seniority Integration Protocol Agreement, JE 010, to reorder and subordinate East Pilots so as to stack the deck of a seniority integration with the
American pilots in their favor. The AAPSIC also ignores the effective seniority lists on December 9, 2013 and relies on a “standalone” American business plan that not only was never effective after American left bankruptcy and was not intended to be, but that the American pilots vigorously opposed.
The AAPSIC also constructs its own fleet plans and staffing ratios, plans and staffing which obviously have never applied to the merged carrier. And from those manufactured plans, AAPSIC extrapolated job shifts out into the future in order to distort the pilots’ equities and advantage themselves. Every arbitration award governing pilot seniority list integration has used a static fleet plan, despite the efforts of partisans to persuade neutrals otherwise, for the obvious reason
38
that the fleet count on the Snapshot Date is the only fleet plan that can be known
with certainty and is the only fleet count that is unaffected by post-merger
decision making. A static fleet also appropriately recognizes that aircraft
delivered, paid for and deployed to the merged carrier should not be treated as the property of one pilot group beyond the duration of any suitably short “fence”
condition. But ordering the pilots on the ISL based on a future fleet plan, even if
it were an actual Company plan as opposed to the contrived AAPSIC plans,
would do just that.
It also permanently sets the pilots’ seniority rights based on an artificial
construct rather than actual events and on assumptions that may be nullified by
changing events within months of the award. There is no more futile and
hazardous exercise in the deregulated airline industry than acting upon
speculative future events in ordering air carrier operations. Management always
cautions that fleet plans are subject to change. Arbitrator Nicolau in the 1989
FedEx-Flying Tigers seniority integration dispute noted that FedEx CEO Fred
Smith was far more conservative in his assumptions about FedEx’s future fleet at
the time than was the FedEx pilot committee. FedEx-Flying Tigers, at 30-34
(CEO Smith testified with far more caution than FedEx Pilot Committee and
recognized that the Company’s uncertainty increased the further out projections
went, especially concerning international operations.) The airline industry has
become only more competitive and complex since 1989. Even the Civil
Aeronautics Board, in a much smaller and more stable regulated airline industry, 39
would not speculate about the future performance of airlines. See, e.g.,
Allegheny-Mohawk Merger, 59 C.A.B. 19, 20 (1972)(“Currently available information permits the Board to forecast the merger benefits with a fair degree of confidence for the first chronological year following institution of merged operations. However, because of certain factors which will influence the merger
results in the so-called "normal" years following the period of integration of the
two carriers' systems, it is not possible at this time to project the long-term
beneficial results with any degree of precision.”) Respectfully, the Arbitration
Board must not order the pilots’ seniority rights for the remainder of their careers
based on fleet plans constructed by a party or the Board itself.
Using a static fleet assumption establishes a “floor” for measuring the
pilots’ seniority equities. The pilots will be fairly ordered together based on what
can be known and concretely measured. If, as presumably everyone expects,
the merged carrier produces growth for the pilot group, then the pilots will
necessarily share equitably in that growth since the ISL was fairly established
based on the starting point for that growth. Pilots will not “miss out” on growth by
using a static fleet assumption. For the Board will construct an ISL for a merged
operation, one that recognizes post-merger fleet changes as a product of the
merger to be shared by the single pilot group, instead of an integrated list based
on an artificial extrapolation from the pre-merger carriers’ separate experiences.
40
B. The record establishes that length of service must be used as a basis for integrating the pilot groups in this proceeding
As the East Pilot Committee noted in its prehearing brief, length of service is the essence of seniority. “[T]he principal feature of any and every ‘seniority system’ is that preferential treatment is dispensed on the basis of some measure of time served in employment.” California Brewers v. Bryant, 444 U.S. 598, 606-
07 (1980). See also, East Pilot Committee Prehearing Position Statement, at 23-
28. To qualify as a “fair and equitable seniority list” under Section 3, any integrated seniority list must reasonably measure and credit an employee’s time in service with the involved employers. An integrated list that fails to credit such length of service cannot be considered a “seniority system.” “It is hardly surprising that seniority has uniformly been defined in terms of cumulative length of service. No other definition could accord with the policies underlying the recognition of seniority rights.” Id., at 613-14 (Brennan, J., dissenting).
A pilot’s length of service reflects his investment in and commitment to his airline; that is, what the Continental-United Board referred to as “sweat equity.”
Continental-United Award, at 22. It also reflects the pilot’s cumulative bidding
power and pre-merger expectation of progression in his seniority system. As the
East Pilot Committee noted earlier, length of service underlies the two other
equities commonly identified in pilot seniority proceedings: category and status
41
and pre-merger career expectations.6/ And a pilot’s length of service inherently reflects the historic performance of his carrier, which sustained the pilot’s career over the course of his service.
The use of length of service as a criterion to construct the integrated pilot seniority list is also supported by pragmatic considerations. This is because, as
Professor Michael Tannen testified, a pilot's pre-merger career expectation of
advancement and retention are highly correlated with length of service on his
pre-merger carrier. That is certainly true here. (Tr. 3271). The correlation
coefficient derived from comparing seniority rank (i.e., seniority number) with
LOS rank (i.e., "stove piped" LOS)7/ on the East pre-merger list, was calculated at
0.9995 which suggests an extraordinarily high pre-merger correlation between seniority rank and length of service. (East 70; Tr. 3267). That correlation was even higher (0.9999) on the pre-merger West list and almost as high (0.9939) on
6/ The American Pilot Committee criticizes the use of length of service in the list integration methodology by making the nonsensical assertion that length of service has “no meaning” outside of a pilot’s pre-merger seniority system. All of the seniority equities are distinct to their pre-merger systems. A pilot achieves the category and status credited to him in an integration with another pilot group only in his pre-merger operation; that is the result of the greater relative seniority achieved by increasing length of service in his pre-merger carrier. The seniority integration process is for the combination of two or more necessarily separate seniority systems. To assert that an aspect of seniority is distinct to a pre-merger system is simply to beg the question that the seniority integration process seeks to answer.
7/ A pilot's LOS rank is taken from a descending number series ranking pilots in order of LOS measured in days, in which the lowest number ("1") is assigned to the pilot with the longest LOS, the next lowest number ("2") is assigned to the pilot with the next longest LOS, and so on down the list until the highest number in the series is assigned to the pilot with the shortest LOS. 42
the pre-merger AA list. Id. In short, on every pre-merger seniority list, the pilots are ordered in accordance with their credited time in service with American or US
Airways.
Dr. Tannen’s observation that length of service in this proceeding is highly
correlated with a pilots’ bidding power and pre-merger expectation for career
progression is consistent with the CAL-UAL panel’s conclusion that length of
service measures a pilot’s “competitive ranking on the pre-merger list.”
Continental-United, at 34. Here, of course, the three pilot populations consist
overwhelmingly of pilots whose seniority date conforms to their date of hire/first
day of training. See East 038, at 5 (showing that 86% of American pilots, 94% of
East pilots and 100% of West pilots have a seniority date that conforms to their
first day of training at American.)
Consequently, as in the Continental-United proceeding, the East Pilot
Committee concluded that neither a length of service list nor a category and
status list alone could produce a fair and equitable seniority list given the
differences among the pilot groups on December 9, 2013, especially greater age
and substantial near term attrition of the more senior East pilot group and the
furloughs existing in both the American and West pilot groups on December 9,
2013. Continental-United, at 34 (“No method of using unqualified status &
category or longevity seniority integration models adequately satisfies the equity
and fairness standards underlying both methods.”) In this proceeding the two
methodologies will offset one another to a degree (as contemplated by the 43
Continental-United panel), so as to achieve the fairest and most equitable
seniority list among these pilots. Indeed, only the American pilot committee
opposes use of the hybrid methodology in this proceeding; yet, its principal witnesses conceded that length of service and category and status work in this proceeding in the manner contemplated by the Continental-United Board. See,
Tr. 4861 (AAPSIC Chairman Mark Stephens conceding that the AAPSIC analysis shows longevity and category and status working counter to each other in the methodology); and Tr. 5094-95 (AAPSIC witness Captain Bruce Case conceding the same.)
Captain Case’s presentation, seeking to critique the East Proposal, confirms that the hybrid method must be used in this proceeding. Slide 230 of
Case’s presentation shows that pilots with the same length of service on the three lists differ on some other aspects of seniority. AAPSIC Exhibit R-BC-001, at 230. The East Proposal accounts for these differences in integrating the pilots, and while Case omitted the pilots’ placement on the East Proposed ISL, the three pilots are integrated at different points -- West Pilot Henderson is integrated at ISL# 3775, AA Pilot Kuebler is ISL# 3855 and East Pilot Ziegler is
ISL# 7057, more than 3,000 numbers below them. So the East Proposal weighs the seniority differences, as well as the similarities, among the pilots.
The use of length of service benefits the different pilot groups at differing points on an integrated seniority list. While East pilots are older with greater length of service across the top 75 percent of the three seniority lists, West pilots 44
and American pilots become older than East pilots across the bottom 20 percent
of the lists. The junior-most West pilots have greater length of service than their peers at similar relative seniority points on the American and East lists.
Unfortunately, owing to the significant periods of furlough among American pilots beginning in 2001, including furloughs imposed on former TWA pilots due to their relative seniority placement under Supplement CC negotiated by AA and APA, the junior-most part of the American pilot list has limited length of service. So
while the East Pilot Committee’s proposal mitigates the impact of furloughs
among the American and West pilots on December 9, 2013 by weighting length
of service more heavily, the American pilots at the lowest portion of the lists
simply lack sufficient length of service to offset the category and status impact of most furloughs in the American system.
C. The Board should adopt the East Pilot Committee’s method of calculating length of service
The Board should adopt the East Pilot Committee’s method of calculating
length of service in the three areas of disagreement identified in the hearing.
1. Service time at legacy carriers not counted in the pre-merger seniority systems
Certain pilots in the American and East systems (Reno, TWA, and certain
AirCal pilots in the American pilot group, and Empire and Trump Shuttle pilots
within the East group) were integrated into the pre-merger seniority lists through
a prior seniority list integration proceeding, but their earlier date of hire at a
legacy carrier was not recognized for competitive seniority placement in either 45
the American or East system. The legacy date of hire of these pilots, and the
length of service prior to their American or East seniority date associated with it,
is not effective in the pre-merger systems and is not recognized by American or
US Airways (i.e., the “covered air carriers”) for competitive seniority purposes.
Traditionally, these pilots would have been assigned an effective seniority date
based on the pilot immediately senior to them in the earlier integration. Their
length of service would then be calculated for the covered carrier from that
effective date of hire. See East 038.1, at 3-4.
TWA and Reno pilots had been assigned an occupational date as
American pilots based on the next senior American pilot. East 077 (Decision of
Arb. Goldberg), at 38, 44. The occupational date assigned the TWA pilots by
American and APA was “considerably later than their TWA date of hire.” Id. That
occurred due to their seniority placement by Supplement CC. TWA and Reno
service time had been “discounted”, as AAPSIC witness Bruce Case conceded.
Tr. 4911, 5075 (Case Testimony). And since the pre-merger seniority ordering of
former Reno and TWA pilots relative to other American pilots cannot be altered, it
is clear that Reno and TWA pilots had no pre-merger career progression
expectation on December 9, 2013 based on that discounted legacy Reno or TWA
service time.
Accepting the effective seniority for these pilots on the Snapshot Date, the
East Pilot Committee used the traditional “lifter/blocker” method to assign them
the dates of hire of the “original” pilots immediately senior to them in the prior 46
seniority integration. In its equity distribution process, the APA similarly
calculated length of service for the former Reno and TWA pilots using their
“occupational date”, which again reflected the occupational date of the next
senior American pilot, and Arbitrator Goldberg upheld that choice. East 38.1, p.
2; East 077, at 38-40.8/ The East Pilot Committee method in fact credited about two months more time to the American pilots than did the APA method because it used the date of hire, rather than occupational date, of the next senior pilot. But
the East Pilot Committee method mirrors the method used by APA to calculate
length of service for Reno and TWA pilots.
In the Continental-United proceeding, the Continental seniority list
contained numerous senior pilots who were integrated through prior seniority
integration proceedings to the point where it was impractical to identify a “native”
or “original” Continental pilot to use for the purpose of assigning the effective
seniority date. East 38.1, at 3-8 (reciting slides presented by UAL Merger
Committee). By contrast, the top 1,600 American pilots are almost exclusively in
straight order based on date of hire, a dynamic that continues through the top
75% of the American list with only 7.5% of pilots not in straight date of hire order.
Id., at 9-14, 18. And the populations of all three pilot groups here reflect the strong predominance of pilots whose seniority date conforms to their date of
8 AAPSIC Chairman Capt. Stephens was also a member of the AA pilot seniority integration committee that negotiated Supplement CC and the committee that litigated in arbitration the modifications to Supplement CC that led to Supplement C. He was also a member of the APA Equity Distribution Committee in 2013. 47
hire/date of training and the next senior original pilot to these integrated pilots
can be easily identified for purposes of assigning the effective seniority date.
East 038, at 36-41; East 038.1, at 15-19.
The traditional method simply applies the effective seniority in the pre-
merger systems as of the Snapshot Date, and therefore does not introduce
legacy time discounted by an earlier seniority integration proceeding, which the
pilot had no pre-merger career expectation of using for advancement at his pre-
merger airline. That is consistent with the requirements of the McCaskill-Bond
Amendment, which is limited in its application to the “covered air carriers”
involved in this transaction. Resuscitating service time at a prior air carrier,
which is not the subject of the McCaskill-Bond proceeding, runs afoul of the non-
retroactivity provision of the Amendment and has the effect of applying the
Amendment to transactions and air carriers that it cannot cover. Giving effect to
prior legacy service time not effective in the pre-merger systems is also counter
to the stipulated Snapshot Date of December 9, 2013 as the date on which
equities are to be measured. Measuring equities on that date requires that length
of service be based on seniority effective in the pre-merger systems. And under
the hybrid methodology, counting that ineffective legacy TWA and Reno service
time would unfairly benefit the more senior American “original” pilots who stapled
the Reno and TWA pilots to the bottom of their seniority list in the first place. East
038.1, at 23-34. TWA and Reno pilots would not even benefit.
48
Finally, because the US-East method calculates length of service based only on the effective seniority dates in the pre-merger systems, the East Pilot
Committee’s “stove-piped” length of service list analyzed by Dr. Tannen produced a very high correlation between the stove-piped length of a service that is effectively reassigned to a pilot and the pilot’s actual length of service (98% for the AA list and essentially 100% for both the East and West lists). The East LOS calculation method therefore achieves the goal of eliminating “lifters and blockers” in the construction of a longevity ISL with no distortion of the pilot’s competitive seniority longevity.
2. The Board should adopt the East Pilot Committee’s position that service time at US Airways’ “MidAtlantic Division” is included in the calculation of length of service for certain East Pilots
The parties are in dispute whether to include in a calculation of longevity
the time accumulated by certain East pilots while flying for US Airways in its
“MidAtlantic Division.” The uncontroverted record establishes, through
documentary evidence and the testimony of East pilot Dean Colello, that the
pilots were employed by US Airways while flying in this division and that US
Airways controlled all flight operations and labor relations aspects of MidAtlantic.
East Exh. 44; Tr. 196-215 (D. Colello Testimony). Although US Airways branded
the Embraer 170 flight operations the “MidAtlantic Division,” there was no
separate corporate entity. The operations of MidAtlantic were conducted entirely
on the US Airways FAA operating certificate using the US Airways call sign. Tr.
204 (Colello); East 044, at 9 (E-170 training for “CEL” pilots conducted by US 49
Airways). And LOA 84 of the ALPA-US Airways pilot contract controlled those
operations for RLA purposes. Tr. 205-06 (Colello). In short, the flying by the East
pilots in the MidAtlantic Division was in the service of US Airways as US Airways
employees under the ALPA-US Airways contract. It is no different than the
current E-190 Group 1 flying for the merged carrier conducted by East Pilots
using the same type-rated aircraft as used in the MidAtlantic Division. East 044
at 21. There can be no question that had these pilots been flying in the
MidAtlantic Division on December 9, 2013, they would on that basis alone be
“covered employees” of a “covered air carrier” under the McCaskill-Bond
Amendment. JE 55-1. Flying conducted by covered employees for the covered
air carriers must therefore be counted in order to comport with the Section 3
rights granted to covered employees by the statute.
Neither the American Committee nor the West Committee introduced any
evidence to challenge the facts presented by the East Pilot Committee
concerning the E-170 operations conducted by US Airways in the MidAtlantic
Division. Their only response to this evidence was to reference prior arbitration
proceedings that dealt only with the question of longevity for pay and benefit
purposes, not competitive seniority purposes. The American and West
Committees therefore ignore the well-established distinction between the
treatment of longevity for competitive seniority and pay and benefit purposes.
See, e.g., Tr. 3607-09 (Colello Testimony); East 063 (APA January 2013
Q&A)(“The determination of longevity for pay and benefit purposes should have 50
no impact one way or the other on the seniority list integration under the
McCaskill-Bond “fair and equitable” standard…Longevity for compensation
purposes has historically been treated as a separate matter to be determined
through contract negotiations.”) And since those arbitrations occurred under the
ALPA-US Airways collective bargaining agreement, they simply illustrate that service by US Airways pilots in the MidAtlantic Division was governed by the terms of the mainline US Airways pilot contract.9/
Equally meritless is the argument that time flown by East Pilots in the
MidAtlantic operation should not count because it was “regional flying.” The issue is not the type of flying performed, but whether it was flying in the service of the covered air carrier. In the Continental-United proceeding, the arbitration panel did not include in the calculation of longevity time flown by pilots at
Continental Express under the “flowup/flowdown” agreement covering
Continental pilots and Continental Express pilots. But the Board did not decide that issue based on a definition of “regional flying”, but on its interpretation of the
9 It is also immaterial that certain East pilots, like Mr. Colello, had been furloughed from their large jet US Airways pilot positions and were flying in the E- 170 operation as part of the furlough mitigation terms of LOA 84. Furloughed West Pilots were similarly flying in the East operation under the furlough mitigation terms of the ALPA-America West-US Airways transition agreement on December 9, 2013. The East Pilot Committee counted that time flown in the East operation to those West pilots. No committee disputes that the East Pilot Committee was correct in counting this time for West Pilots. When the flying is performed by the “covered air carrier” US Airways, that the pilot was furloughed from another position in the carrier’s service does not warrant discounting the service time.
51
term “Company” as used in ALPA Merger Policy. See Continental-United, at 28-
29. It concluded that under ALPA Merger Policy the “Company” in the SLI
proceeding was Continental Airlines and since Continental Express performed
the flying in question, it was not proper to include it in the calculation of service at
Continental. Since the record here shows that flying performed in US Airways’
MidAtlantic Division was flying performed by a covered air carrier in this dispute,
the service time should be included in the calculation of length of service at US
Airways.10/
3. Time in service by American pilots at American Eagle should not be included in the length of service calculation
In contrast to the flying performed by US Airways in its MidAtlantic
Division, time in service for certain American Airlines pilots who either flowed up
from, or flowed down to, American Eagle should not be included in the calculation of length of service at American Airlines. As in the decision on service time at Continental Express in the Continental-United proceeding, flying at American Eagle was not flying performed by one of the “covered air carriers” in
10 Nor may the American or West Committees rely on the erroneous pre- merger seniority list submitted by the USAPA Merger Committee to assert that US Airways pilots who came to the carrier through the Combined Eligibility List actually have a 2007 date of hire. The uncontroverted record shows that these “CEL” pilots have a US Airways date of hire that reflects their first day of training for the MidAtlantic Division. East 044, at 11-15; Tr. 209 (D. Colello testimony). The USAPA-submitted East seniority list was simply wrong in identifying these pilots’ dates of hire and, in any event, since the USAPA Merger Committee withdrew, its certified list was superseded by the list submitted by the East Pilot Committee. JE 006B. No party presented evidence to challenge the correct dates of hire identified by the East Pilot Committee for “CEL pilots” on its September 11, 2015 proffered list. 52
this proceeding. The East Pilot Committee therefore did not include any
American Eagle service time for American pilots in calculating their longevity.
Rather, as it did for East pilots who “flowed up” to US Airways from the
Combined Eligibility List and received a US Airways date of hire consistent with
their first day of training at US Airways, the East Pilot Committee used the former
Eagle pilots’ first day of training at American. It also did not include service time
at wholly-owned subsidiaries of US Airways under a similar “flowup/flowdown”
agreement covering US Airways Pilots. Interestingly, neither the West
Committee nor the American Committee complains that subsidiary time for US
Airways pilots should be counted. And the APA did not count service time at
American Eagle in calculating length of service for American pilots in its equity
distribution process. East 077, at 45-48. Time in service at a separate carrier
under a “flowup/flowdown” agreement should not be counted for any pilot.
D. The Board should adopt the East Pilot Committee’s construction of category and status groups including the treatment of American and West pilots on furlough on the Snapshot Date
1. The East Pilot Committee correctly constructed a furloughed category 9 among American pilots with 1,165 furloughed pilots on the Snapshot Date and 61 furloughed pilots among West pilots on the Snapshot Date since both pilot groups brought more pilots with rights to jobs than available jobs in their system
As set forth in East Exhibit 38 and the accompanying testimony of Rick
Brown, there were 1,165 American pilots on furlough on the Snapshot Date and
61 West pilots on furlough. The East Pilot Committee therefore constructed 53
Category 9 of the integrated category and status list to reflect those furlough
populations. East 38, at 24-25; East 38.2, pp. 15-19. The pilots are “stovepiped”
on the category and status integrated list according to their relative seniority
ordering, and therefore as the result of furlough recall bypass by American pilots,
certain more junior pilots who had accepted recall or were new American Eagle
“flow-up” hires, were assigned to the furlough category although they were
working on December 9, 2013. The large majority of American pilots in Category
9, 681 of the 1,165, were in fact furloughed on the Snapshot Date. East Exhibit
38.2, at 17. For each of the remaining 484 pilots in Category 9 who were working
on December 9, 2013, there were 484 more senior AA pilots on furlough who
also had claims to those jobs. Id., at 17-19. Contrary to the assertion of AAPSIC
Chairman Mark Stephens that every American furloughed pilot on December 9,
2013 had a job he could have taken, in fact there were only 144 new hires after
the final 1,165 remaining furloughees bypassed recall. So there were actually
just 144 jobs available for those 1,309 American pilots who had been offered a
job.
The American Pilot Committee has no factual answer to the reality that on
the Snapshot Date there were 1,165 more pilots than jobs in the American
system. East 38.2, at 15. It simply recasts these furloughed pilots as “Letter T”
pilots and claims they are akin to pilots on leave of absence who will never return
54
because of their deferral rights under Section 17.W/Letter T.11/ The AAPSIC position is rank speculation. The APA itself designates the furloughed pilots as furloughed in all of its membership databases, just as American designates these
American pilots as furloughed in its employment databases; “Letter T” is nowhere used as a designation. East 38.2, at 5-14.
In the equity distribution process, even after Letter T had been triggered, the APA treated these pilots as furloughees. East 38.2, at 3-4; East 077, at 48
(“Approximately 1,200 elected to defer recall pursuant to Letter T of the CBA.”).
And APA treated those furloughed pilots differently than pilots on leave of absence. East 077, at 49. Arbitrator Goldberg upheld that APA decision. Id.
The AAPSIC assertion that furloughed pilots covered by Letter T are equivalent to pilots on leave of absence has no basis in the collective bargaining agreement and was rejected by the APA.
In considering the equitable fairness of charging the American pilot group
with the number of pilots in excess of available jobs in their system on the
Snapshot Date, it must also be remembered that under the length of service
calculation, a pilot’s longevity equity is discounted for prior periods of furlough,
even if those furloughs ended many years prior to the merger. Among East
pilots, for example, pilots who incurred furlough in the early 1990s and early
2000s have diminished longevity due to that furlough deduction. It resulted in
11 Section 17.W.3 of the JCBA grants pilots a two-year deferral period for recall. Letter of Agreement T simply extends that right by one year. 55
1989-1990 hire East pilots, for example, being integrated under the East
proposed ISL with American and West pilots hired eight to ten years after them,
and who are considerably younger than the East pilots as well. Ignoring some
number of American furloughs that existed on the merger date, while still
charging these East pilots for the effect of furloughs that ended many years ago,
would only inequitably increase the gain among American pilots at their expense.
The 1,165 furloughed pilots hold recall rights that will not end when their
Section 17.W/Letter T deferral rights expire, but will simply revert to conventional
recall and bypass rights. Those pilots may return to American above junior pilots
and suppress the career advancement of these pilots. That dynamic has already
occurred among American pilots with the return of 239 pilots since December
2013, a return rate that accelerated in late 2015. East 038.2, at 18-19; Tr. 3126-
27; 4365-66 (Brown testimony; Payne testimony on return rate). On December
9, 2013, those furloughees faced the prospect of waiting six years to return, but
the growth of the merged carrier has accelerated the opportunities available to
them. East 038.2, at 21.
The crux of the problem is that almost 1,000 American furloughees retain
recall rights and present a risk of career suppression for junior pilots by returning
above them in relative seniority order. The AAPSIC’s effort to avoid counting
their furloughees on the Snapshot Date as “furloughed” merely seeks to advance
American pilots at the expense of US Airways pilots, especially US-East pilots,
by transferring the risk of career stagnation presented by American pilot furlough 56
recalls from junior American pilots to East pilots. That transfer of career
stagnation risk is inequitable. It ignores that in addition to the career stagnation
from the return of senior furloughed pilots, the junior American pilots faced career
stagnation from adverse scope and work rule changes in the December 2012
APA pilot contract. The APA acknowledged that career stagnation threat to its
junior pilots by creating the “inverse seniority silo” in the equity distribution
process. East 077, at 21 (“the Inverse Seniority Silo is designed to mitigate
harms resulting from work rule and Scope changes…Each of these changes,
APA concluded, was likely to reduce the size of the pilot workforce, thereby
making it more difficult for junior pilots to advance to more lucrative positions,
causing a career stagnation effect.”) Those junior American pilots will benefit from accelerated careers by the US Airways merger improving American’s prospects and the early attrition of East Pilots. More junior East Pilots should not have to bear the burden of APA’s pre-merger policy choices in creating nonstandard recall bypass rights and reducing manpower requirements in their operation.
Besides, it is because many junior American pilots lack substantial length
of service that they are ordered at the bottom of the East proposed ISL. East
038.2, at 22-26. The East Pilot Committee’s weighting toward length of service
offset the impact of more than one-third of the AA furloughs and benefits junior
furloughed West Pilots even more. But the diminished length of service of some
junior American pilots limits the favorable effect of that length of service 57
weighting. A greater weighting toward category and status for these pilots would
only exacerbate the problem for them.
2. The Board should adopt the East Pilot Committee’s construction and ordering of Category and Status groups
The East Pilot Committee ordered category and status groups as follows:
1. Group 4 Captain
2. Group 3 Captain
3. Group 2 Captain
4. Group 4 First Officer
5. Group 3 First Officer
6. Group 1 Captain
7. Group 2 First Officer
8. Group 1 First Officer
9. Furlough
The East Pilot Committee ordered Group 1 Captain separately because it
is a pilot-in-command position, with more pilot responsibility than First Officer
positions, but its pay rate falls between Group 3 First Officer and Group 2 First
Officer, on average $4 less than Group 3 First Officer pay rates and $6 more
than Group 2 First Officer pay rates. Further, as Rick Brown noted, a review of
pilot bidding patterns shows that the inner-quartile range of Group 1 Captains
has greater relative seniority than that of Group 2 First Officers among East
Pilots, but is junior to that range among Group 3 First Officers. See East 038, at
58
18, 43-45 (showing “interquartile” bidding range of positions.) Group 1 Captain
was therefore a preferred position over Group 2 First Officer. East 038, at 45.
The East Pilot Committee constructed each position as a separate group,
Captain and First Officer, Group 4 to Group 1. Constructing the positions
separately for purposes of seniority list integration is logical since each position is treated separately under the contract for competitive seniority bidding purposes, whether for vacancies, displacements or schedules, as well as for pay purposes.
The positions are separate in the definition of pilot status under Section 17.A.1 of the JCBA. JE 003, at 164
Yet, the American and West Committees combine Group 1 Captain with
Group 2 First Officer, even though the positions are obviously different, both in
status and bidding, and the seniority patterns of the positions differ as do the pay
rates. While AAPSIC claims that Group 2 First Officer bids senior to Group 1
Captain, (Stephens 10/15/15 Presentation Deck, at 53), in fact, East 038, p. 44
shows that only seven pilots make up the portion of Group 2 First Officers senior
to Group 1 Captain. East 038, at 44. In addition to the fact there is no
contractual or seniority basis for combining the positions, there is no practical need to do so to ensure a fair integration, since any “block of pilots” created by
Group 1 positions on the Category and Status integrated list will be dispersed by its weighting with the longevity list to construct the final “hybrid” ISL. And, while the other committees did not acknowledge it, by combining only Group 1 Captain with Group 2 First Officer, and not also combining Group 1 First Officer in that 59
artificial category-status group, the other committees deny the East Pilots their
more senior Group 1 Captain positions while leaving them with the Group 1 First
Officer positions as the most junior active position. Had the other parties sought
to have a uniform junior position among all three groups as their justification, they would have combined both Group 1 positions into Group 2 First Officers.
Obviously, they combined the positions to advantage themselves and concocted a rationalization for doing so.
The AAPSIC goes further than the West Committee and combines Group
2 Captain and Group 4 First Officer as a category. It does so simply to dilute the
favorable ratio for East and West pilots in Group 2 Captain to advantage
American pilots in that job count. AAPSIC also advantages American Group 4
First Officers by demoting the vast majority of pre-merger US Airways East
Group 2 Captains and Group 4 First Officers into the larger American Group 3
First Officer category. There is no logical or equitable basis for doing so. The
alleged seniority bidding pattern justification cited by Stephens has no merit
because his exhibit shows overlapping bid positions among numerous categories
and statuses. Tr. 2699-2700 (Stephens testimony in response to Arb. Jaffe
question).
The East Pilot Committee’s more accurate bidding patterns show that
Group 2 Captain is a more senior position. East 038, at 43-45. Group 2 Captain
is obviously a distinct position from Group 4 First Officer under Section 17.A.1
and Section 17.A.2 provides that all captain positions are considered senior to all 60
First Officer positions in a base. JE 003, at 164. And as Captain Case’s written
testimony in the Supplement C arbitration shows, Group 2 Captain is a more
desired position among American pilots. West Rebuttal Exh. WHX 13 (Case
Written Testimony). In the Delta-Northwest case, the Arbitration Board rejected
the proposal by the Delta pilots to combine DC-9 Captains with widebody First
Officers. See Delta-Northwest, at 10, 18. Likewise, AAPSIC’s gerrymandering of
Narrowbody Captain and Widebody First Officer jobs should be rejected.
The East Pilot Committee category and status hierarchy is the only one consistent with the contractual rules for positions and pilot seniority bidding patterns. Equally important, it is neutral in its effect on the other pilot groups.
E. The East Pilot Committee Proposed ISL is fair and equitable to all the pilot groups
The record establishes that only the East Pilot Committee proposal is fair
and equitable to the pilot groups. It is grounded in the reality that both the
airlines and the pilots chose the merger of American and US Airways as the best
course to achieve their goals and makes no self-serving discounting of the pilots’ real pre-merger equities. The evaluation of pilot equities cannot be made on the basis of what did not happen or speculation about a future that never was, but in recognition that the merger occurred and the ISL is to be constructed for a merged operation. And it is the only proposal based on the actual equities in place on December 9, 2013 in conformity with the requirements of the McCaskill-
Bond Amendment. The East Proposal objectively measures the length of service
61
and category and status equities of the pilots and makes a reasonable balancing
of those equities in view of their reasonable and actual pre-merger expectations.
The analysis of the East Proposal shows that it hews far more closely to
the pilots’ pre-merger career progression. It does not distort, as do the other
proposals, the length of service, position and post-merger progression of the
pilots. Rather, the East Pilot Committee’s proposed ISL generally places pilots
with peers of reasonably similar length of service and category and status,
recognizing that deviations will inevitably occur at certain parts of a large ISL.
Unlike the proposals of the American and West Committees, the East Proposal
will not force demotions upon pilots when the inevitable rearrangement of
operations results in the transfer of aircraft among bases and creates
displacements.
1. The East Proposal functions like a proper seniority list by exchanging the benefits of the ISL among the three groups over time
A basic premise of a seniority list is that employees will “have their turn”
with more senior employees enjoying the nearer term benefits and more junior
employees then receiving the benefits of the ISL following retirement of senior
pilots. Bryant, 444 U.S. at 606 (“A "seniority system" is a scheme that, alone or
in tandem with non-"seniority" criteria, allots to employees ever improving
employment rights and benefits as their relative lengths of pertinent employment
increase”). As the East Pilot Committee has argued throughout this proceeding,
a fair and equitable ISL among these pilots must account for the demographic 62
differences between the pilot groups -- principally the significant near-term
attrition among the older East pilots. See, East 037 (Pilot group attrition analysis). East pilots are older than American and West pilots across the upper
75 percent of the seniority lists. East 037, at 4-5. And East pilots will retire at rates 14 to 24 percent higher than American and West pilots until 2022. Id., at 6-
8. Contrary to the argument of the American Committee that East attrition is not high value, East pilots overwhelmingly retire from a relative seniority point on their pre-merger list of Group 4 and 3 Captain positions, with 72 percent of pilots retiring from the relative seniority point of these premium positions. Id., at 9. See also, East 57.1, at 5 (End of career exit point analysis). East pilots will enjoy the benefits of the merged operation for less time than American and West pilots, and will advance the careers of those pilots through their accelerated attrition.
The ISL must account for this fact to be fair and equitable to East pilots by advancing them initially on a relative seniority basis; if that it is not done, then the result will simply be to give even more benefit of East attrition to American and
West pilots and deprive East pilots of the merger’s benefits.
So while the East proposed ISL provides relative seniority advancement to some East pilots initially, it is far less than the relative seniority windfall the
American and West Committees grant their pilots. And the analysis presented by the East Pilot Committee shows that the modest relative seniority benefit those
East pilots receive transfers to the other pilot groups within five years. See, e.g.,
East 054, at 38 (East population distribution epoch). Most East Pilots will actually 63
fall behind their pre-merger relative seniority progression prior to retirement,
while American and West pilots experience the opposite effect, enjoying more
time ahead of their pre-merger progression in the merged operation. Delta-
Northwest, at 20 (Noting that advancing older pilots in the seniority integration
properly accounts for their pre-merger career expectations, while allowing junior
pilots from the other carrier to enjoy increasing access to positions as the older
pilots retire.) And the time in position analyses of Dr. Gall and Rick Brown show
that the relative seniority advancement of East pilots does not actually translate
into gains in time in position over East pilots’ pre-merger expectations.
East 054 showed that the East proposal integrates the pilot groups
reasonably close together in a distribution across the ISL and there is an
exchange of relative seniority among the groups over time, with the median of
American and West pilots overtaking the median of East pilots by 2022. The
other groups then continue to have an overall superior relative seniority
placement to the remaining East pilots over the next ten years.
64
East 054, p. 38.
The East Pilot Committee’s relative seniority distribution matrix (“dot chart”) similarly shows the equitable sharing and exchange of the relative seniority among the pilots over time. See, e.g., East 041.1, at 9,15. East 055 also shows that the distribution of relative seniority gain and loss over time is equitably shared among the groups, with different groups gaining or losing at different points of the list. See, e.g., East 055, at 7, 13, 42. That is how a fair seniority list integration is intended to work.
65
2. The East Proposal maintains or enhances the time in position of American and West Pilots while maintaining a reasonable career progression for East Pilots
The fairness of the East Proposal is also seen in the fact that it fairly
allocates the time in position among the pilot groups. As Dr. Peter Gall testified,
the age and attrition rate among the pilots must be kept in mind when evaluating
the impact of relative seniority placement given the materially earlier average
retirement among East Pilots. Tr. 2782-85 (Gall testimony). Again, East Pilots
will enjoy less time in the merged operation due to their greater age and accelerated attrition. They will consequently have less time in position than
American or West Pilots, as seen in the various analyses of time in position the
East Pilot Committee presented. If East Pilots receive a lesser ISL relative
seniority placement, that will exacerbate a negative trend -- granting even less
time in senior positions to East pilots and even more time in those positions to
American or West Pilots.
East Exhibit 42.2 shows that the East Proposal, which includes its Group 4 position condition, causes minimal changes for American and East Pilots across the upper two-thirds of the ISL. East 42.2, at 16, 20.12/
12/ The East Pilot Committee time-in-position analysis began pilots in their ideal stovepipe position based on their relative seniority position. The American and West Committees began pilots in the actual position held on the Snapshot Date. But all Committees then progressed pilots based on age 65 attrition and stovepipe bidding for future positions. As representatives from the East and West Committees acknowledged, the results under either assumption reach the same point through stovepipe bidding and the assumptions make no material 66
difference in result. Tr. 1661-63 (Freund and Wilder colloquy to Board); 5361-62 (Durham). 67
Indeed, American Pilots fare better than East Pilots in that their changes are substantially less across the entirety of the ISL and, when changes occur in the bottom half of the ISL, those American pilots exchange First Officer time in favor of time as Group 2 Captain. Certain American Pilots in the approximately upper quarter to upper third of the ISL have minimal changes from Group 3
Captain to Group 2 Captain. Given the reduction in Group 3 positions, however, that change may be immaterial in that it would occur anyway. East 42.1, at 35.
East Pilots by contrast experience larger changes in time in position in the bottom third of the ISL and lose near-term Group 2 Captain time for Group 4 First
Officer and end of career Group 4 Captain time for the most junior pilots. East
Pilots in the 25th to 35th quantiles, in contrast to American Pilots, largely lose 68
Group 4 Captain time as well as Group 2 Captain time, in exchange for Group 4
First Officer time.
West Pilots under the East Proposal, including Group 4 position condition,
continue to gain Group 4 Captain time under the East Proposal, with only the
highest three quantiles having the smallest gain. But those pilots should
maintain their pre-merger Group 3 Captain time since that position is now at a
lower relative seniority position entry point than in the pre-merger West
operation. East 041.1, at 2; East 042.2, at 18. West Pilots across the lower
portion of the ISL will be exchanging time in lower category positions for time in
higher category positions, with Group 2 Captain time exchanged for Group 4 and
Group 3 Captain time, and Group 2 First Officer time also exchanged for First
Officer positions in higher categories. Id. West Pilots in the bottom quarter of the
ISL will be primarily exchanging Group 2 First Officer time to gain Group 4 and
Group 3 Captain time. Id.
Again, pilots in all groups may simply maintain Group 2 Captain time due
to changes in the Group 3 fleet reducing available Group 3 Captain positions and
the effect of Supplement C giving priorities to former TWA pilots. See East
042.2, at 28-30. But the increase in Group 4 positions will increase Group 4
Captain and First Officer time for American and West Pilots even under the East
Group 4 Condition. Id. at 29-30.
As this summary of East 042.2 shows, the East ISL reflects an exchange
of benefit under the ISL among the pilot groups. The Board may review other 69
analyses submitted by the East Pilot Committee concerning time in position and
see the same dynamic of minimal change for the American pilot group, largely
positive change for the West Pilots and at certain points, negative change for the
East Pilot Group when attrition among East Pilots accelerates. See, e.g., East
058, at 18-20 (showing general job promotion occurring among American and
West Pilots until 2028, while the affected East Pilots largely suffer job demotion.)
The proposal makes minimal changes to the pre-merger career progression of
American pilots and the changes that occur are positive. It similarly allocates positive changes for West Pilots. To the extent a pilot group incurs negative changes from the December 9, 2013 job count, it is East Pilots giving up Captain time for First Officer time. Reducing the emphasis on length of service will only distort further this relationship among the pilot groups -- causing East pilots in the upper 80 percent or so of the list to lose time in premium positions while reducing the placement of American and West pilots in the bottom 20 percent of the ISL.
The analysis presented by Dr. Peter Gall also confirms the balanced nature of the East Proposed ISL. Dr. Gall reproduced his analysis of the East
Proposal as well as the other proposals under his model, in East Exhibit 40.1.
He set forth the assumptions for his analysis in East 40, at 2-6. As Dr. Gall
noted, East Pilots are older across the upper 75% of the ISL and in his analysis
East Pilots have earlier average retirement dates, which result in less time in the
merged operation than American or West Pilots. Tr. 2746-47. Also important to
70
his analysis was his calculation of the “stovepiped” seniority thresholds for each
position -- the relative seniority point where a pilot enters a job. Tr. 2749-50.
In analyzing pilots at the upper 80th percentile of the pre-merger lists, Dr.
Gall noted that the East Pilot has an earlier average retirement date and a more
rapid pre-merger seniority progression. East 41.1, at. 7; Tr. 2766-67. He also noted the East Pilot loses a substantial benefit of that pre-merger attrition under the ISL. Id. at 2767. As a result, even though on a notional basis the East Pilot is placed higher in relative seniority on December 9, 2013, by an actual implementation date in 2016 the East Pilot will be close to his pre-merger progression and will actually fall below his pre-merger progression before leaving
the merged carrier. Tr. 2767-68. His placement under the East Proposal results
in his loss of 6 months of Group 4 Captain time. Tr. 2769; East 041.1, at 7. By
contrast, the American pilot at the 80th percentile begins at a lower relative
seniority point but quickly moves above his pre-merger progression after
implementation of the ISL and remains above it longer than the period enjoyed
by the East pilot. Id. The slight loss of time in position in Group 3 Captain is
caused by the fact that Group 3 is a smaller part of the merged fleet so it now
has a higher relative seniority threshold entry point on the ISL than in the pre-
merger American system. East 041.1, at 2. Finally, the West Pilot at the 80th percentile experiences a reduced relative seniority progression, but increased time in Group 3 Captain due to the expansion of opportunities under the merged operation lowering the relative seniority entry point for West Pilots in Group 3 71
aircraft. East 041.1, at 2. Again, recognizing changes in the Group 3 fleet, this
placement may translate into no position change for the West Pilot.
In Dr. Gall’s review of various illustrative portions in his analysis, Tr. 2774-
82, he noted that across the East Proposed ISL, East Pilots experience a
reduction in the “slope” of their pre-merger career progression due to sharing
their attrition with the other pilot groups. Tr. 2782-84. When combined with the
earlier average retirement dates for East Pilots, the dynamic shown by Dr. Gall’s analysis is one of East Pilots falling behind their pre-merger progression, even
when initially placed at a higher relative seniority point on the ISL. And that
dynamic translates into the sort of balanced offsetting time in position gains and
losses among the pilots on the East ISL shown also in the East Pilot Committee’s other analyses. The junior-most East Pilots at the bottom 20 percentile and lower are integrated below their pre-merger progression throughout the period Dr. Gall analyzed with a resulting loss of time in Group 2 Captain time.
By contrast, the American and West pilots surpass their pre-merger relative seniority progression and enjoy more time above that progression in the merged system. That dynamic leads to balanced if generally more positive time in position results for those pilots. More junior West Pilots experience the greatest time in position gains among the pilots. See East 40.1, at 23, 26, 29,
32. For American and East Pilots, Dr. Gall measured changes of one year or
less in most instances for pilots across the ISL. Certain West Pilots incurred
larger changes when they experienced a change, but the change reflected a gain 72
in time in larger equipment in exchange for less time in narrowbody equipment.
See, e.g., East 41.1, at 17, 20. Dr. Gall emphasized the need to consider the
effect of the parties’ proposals on all three pilot groups. Tr. 2782. His analysis
shows that when the various equities of the pilot groups are considered together,
the East Pilot Committee Proposal is the only proposed ISL that seeks a
balanced result for all pilots.
3. The East Pilot Committee’s proposed Group 4 position condition is a reasonable and necessary measure to safeguard the legitimate near-term pre-merger career expectation of American and East Pilots to Group 4 positions in the anticipated final operational integration of the carriers
As shown by the foregoing presentation, the East Pilot SIC proposed
Group 4 position condition protects East Pilots as well as American Pilots against
a loss of Group 4 positions in the final operational integration. See also Tr. 699-
705 (K. Ison testimony re: East Group 4 Condition); East 038.4 (Group 4
condition presentation). The East Pilot Committee proposed condition is properly
based on the stipulated Snapshot Date job count for Group 4 positions. It does
not, as does the American Pilot proposed Group 4 condition, seek advantage in
the integrated operation by inflating a job entitlement using post-merger aircraft
deliveries. Those post-merger Group 4 aircraft are paid for, delivered to and
deployed by the merged carrier New American. Any protective condition made
necessary by the ISL should be carefully drawn to avoid excluding one group of
pilots in the merged carrier from sharing in the jobs produced by the merged
carrier. American pilots have, in fact, already benefited from receiving the 73
majority of the American post-merger Group 4 aircraft, and positions on those
aircraft, delivered exclusively to them and locking down those jobs for the post- integration operation. East 036.1, at 15; Tr. 3018-21 (R. Brown testimony on
East 036.1). East Pilots, on the other hand, will deliver a disproportionately large number of Group 4 aircraft only after SLI implementation to be shared by all pilots.13/ Id. The East Pilot Group 4 condition balanced the legitimate pre-merger expectation of East Pilots to attain Group 4 positions with the legitimate
expectations of all pilots on the ISL to benefit from the enhanced operation
produced by the merged carrier.
East 041.1 shows that East Pilots under the East ISL would steadily lose
Group 4 Captain positions in a post-integration operation absent the protective
condition, falling to 69% by 2018 and 61% by 2022. East 041.1, at 11, 15. By
contrast, under the East ISL, American Pilots, even without the numerous Group
4 positions they have exclusively enjoyed since the merger, would exceed their
pre-merger Group 4 job count by 2018 and continue to exceed that job count
over the coming years. Id. The AAPSIC analysis of the East SIC Proposal
confirmed that American pilots would exceed their Snapshot Date Group 4
13 The West Pilot Committee will likely assert that the A350 aircraft identified in East 036.1 are somehow attributable to West Pilots as well because the aircraft were US Airways orders affirmed by the merged US Airways. Such an assertion ignores that under the ALPA-America West-US Airways Transition Agreement (LOA 96), all A330 aircraft and all A330 and A350 orders were apportioned exclusively to East Pilots. See JE 004, at 760, 782 (ALPA-AWA-US Transition Agreement US Fleet Plan for A330 and A350). In any event, the East Group 4 condition is not constructed based on a count of A350 positions. 74
Captain job count from 2018-2031. See AAPSIC Exh, R-DD-001 at 216. West
Pilots as already shown will enjoy access to Group 4 positions even under the
condition, particularly since it is anticipated that Group 4 positions will further
expand in the merged carrier. East 036.1 at 2. But it is true that the East
proposed Group 4 condition could prevent some senior West Pilots from
accessing Group 4 Captain positions. That is the appropriate balancing for the
initial years of the integrated list of the conflicting interests of East and West
Pilots since the senior East Pilots had an actual expectation to Group 4 Captain,
while West Pilots had none. The condition will likely still allow some West Pilots
to access Group 4 Captain positions among the surplus positions available over
the December 9, 2013 job count. For First Officer positions, the issue is simply
that some West Pilots may be delayed in entering this new position. But a delay
in job gain by West Pilots is necessary to remedy potential permanent job loss
that East Pilots face in the integrated operation.
The AAPSIC assertion that the East Pilot Committee proposed condition is
unnecessary and ineffective is contradicted by the East Pilot Committee analysis
and is only achieved by AAPSIC modifying fleet counts. But the AAPSIC
presentation by David Durham ignores that the East Pilot Committee Group 4
condition also protects against potential Group 4 job loss from displacements
created by the transfer of aircraft that will inevitably occur upon completing the
full operational integration of the carriers and in the future fleet adjustments made
by the merged carrier. Tr. 5328-29 (Durham acknowledging potential of job loss 75
from displacement is not measured by AAPSIC analysis.) It is not possible to
predict when and where displacements will occur in Group 4 aircraft or how many
pilots will be affected in the future. But there is no question displacements from
aircraft movements will occur. The East Pilot Committee Group 4 condition is
appropriate insurance for the most senior pilots, with the least time available to remedy job loss, against disruption when those displacements occur. And the
East Pilot Committee analysis shows that insurance for senior East Pilots does not unfairly impinge on the reasonable expectations of American or West Pilots to benefit from the merged operation.
4. The East Pilot Committee Proposal maintains the integrity of career progression in the separate pre-merger seniority lists by integrating pilots with their appropriate peers and maintaining the strong correlation between length of service and pre-merger seniority progression
The relative seniority ordering of each pilot group overwhelmingly reflects
pilots who seniority date conforms to their date of hire/date of training. East 038,
at 5,7; East 038.1, at 15-19. Professor Tannen’s testimony illustrated the
importance of the length of service criterion to properly evaluate the seniority
equites of the pilots in this proceeding, a conclusion the West Committee agrees
with. East 070.
The close connection between length of service and pre-merger career
expectations (Tr. 3271, Tannen) led the East Pilot Committee to weight the
hybrid factors in favor of longevity. Not surprisingly, its proposed integrated
seniority list for the consolidated, post-merger craft or class also exhibited a very 76
strong correlation, at a coefficient of 0.9837 (East 70), between pre-merger LOS
and seniority rank at post-merger American Airlines for all three pilot groups. Tr.
3273-74 (Tannen). This relationship suggests that the East Pilot Committee proposed list avoids detrimental changes to the career expectations of all pilots affected by the AA-US transaction.
The same cannot be said for the integrated seniority lists proposed by the
AAPSIC and the US-West Committee, for those lists exhibit “a very pronounced separation” between pre-merger LOS and merged seniority rank. Tr. 3276
(Tannen). The separation was particularly striking in the West Committee's proposed list, since it purported to give weight to length of service. The correlation coefficient measuring the connection between actual length of service and seniority rank was 25% lower for the West Committee's merged list than for the US West pre-merger list. East 70; Tr. 3275 (Tannen). For the AAPSIC's merged list compared to the AA pre-merger list, the reduction of the applicable correlation coefficient was nearly 20%.14/ These figures illustrate, in stark
14/ The AAPSIC's Chairman, Mark Stephens, tried to criticize Professor Tannen's methodology by contending that he did not credit some former TWA pilots with their service time (LOS) in the TWA system. Tr. 4899-4901 (Stephens). The answer to this criticism is twofold: (1) Affected former TWA pilots were credited by Professor Tannen for all TWA service time they became entitled to use for competitive purposes in the AA system after the TWA acquisition. Obviously, the service time TWA pilots lost under Supplement CC and related documents could not buttress their career expectations at American Airlines, and thus was properly omitted from Professor Tannen's analysis of the connection between length of service and seniority rank on both the pre-merger AA seniority list and AAPSIC's proposed post-merger list. (2) Nowhere did the AAPSIC attempt to show that the omission of TWA service time was significant enough to 77
mathematical terms, what other record evidence shows so clearly: the seniority
proposals advanced by the AAPSIC and the West Committee sacrifice the career expectations of the East pilots to achieve dramatic, unwarranted gains by their own pilot groups.
That the East Pilot Committee Proposal does not distort the pilots’ pre- merger career expectations reflected by their pre-merger seniority lists is also seen in the fact that only the East Pilot Committee proposed ISL integrates pilots with other pilots who are reasonably comparable to them in age, length of service and category/status. As the East Pilot Committee showed in the case-in-chief testimony of Kelly Ison and East Exhibit 043, across its proposed ISL pilots whose demographics are comparable are integrated with one another, although in most instances an East pilot is integrated with more junior American and West pilots. East 043 (ISL length of service peer analysis); Tr. 690-98 (Ison
Testimony). It is only in the bottom decile of the list where the demographics between the pilots diverge; even there, however, East and American pilots remain reasonably comparable. Approximately 760 American pilots are integrated at the bottom of the ISL, substantially fewer than the 1,165 furloughed
change Professor Tannen's computation in any meaningful way, although Stephens plainly understood Tannen’s use of Rho () and Rho2 (2). Tellingly, the AAPSIC did not even ask Professor Tannen about omitting TWA service time during his cross-examination, although Tannen testified he was surprised by the high correlation he found between seniority rank and length of service on all three pre-merger lists. Tr. 3545-47 (Tannen). The appropriate inference to be drawn is that the AAPSIC recognized that his answer would be adverse to the AA pilots' interest and that AAPSIC could not actually challenge his calculations. 78
pilots the American pilot group brought to the merger. That placement results
from the junior American pilots’ relatively short service lengths being unable to
offset more the effect of the considerable number of furloughs in the pre-merger
AA system.
And it is notable that the AAPSIC and West Committee could not
meaningfully critique the East Pilot Committee Proposal. The West Committee
retreated to its mantra-like complaint that the East Proposal was not constructed using the Nicolau Award, while AAPSIC resorted to a misleading pre-merger pay analysis to distort what are properly considered the seniority equities of the pilots.
As will now be shown, neither the West Proposed ISL nor the American
Proposed ISL even approach the fair and equitable standard of Section 3.
Rather, in the notorious fashion of pilot seniority integration proceedings, each grants windfall advantages to West and/or American pilots that start high and only grow over time, all at the expense of East Pilots, whom the other
Committees treat as seniority donors in this proceeding. The grossly unfair proposals of the other parties demonstrate clearly that only the East Proposal provides a fair basis for integration of the seniority lists in this case.
II. The Board May Not Adopt the Nicolau Award ISL As the Basis for Ordering East and West Pilots Under the ISL
Both the West Committee and the American Committee assert that the pilots of US Airways should be integrated together on the basis of the arbitration award issued by Arbitrator George Nicolau in the ALPA Merger Policy 79
proceeding initiated by the merger of US Airways and America West prior to their
integration with American pilots. Respectfully, the McCaskill-Bond Amendment
forbids this Arbitration Board from integrating the seniority lists of the pilots of US
Airways and American on any basis other than the three separate seniority lists
in effect on December 9, 2013. While we demonstrate now that the Nicolau
Award may not be adopted in this proceeding, we will later show that the unfair
proposals of the West and American committees simply demonstrate that the
Nicolau Award ISL is an inequitable basis for the integration of the pilots in this
case.
The Sections 3 and 13 process is a prospective one to establish an
integrated seniority list for the merged carrier from the pre-merger seniority lists
in effect at the separate carriers. It is not a retroactive process to remedy claims
by the pilot groups for past injuries allegedly incurred in earlier air carrier
transactions. Like a system board of adjustment under Section 3 or Section 204
of the RLA, this Board has no authority to reset the status quo under the Railway
Labor Act existing on December 9, 2013 or grant pilots employment rights they did not have prior to that date. Air Cargo, Inc. v. Teamsters Local 851, 733 F.2d
241, 247 (2d Cir. 1984) (federal courts have exclusive jurisdiction to determine the status quo; vacating an arbitration award that purported to establish the status quo at variance with contractual language.) Rather, its charge under
Section 3 is “the integration of seniority lists in a fair and equitable manner.” The status quo among the pilots on the effective date of McCaskill-Bond, December 80
9, 2013, consisted of the three separate pilot lists, an indisputable fact also
recited in Paragraph 2(b) of the Section 13(b) agreement among APA, the
Company and USAPA. JE 010. The only seniority list that the Board is authorized
to create under Sections 3 and 13 is the single, integrated seniority list covering all employees from the “seniority lists” of the covered employees.
This proceeding is governed by the McCaskill-Bond Amendment, the
Memorandum of Understanding negotiated by AA, US Airways, APA and
USAPA, the seniority integration protocol agreement and the parties’ stipulations.
McCaskill-Bond imposes Section 3 as the governing provision for integration of the seniority lists. Under Section 3, the East Pilots are entitled to have their pre- merger seniority list integrated with the American pilot seniority list as well as the
West pilot seniority list. Neither Section 3 nor Section 13 permits the Board to deny East Pilots integration with American and West pilots on the basis of the pre-merger seniority lists because Section 3’s express language requires “the integration of seniority lists in a fair and equitable manner” – that is, a singular event encompassing all seniority lists. JE 055 (emphasis added).
The recent decision of the United States Court of Appeals in Flight
Attendants in Reunion v. American Airlines, Inc., 2016 U.S. App. LEXIS 2608 (2d
Cir 2016)(“FA Reunion”), confirms that McCaskill-Bond prohibits imposition of the
Nicolau Award ISL in this proceeding. In FA Reunion, a group of former TWA
flight attendants sued the Company and the Association of Professional Flight
Attendants (“APFA”) over their treatment under the integrated seniority list 81
negotiated to cover flight attendants in the American-US Airways merger. Id. at
*3-*6. The court of appeals noted that the plaintiffs’ complaint had its genesis in
their seniority placement in the American-TWA merger, which endtailed the TWA
flight attendants below all American flight attendants and that the endtailing
“erased nearly thirty years of seniority they had accrued with TWA.” Id. at *3. In negotiating the integrated seniority list, the APFA and AFA, representative of US
Airways’ flight attendants, agreed that the pre-merger relative seniority ordering
of the flight attendants would not be changed; that accordingly the American and
US Airways flight attendants would be integrated based only on their lengths of
service with their respective carrier. Id. at *5. The court of appeals noted, “Under
this ‘length of service’ rule, former TWA flight attendants continued to be credited
only with their service with American Airlines since the 2001 merger, even though
these flight attendants had served in the airline industry prior to that merger.” Id.
(emphasis added). The integrated seniority list negotiated by the two unions was
then agreed to by American Airlines. Id.
The former TWA flight attendants sued alleging that the seniority list
integration agreement violated McCaskill-Bond by denying them a fair and
equitable seniority integration and constituted a breach of APFA’s duty of fair
representation to them. Id. at *6. The court of appeals noted that Congress
adopted McCaskill-Bond in large measure in response to the treatment of TWA
employees -- including the former TWA pilots for whom the AA committee now
82
claims to be concerned -- by American, APFA and APA.15/ Id. at *7-*8. It went on to state, however, “The text of McCaskill‐Bond makes clear, and the plaintiffs
concede, that it does not apply retroactively. See 49 U.S.C. § 42112 note (stating
that the provisions “shall not apply to any covered transaction involving a covered
air carrier that took place before the date of enactment of this Act”). We agree
with the plaintiffs’ assessment that McCaskill‐Bond therefore ‘did nothing to help
the very group’—the former TWA flight attendants in connection with the 2001
merger—‘whose misfortunes had given it life.’” Id. at *8.
The TWA flight attendants argued that the APFA-AFA SLI agreement
nonetheless violated McCaskill-Bond by not giving them credit for their service
time at TWA. Id. at *9. In rejecting the plaintiffs’ argument, the court of appeals
emphasized the language of Section 3 providing that the covered employees “will
have their separate seniority lists combined into a single seniority list.” Id.
(emphasis in original). The court of appeals ultimately concluded in affirming dismissal of the plaintiffs’ McCaskill-Bond claim that “we agree with the District
Court that the statute does not impose a duty on airline carriers to “revisit
seniority decisions that preceded the statute’s enactment.”16/ Id.
15/ The TWU-represented employees conducted a Sections 3 and 13 proceeding with the IAM-represented employees of TWA before Arbitrator Richard Kasher.
16 The court of appeals’ rejection of the former TWA flight attendants’ effort to have their legacy TWA service time counted in the AA-US flight attendant integration demonstrates that the similar legacy TWA service time of former TWA pilots is not to be counted in this proceeding. That is also the equitable result, 83
Just as the claims of former TWA flight attendants in FA Reunion were barred by the non-retroactivity of McCaskill-Bond, so too the West Pilots’ and the
American Pilots’ efforts to use this proceeding to implement the Nicolau Award
ISL runs afoul of McCaskill-Bond’s “clear” text that the statute does not apply retroactively. As will be shown below, both Committees must concede that the
Nicolau Award ISL was never implemented in accordance with the ALPA-
America West-US Airways transition agreement. And no court of law at any point imposed the Nicolau Award ISL as part of the governing status quo for the seniority rights of US Airways pilots. Rather, as paragraph 2(b) of the seniority list protocol agreement confirms, the status quo for seniority lists among the pilots on the stipulated Snapshot Date consisted of the three separate seniority lists. JE
006A (AA list), JE006B(2)(EPSIC certified list); JE006C (West List); JE 010, at 4-
5 (Protocol Agreement). It is those “separate seniority lists” that must be integrated under Section 3. FA Reunion, 2016 U.S. App. LEXIS 2608, *9.
Nothing in Section 3 or McCaskill-Bond itself treats differently a case such
as this where one of the carriers has multiple seniority lists covering its
employees. Indeed, just as the Railway Labor Act does not require that
employees in a single craft or class be covered by a single contract, Ass’n of
since, unlike the former TWA flight attendants who would have benefitted from the counting of such time, counting the legacy TWA pilot service time would only benefit more senior legacy AA pilots who have already benefitted from their prejudicial placement of former TWA pilots. East 038.1, at 23-34 (showing legacy TWA time being reassigned to more senior original American pilots.) 84
Flight Attendants v. US Air, Inc., 24 F.3d 1432, 1437-38 (D.C. Cir. 1994)17/, it does not require those employees to be covered by a single seniority list since
seniority is established by contract. That the pre-merger US Airways pilot craft or class had two seniority lists covering the pilots does not change Section 3’s
requirement that those separate seniority lists covering the employees be integrated in a fair and equitable manner.
The McCaskill-Bond Amendment’s non-retroactivity excluded the America
West-US Airways merger from its coverage, as well as the American-TWA
merger. 49 U.S.C. § 42112, Note 117(c)(“This section shall not apply to any
covered transaction involving a covered air carrier that took place before the date
of enactment of this Act [Dec. 26, 2007].”) The structure of the Act similarly
mandates this conclusion. The McCaskill-Bond Amendment is only triggered by
a “covered transaction” between air carriers to combine into a single air carrier.
49 U.S.C. § 42112, Note 117(b)(4). The covered transaction that invoked
McCaskill-Bond’s coverage for the American and US Airways pilots was the
merger of American Airlines and US Airways. The US Airways (West) Pilots are
“covered employees” under McCaskill-Bond only because they are “members” of
the US Airways pilot craft or class established by the NMB in Case No. R-
7147, 35 NMB 65 (2008); 49 U.S.C. § 42112, Note 117(b)(3)(B). The West
Pilot Committee may not assert equities or rights under McCaskill-Bond as
17/ “In other words, a single craft or class of employees on a particular carrier may not have more than one certified representative, but members of that class may be covered by different collective bargaining agreements.” Id. at 1438. 85
America West employees. And if the continued plight of former TWA employees under the pre-merger American system did not alter the fact that McCaskill-Bond
does not grant rights to employees to address seniority in prior transactions, it
certainly does not do so for the West Pilots.
The agreements governing this proceeding acknowledge that the
established status quo on the effective date under McCaskill-Bond consisted of
three separate seniority lists. The Section 13(b) protocol agreement signed by
American, APA and USAPA recites that the certified pre-merger seniority lists
would reflect the status quo of three separate seniority lists on December 9,
2013. And that agreement does not authorize the Board to establish the Nicolau
list as the seniority list for East and West pilots to then integrate with the
American pilot seniority list.
Notwithstanding the long history of litigation between West Pilots and
USAPA concerning the Nicolau Award, no court ordered implementation of the
Nicolau Award ISL. The June 2015 decision of the Ninth Circuit Court of Appeals
did not do so, as the court of appeals acknowledged, “[b]ecause a good faith
attempt to implement the Nicolau Award would have ultimately required a
ratification vote by all the pilots, and we cannot know what the results of such a vote would have been, we can never be certain whether efforts to implement the
Nicolau Award through a collective bargaining agreement with US Airways would
86
have succeeded.” 791 F.3d at 991.18/ The court of appeals had earlier noted that ALPA failed in its efforts to resolve the dispute over the Nicolau Award and so “it is, at best, speculative that a single CBA incorporating the Nicolau Award would be ratified if presented to the union’s membership.” 606 F.3d at 1180.19/ If courts found they lacked authority to order implementation of the Nicolau Award
ISL because it was speculative whether the condition precedent to its
implementation -- that is, a ratified joint collective bargaining agreement -- would
have occurred, then plainly this Arbitration Board cannot assert such authority in
its own right. Again, arbitrators lack jurisdiction to determine or establish the
status quo under the RLA.
In fact, when the US Airways and America West pilots were still
represented by ALPA, the West Pilots, represented by Mr. Freund, sought to
avoid judicial review of the Nicolau Award by asserting it was not an arbitration
award subject to review and created no enforceable seniority rights. In an action
brought by the US Airways ALPA Master Executive Council in the District of
18/ The decision of the Ninth Circuit Court of Appeals in Addington III did not address the plaintiffs’ McCaskill-Bond Amendment claim since the Court of Appeals dismissed the plaintiffs’ claims under McCaskill-Bond as moot. JE 056 at 56 (“We vacate as moot the district court’s decision denying the Plaintiff’s separate representation in the McCaskill-Bond proceedings, with instructions to dismiss.”)
19/ The transition agreement negotiated by ALPA with America West and US Airways required that the ISL established under the ALPA Merger Process only be effective upon ratification of a single joint collective bargaining agreement. JE 004, p. 765 (§ IV.C. “US Airways, America West and the Single Carrier may not use an integrated pilot seniority list prior to Operational Pilot Integration defined in Section § VI., A below.”). 87
Columbia Superior Court against the America West ALPA MEC to review the
Nicolau Award, the America West MEC removed the case to the United States
District Court for the District of Columbia. In its removal notice, the America
West MEC asserted that the petition to review the award in fact stated a claim
against ALPA for breach of the duty of fair representation:
the “arbitration award” Plaintiffs purportedly seek to “vacate” is in actuality the proposed pilot seniority list developed through ALPA’s Merger Policy that ALPA will adopt as its bargaining position to be presented to the Company, but which (like a union bargaining position on any matter) the Company is not required to accept.
…
Plaintiffs’ Application to “vacate” an “arbitration award” that does not establish any enforceable seniority rights in a collective bargaining agreement with the Company, but which merely sets out ALPA’s bargaining position to be presented to the Company, is not a state law claim at all but rather an artfully pled federal claim for breach of the duty of fair representation.
East 047, at 3-4 (AWA MEC Notice of Removal, Doc. 1, Case No. 1:07-cv-
01309-EGS)(emphasis added).20/
It was only years later that West Pilots changed their position and asserted that the Nicolau Award was the product of “final and binding arbitration” that
20 The US Airways MEC moved to remand its challenge to the Nicolau Award to the District of Columbia Superior Court. The U.S. District Court for the District of Columbia granted the US Airways MEC’s motion and ordered remand of the action to the Superior Court. US Airways MEC, ALPA v. America West MEC, ALPA, 525 F. Supp. 2d 127 (D.C.D.C. 2007). The action was later voluntarily dismissed by stipulation after ALPA lost the right to represent US Airways pilots under the RLA. AAPSIC Exh. A015. 88
governed the seniority rights of US Airways pilots. But none of that litigation
alters the fact that the list constructed by Arbitrator Nicolau for ALPA created no
enforceable seniority rights and never existed as part of the Railway Labor Act
status quo for US Airways pilots.
Arbitrator Richard Bloch recognized that seniority rights of pre-merger US
Airways pilots were not governed by the Nicolau Award in his decision
concerning Dispute Number 9 under the ALPA-America West-US Airways
Transition Agreement. He rejected the grievance by West Pilots asserting that furloughs among US Airways pilots should occur under the relative seniority order of the Nicolau Award ISL. See East 046 (Arbitration Award of R. Bloch in
Tentative Agreement Dispute No. 9). Arbitrator Bloch noted that US Airways denied the argument that it was obligated by the Transition Agreement to establish a “third” seniority list consisting of new hire pilots junior to all pre- merger America West and US Airways pilots, arguing “the list was conceptual in nature, in effect a ‘virtual’ list never intended to control the day-to-day employment rights of new hires. Indeed, says the Company, it is impossible to harmonize USAPA's approach [that a “third list” had to be established] with the undisputed premise that East and West operations were to be maintained separately.” East 046 at 8.
US Airways further argued that the Transition Agreement’s requirement for a third list reflected the agreement that new pilots would be hired into either the
East or West operation with seniority rights limited to that operation until full 89
integration occurred under the Transition Agreement process. Id. at 10.
Arbitrator Bloch agreed with the Company’s reading of the Transition Agreement.
Id. (“the Company’s proposed reading is persuasive.”). He concluded USAPA’s reading that a third list was to be established prior to full integration under a
JCBA “would run squarely contrary to the core and character of this fence agreement. Section II.B.3 reflects the explicit understanding that, during the period of separate operations, America West and US Airways will operate independently.” Id., at 12 (emphasis added). Bloch concluded that under the
Transition Agreement “all aspects of these pilots' professional lives have been controlled, without objection, by the two existing seniority lists of the East and
West Operations.” Id. He held in denying the grievance that the parties who negotiated the Transition Agreement, “were fully content to assign new hires to existing seniority lists so their employment options would be managed, in the usual course, by seniority at their respective, separate systems.” Id. at 14. In short, the System Board held that the Transition Agreement’s fence provisions maintained independent seniority systems between East and West Pilots and neither group held any seniority rights in the other operation. This was the governing status quo among pre-merger US Airways pilots on December 9,
2013, which controls this dispute and binds the authority of the Arbitration Board.
Moreover, the ALPA-America West-US Airways Transition Agreement
terminated on that date as to the process for integration of the East and West seniority lists, by Paragraph 10 of the MOU which established the process for 90
seniority integration of pre-merger American and pre-merger US Airways pilots.21/
Paragraph 4 of the MOU/MTA provided that its provisions would become
effective for all pilots as of the Effective Date, i.e., the Merger Closing Date. JE
009, p. 1 (“It is the intent of the Parties that, as of the Effective Date, the terms and conditions of employment for pilots employed by New American Airlines and
US Airways will be set by the MTA.”) It further provided under MOU/MTA
paragraphs 4 and 5 that all contracts governing US Airways pilots would be terminated and replaced by the MTA and then the JCBA. Id., (“Once the MTA
has been fully implemented, it shall fully displace and render a nullity any prior
collective bargaining agreements applicable to US Airways pilots and any status quo arising thereunder…It is the Parties' intention that the JCBA shall replace any and all prior collective bargaining agreements for USAPA; however, for APA, the JCBA shall be an amendment to the MTA.”) Accordingly, upon the Effective
Date of the Merger, the MOU/MTA and then the JCBA, eliminated the pre-merger
US Airways pilot contracts, including the Transition Agreement, as to seniority
integration, which was then governed by MOU Paragraph 10. No claim of right in
this proceeding can be premised on the Transition Agreement, or any proceeding under it, since it was extinguished upon the merger of American and US Airways.
Before it determined to exploit the Nicolau Award ISL to justify an even
more prejudicial seniority integration for US-East pilots, the AAPSIC recognized
21 All parties acknowledge that MOU paragraph 10 governs this proceeding, as American counsel Robert Siegel stated to the Board on January 14, 2016. Tr. 5028-29. The Ninth Circuit Court of Appeals decision did not alter that fact. 91
that the Nicolau Award ISL could not be used as the basis for integrating the
pilots of American and US Airways. It argued on June 19, 2015,
“the Nicolau Award does not reflect the equities of these groups, at that time, in the context of this transaction, for a variety of reasons, including the following: * The Protocol Agreement expressly provided for the exchange of information based on “the status quo of the three seniority lists in effect at the carriers on December 9, 2013 (i.e., American, US Airways (East), US Airways (West)).” (Jt.Exh. 7, at 5.) * The Nicolau Award arose in the context of the 2005 merger of US Airways and American West. Arbitrator Nicolau weighed the equities at that time, given the transaction and parties before him, not the equities applicable to the present case. * The Nicolau Award did not, and does not, take into account the equities of American Pilots, who were not parties before Arbitrator Nicolau. * The Nicolau Award has never been implemented or governed seniority. * As of December 9, 2013, there was no realistic prospect that the Nicolau Award would be implemented. * The equities underlying the Nicolau Award have been superseded by the continued maintenance of the separate East and West operations and seniority lists since 2007. * The hypothetical implementation of the Nicolau Award with a single US Airways CBA would have impacted US Airways’ performance, and led to a different set of realities as of December 9, 2013 than existed on that date.
Accordingly, the proper starting point for the integration is “the three seniority lists in effect at the carriers on December 9, 2013 (i.e., American, US Airways (East), US Airways (West))” identified in the Protocol. (Jt.Exh. 7, at 5.)
AAPSIC Prehearing Position Statement, June 19, 2015, pp. 67-68.22/
22/ The AAPSIC asserts it is now using the Nicolau Award ISL as the basis for integrating East and West pilots because the Ninth Circuit decision in Addington III was the “tiebreaker.” (Tr. 100, AAPSIC opening statement). As this recitation reflects, however, there was no “tie” to break; the AAPSIC listed numerous 92
Use of the Nicolau Award in this proceeding would deny both East Pilots and American Pilots (as the AAPSIC recognized in June 2015 but now cynically ignores) their Section 3 rights to a fair and equitable seniority integration in the
American-US Airways merger, which is the “Covered Transaction” under
McCaskill-Bond. As AAPSIC argued, Arbitrator Nicolau’s award considered only the 2005 America West-US Airways merger and the position of the pilots in question at that time. He obviously did not have before him the equities of
American pilots. And the dispute before Arbitrator Nicolau did not include the seniority rights of any pre-merger US Airways pilot hired after the America West-
US Airways merger; those pilots seniority placement was addressed in the ALPA
Transition Agreement, as noted above. He also did not have before him the East and West pilots as of the statutory effective date and stipulated Snapshot Date of
December 9, 2013 and in the context of the American-US Airways merger. The
Nicolau Award ISL as a proposed binding list for US East and West pilots would treat East Pilots in this American/US Airways merger as if it were still April 2005,
reasons why the Nicolau Award was an improper basis for integrating the pilots groups, none of which had anything to do with the West pilots’ DFR claim against USAPA. As already noted, the Ninth Circuit dismissed the plaintiffs’ claim under McCaskill-Bond, so the decision cannot be used for interpretation of McCaskill- Bond’s requirements. Consistent with the position asserted by AAPSIC on June 19, 2015, it remains true that “the Nicolau Award has never been implemented or governed seniority” and the Ninth Circuit did not order that remedy. Indeed, it is illogical for the AAPSIC to assert that it is using the Nicolau Award ISL to integrate East and West pilots because of the Ninth Circuit decision when the East Pilot Committee has not been required either by the USDC for the District of Arizona, on remand from the Ninth Circuit, or this Arbitration Board to use the Nicolau Award as part of its proposal. 93
rather than December 9, 2013 -- as though the actual position of East Pilots at
the time of US Airways’ merger with American Airlines did not exist. Use of the
Nicolau Award ignores entirely even the equities of the pilots who were the
subject of the dispute before Arbitrator Nicolau.
Rather, use of the Nicolau Award ISL necessarily asserts that the pilots’
equities have already been fixed in that earlier proceeding. That necessary
conclusion does not change because the Nicolau Award addressed seniority list integration for only certain of the pilots in this dispute. Obviously, the Nicolau
Award ISL is asserted here to determine the relative ordering of the East and
West pilots who were the subject of that dispute. That result denies those East
Pilots their Section 3 rights in this proceeding, while also relieving the affected
West pilots of the burden to prove that ordering is fair and equitable in this covered transaction. But that relative seniority ordering then fixes the ordering of other pilots, not involved in the proceeding before Arbitrator Nicolau, relative to the pilots identified on the Nicolau Award ISL. For example, the purported
“Constructive Notice” East pilots must go below all “pre-merger America West” pilots hired prior to the AWA-US merger because Arbitrator Nicolau directed that placement on the list in accordance with the ALPA Transition Agreement. So too post-2007 hired East Pilots would be denied their Section 3 rights. Post-2007 hire West pilots then are placed far higher on the seniority list relative to East
Pilots and American Pilots than their Snapshot Date furlough status would support without demonstrating the equity of their placement because they are 94
ordered by date of hire with East Pilots under the Nicolau ISL, who will “lift” them
up the ISL. And then American Pilots do not get to compare themselves to the
actual pilots with whom they are integrated. For example, they do not get to object to a junior West First Officer being placed ahead of a senior American
Captain because that is the pre-merger US Airways ordering established by
Arbitrator Nicolau. See, e.g., East 059.3, at 61 (West informational ISL showing
West A320 FO Phillips, ISL# 5425, DOH 10/19/1998, senior to AA B767 CA
Miller, ISL# 5428, DOH 12/28/1990 and East A320 CA Johnston, ISL# 5430,
DOH 5/5/1986). Rather, West Pilots are lifted up as against American Pilots by
the Nicolau Award ISL.
McCaskill-Bond dictates that all “covered employees” in this proceeding,
however, have Section 3 rights as of December 9, 2013 to a fair and equitable
seniority list integration. Its adoption in 2007 superseded the dispute before
Arbitrator Nicolau in a covered transaction involving US Airways. The MOU
Paragraph 10 provides pilot seniority list integration would occur only in this
proceeding consistent with McCaskill-Bond. The Section 13(b) seniority protocol
agreement in paragraph 2(b) recognizes, as it must, that the “seniority lists”
within the meaning of Section 3 are the three seniority lists described in
Paragraph 10 of the MOU. The pilots’ Section 3 rights in this covered transaction
cannot be eliminated by an assertion that their seniority rights were actually fixed
by an unimplemented arbitration award occurring years earlier. This Board
cannot create or eliminate employee rights under McCaskill-Bond; those rights 95
are set by statute and confirmed by the agreements of the parties. The Nicolau
Award ISL, therefore, cannot be used as a basis for integration of the pilots in
this dispute without violating McCaskill-Bond and the agreements governing this
proceeding.
III. The West Committee Proposal’s Impermissible Use of the Nicolau Award List Creates An Inequitable and Unjust ISL That Must Be Rejected By the Board
In the Continental-United SLI proceeding, counsel for the West Pilot
Committee, then acting as counsel for the UAL Merger Committee, stated to the
Board,
unrealistic expectations translate into extreme SLI proposals, and those extreme proposals are what allows the rhetoric and the animosity that flows from the fight over a scarce resource – a position on a combined seniority list – to spiral out of control. . . When an Award fails to call out the fact that one side has made an entirely unreasonable proposal . . . that encourages, or fails to discourage, continuing unreasonable proposals; it also encourages the very conduct that inflames the SLI process and leads to the bitter recrimination that haunts the merged pilot group and ALPA for decades after . . .
CAL-UAL Award at 18.
This statement reflects precisely the unlawful, unjust and destructive effect
sought by the West Pilot Proposal. The uncompromising demand of West Pilots
for the unimplemented Nicolau Award ISL, despite the changed legal and factual
circumstances which superseded that bargaining proposal, created just the sort
of “unrealistic expectations” that yielded the West Committee proposal. See, e.g.,
East Exhibits 066-069 (showing repeated refusals by West representatives to
96
compromise the East/West seniority dispute).23/ As already shown, McCaskill-
Bond, Section 3 and the governing agreements for this proceeding preclude the
use of the Nicolau Award ISL. But the record also shows in the analysis of the
West Committee proposal, and even more dramatically inthe American Pilot
Committee proposal, the severe inequity to East Pilots of imposing the Nicolau
Award ISL in this proceeding were it permissible to do so.
Use of the Nicolau Award lets the West Pilots take the equities of East
Pilots for themselves and stack the deck in their favor over all other pilots in the
SLI process by crediting them with relative seniority positions and length of
service they do not have and category and status positions they do not hold.
See, East 060. The West Pilots are artificially advanced and East Pilots artificially suppressed in their seniority equities when placed behind American and West pilots with far less length of service and in lower category or status. Id. The West
Committee’s repeated response to challenges over the inequity of their proposal is “Nicolau did it” -- essentially admitting that their proposal requires that East
Pilots be denied an independent application of their Section 3 seniority rights.
See, e.g., Tr. 1314-1319, 1362 (Payne). Under the West Proposal, East Pilots’ rights were fixed in 2007 and, notwithstanding the requirements of McCaskill-
23/ During his testimony for the West Committee, Capt. Steinman conceded that West Pilot representatives rejected any effort at compromise concerning the Nicolau Award even when ALPA was representative of US Airways pilots. The America West ALPA MEC went so far as to pass a resolution forbidding its representatives from entertaining any compromise of the Nicolau Award at the Wye River settlement conference organized by ALPA. Tr. 4118 (Steinman). 97
Bond or the MOU Paragraph 10 and the actual status quo on December 9, 2013,
they do not have a right to be evaluated on the basis of their stipulated Snapshot
Date seniority equities.
The West Proposal is similarly unfair to American Pilots because it asserts
that they are also not entitled to have their seniority equities evaluated on the
Snapshot Date and on the basis of the pilots with whom the West Committee
proposes to actually integrate them. See, e.g., Tr. 1362 (R. Payne stating that
the West Committee saw no need to evaluate American, East and West pilots
under the West Proposed ISL on the basis of their respective lengths of service
since the West Committee knew it would use the Nicolau Award ISL.) It
obviously matters to American Pilots, in terms of their Section 3 rights, whether
they are integrated with a pilot of comparable age, length of service and position
or a more junior pilot who will become a blocker to American Pilots’
advancement. But the West Proposal pretends that the younger and more junior
West Pilots who have taken the relative seniority position of older, more senior
East Pilots, are to be evaluated as if they have the more senior equities. Further,
use of the Nicolau Award would create a fictional “third list” among US Airways
pilots to the detriment of more than 500 East pilots hired in 2007 and later,
although Arbitrator Richard Bloch rejected the contractual entitlement to such a
list. See East 046.
The West Proposal advantages West Pilots at the date of implementation
and that advantage grows over time, as East Pilots suffer further loss of seniority 98
rights. In contrast to the East Proposal, which shows an exchange of benefit
under the ISL over time, the West Proposed ISL continually advantages West
Pilots. Indeed, the windfall to West Pilots under the proposal is so great that the
West Committee would not even show it. Instead, they analyzed their proposal
by rendering themselves as “US Airways” pilots in the stipulated blue color for
East Pilots and constructed a fictional “pre-merger career progression” under the
Nicolau Award for a hypothetical integrated US Airways. This ruse avoided a showing of how they fare under their proposal based on their actual pre-merger career progression in the “independently operated” West operation. East 046, at
12.
The East Pilot Committee’s objective analysis, however, shows that the
West Proposal dramatically advantages West Pilots at the expense of East Pilots and also, to a lesser extent, at the expense of American Pilots. East 054 showed that the West Committee proposal reaps a relative seniority advantage to West
Pilots over American and East Pilots and that advantage only grows over time. It is no surprise then that Professor Tannen found, despite the West Committee’s use of longevity as a factor in its methodology, that the West Proposed ISL drastically distorts the relationship of longevity to seniority in the ISL compared to the pre-merger lists. East 071 (West ISL reduces longevity correlation below
75%).
99
East 054, at 14. East 054 shows that over time the median of West Pilots moves up to surpass both inner quartiles of American pilots. It also shows that within five years of implementation, thanks to the accelerated attrition the East
Pilots bring to the merger, approximately 60 percent of the remaining West Pilots are ahead of the entire inner quartiles of remaining East Pilots.
The increasing dominance of the ISL by West Pilots, at least over East
Pilots, under their proposal over the first ten years after ISL implementation is also shown by the ageing relative seniority matrix, East 041.1, for the West
Proposal. See East 041.1, at 32, 37, 42. And East Exhibit 057 shows that the
West Committee proposal yields substantial gains in relative seniority for their pilots for many years while imposing losses on East Pilots. East 057, at 16, 18.
100
An objective evaluation of time in position also shows the windfall the West
Pilots grant themselves under their proposal.
101
East 042.1, at 13, 21, 29.
102
The West Proposed ISL advances West Pilots across the board with more time in higher positions while relegating East Pilots to more time in lower positions. Although the West Committee frequently made mention during the hearing about the impact of its proposal on American pilots asserting it caused minimal change to their careers, the West Committee ignores who it was proposing to integrate those American pilots with, as if all that matters is an abstract evaluation of a proposal’s impact on a pilot group while ignoring the actual demographics of the affected pilots. Delta-Northwest, at 15 (“An integrated list that responds solely to statistical absolutes (for example), with no broader view of the short- and long-term impact on career expectations, might be considered nominally fair but realistically inequitable.”)
And Dr. Gall’s analysis similarly showed that across the ISL, the West
Proposal grants West Pilots substantially increased time in larger equipment while demoting East Pilots into lower positions, and typically integrates American pilots with West Pilots who are younger and more junior to them.
103
104
East 040.1, at 8, 17, 26.
Even in the top 20 percent of the ISL, where Dr. Gall showed West Pilots exceeding their pre-merger seniority progression for a lesser period than at lower parts of the list where they obtain significant relative seniority advancement, you still see significant gains of time in larger equipment and significant losses for
East Pilots -- gains and losses that are much larger than occur under the East
Proposal for the affected pilots. East 040.1, at 8 (showing West Pilot Oakley gaining almost five additional years in Group 3 Captain.)
The East Pilot Committee analysis for relative seniority loss similarly shows the West Proposal granting substantial increases to West Pilots that continue to grow and imposing lasting relative seniority losses for many years upon East Pilots. East 057, at 16, 18.
105
These relative seniority losses put East Pilots at significant risk for job demotion in the event of displacement events, as shown by East Exhibit 058.
106
East 058, pp. 13,14
107
In addition to the substantial windfall it produces for West Pilots and the
significant harm it imposes on East Pilots, the West Proposal integrates pilots
with dramatically different seniority equities through its use of the Nicolau Award
ISL. For example, the proposal integrates junior West First Officers with much
more senior East captains (as well as American captains) with far greater length
of service and who are considerably older. See, e.g., Tr. 1318-21 (R. Payne
testimony on severe age and LOS disparities among East and West pilots in the
West proposed ISL). The West Proposal Informational Seniority List, East
Exhibit 059.3, gives a thorough presentation of both the demographics of the
pilots the West Committee proposes to integrate together and the impact of its
proposal on the pilots’ potential job gain or loss. The West Committee witnesses
offered no defense for these obviously inequitable distortions of the pilots’
seniority equities, except to assert that is what Arbitrator Nicolau decided almost
ten years ago. Id.; see also, Tr.1366 (Payne)(West Committee did not review its
proposed ISL to see whether it was distorting the actual length of service or
positions held by American and East Pilots.)
The West Committee Proposal is plainly inequitable to East Pilots. It asks
the Board to do what every court hearing the complaint of West Pilots concerning
the Nicolau Award dispute has refused to do and which McCaskill-Bond prohibits
the Board from doing -- to impose the never implemented Nicolau Award ISL.
The West Committee’s defense for the unfair and inequitable result created by its
108
proposal that a “fair process means a fair result” is obviously wrong since that
notion would mean an arbitration award cannot be reviewed on the merits; but
Section 3, First(q), for example, establishes that arbitration awards under the
Railway Labor Act are reviewable on their merits. 45 U.S.C. § 153, First(q). See
also, Air Wisconsin Pilot Protection Comm. v. Sanderson, 909 F.2d 213, 216 (7th
Cir. 1990)(union did not breach its duty of fair representation to plaintiffs because the seniority list integration occurred under a fair process, but that did not prevent the plaintiffs from challenging the award) and Thomas v. Republic Airways
Holdings, 2012 U.S. Dist. LEXIS 27537 (D. Colo. 2012)(holding that arbitration
award under McCaskill-Bond is reviewed under the same standard as under the
Railway Labor Act).
This inequitable result is avoided simply by using the seniority lists actually
in effect on December 9, 2013, as directed by Section 3 and Paragraph 2(b) of
the seniority protocol agreement, and weighing the actual seniority equities of the
pilots on the stipulated Snapshot Date. That can be accomplished by the Board
using the East Pilot Committee Proposal to integrate the seniority lists, which
does not “stack the deck” by depriving pilots of their seniority equities before the
actual integration of the lists occurs.
109
IV. The AAPSIC Proposal Must Be Rejected Because It Ignores the Reality of the American-US Airways Merger, Strips Away the Seniority Equities of US Airways Pilots and Grossly Exaggerates the Seniority Equities of Premerger American Pilots; It Is Contrary to the Fundamental Purpose of Section 3 to Establish a Fair and Equitable Seniority List by Its Arbitrary Disregard of the Pilots’ Length of Service, Devaluation of Jobs Held By Premerger US Airways Pilots, and Manipulation of Nonexistent Fleet Plans and Staffing Assumptions
The AAPSIC proposal indulges in fictions and a denial of reality to concoct a proposal that exceeds even that of the West Committee in its prejudicial treatment of East Pilots. AAPSIC ignores that on December 9, 2013 the expectation of all pilots had been for months to finish their careers flying for the merged American-US Airways. To the extent there was any “standalone pre- merger expectation” of American pilots, it was to fly under American’s proposed
Section 1113 pilot contract. East 007, at 1-2 (“Managements Section 1113(c)
Proposal: The End of the Green Book As We Know It”); East 053. AAPSIC ignores the reality that it was American, not US Airways, that faced severe financial straits and was strait-jacketed by an uncompetitive network that caused it to fall ever further behind Delta and United. These problems could only be addressed through a merger with US Airways. East 015, at 4-6; East 048.1
(Campbell Rebuttal Analysis, § 3.0); East 052, at 6-7(“A merger with US Airways would push American into a very different strategy than the stand-alone plan.”)
Unlike the AAPSIC’s denial of American’s need for the US Airways merger and the American pilots’ benefit from it, APA President Wilson stated realistically in September 2015: “Dissatisfied with our pilots' prospects under AMR's 110
proposed stand-alone plan, the APA leadership decided that the combination of
American Airlines and US Airways would create a potent marketplace force and
result in a brighter professional future for our pilots.” East 001. Wilson’s
statement reflects the consistent APA position since April 2012. Compare, East
Exhs. 007, 009, 032, 052, 053, 074, 075, 076.
The AAPSIC proposal reverses its prior position of June 2015 and adopts
the same impermissible “starting point” of the Nicolau Award ISL. This aspect of
the proposal alone requires its rejection. It then goes further to wholly ignore the
length of service of all pilots and impose severe job losses of 75% upon US
Airways pilots, ostensibly to protect American pilots from the impact of the
Nicolau Award ISL. The manipulation of the Nicolau Award ISL by the AAPSIC to strip away the length of service and job equities of East pilots shows that apart from the legal prohibitions to its use, the Nicolau Award ISL inevitably creates an inequitable result in this seniority integration.
The AAPSIC proposal advantages pre-merger American pilots at the
expense of pre-merger US Airways pilots, especially East Pilots, by various
manipulations. While ostensibly premised on a category-status methodology, the
AAPSIC proposal violates the fundamental premise of that “mechanical” method,
an objective job count of the same jobs in the separate systems, by downgrading
US Airways jobs into lower groups in order to grossly inflate group ratios in favor
of the American pilots. The AAPSIC then justifies its proposal by asserting that
only purported pre-merger career expectations should be the basis for integration 111
of the pilot seniority lists. Such a notion has never been recognized by any authority under Sections 3 and 13 or any arbitration panel under ALPA Merger
Policy. It ignores the two well-established, quantifiable equities of length of service and category and status. Compounding this error, the AAPSIC then concocts an imaginary “pre-merger career expectation” for American pilots based on a standalone business plan that was never going to cover American pilots post-bankruptcy and a labor agreement that American pilots only obtained in
December 2012 through the merger process and the bargaining leverage it
provided them. Lastly, AAPSIC rejects altogether the pre-merger career
advancement expectations of US Airways pilots by devising an invalid pre-
merger pay comparison methodology. It is a “one-ninth” SLI proposal,
recognizing only the purported pre-merger career expectation of American pilots,
and falsifies even the one-ninth of the pilot equities it claims to recognize.
Unsurprisingly, the AAPSIC proposal yields a proposed seniority list that is highly
prejudicial to US Airways-East pilots.
A. The AAPSIC use of an alleged pre-merger pay analysis to integrate the pilots is contrary to Sections 3 and 13 and has been rejected by every arbitrator who has considered the notion
The Board must reject the AAPSIC’s gerrymandered pay analysis as the
basis for integrating the pilots in this dispute. Comparative pay rates have not
been used as a basis for integrating pilots seniority lists, much less those of other
crafts covered under Sections 3 and 13 by any arbitration panel that has
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considered it. Arbitrators may note in explaining why a particular integrated
seniority list is fair and equitable that the employees obtained other benefits as a
result of a merger, which they should keep in mind when considering their post-
merger position. But that is not the same as stacking a seniority list using a
methodology based on pre-merger pay differences. For example, in Continental-
United, the Continental Pilot Merger Committee asserted that differences in the
pilots’ pre-merger pay rates justified their proposal. Continental-United, at 14
(“the CAL Committee argues that UAL pilots have already received “an earnings
windfall” under the JCBA.”) The Arbitration Board nonetheless concluded the
Continental Pilot’s Proposal, “unfairly, inequitably and disproportionately benefits
one pilot group to the consequent detriment of the other.” Id., at 21-22. The
AAPSIC proposal uses their invalid pay analysis for the same purpose.
More importantly, the notion that pre-merger pay differences among the
involved employees mean that one employee group allegedly “gained more from
the merger” and that ought to affect construction of an integrated seniority list violates the entire purpose of Sections 3 and 13. It was Sections 3 and 13 as established by the Civil Aeronautics Board that Congress adopted in the
McCaskill-Bond Amendment. JE 55-A (“sections 3 and 13 of the labor protective provisions imposed by the Civil Aeronautics Board in the Allegheny-Mohawk merger (as published at 59 C.A.B. 45) shall apply to the integration of covered employees of the covered air carriers.”) And those sections were part of a comprehensive structure of labor protections in mergers. The CAB’s purpose in 113
adopting the LPPs was to ensure employees shared in the benefits of a merger
and were protected against adverse effects of the merger. The CAB never
structured the LPPs to accord greater rights to one pre-merger employee group
because the other pre-merger employee group “got more out of the merger.”
A review of the CAB’s decision in the Allegheny-Mohawk merger,
expressly referenced in McCaskill-Bond, demonstrates the proper understanding
of the LPPs is to accord equal rights to all pre-merger employees in the merged
operation and refutes any notion that seniority rights should be apportioned on
the basis of pre-merger pay rates. In Allegheny-Mohawk, the CAB noted that
Mohawk Airlines was the financially distressed carrier and Allegheny Airlines was
financially healthy. Allegheny-Mohawk Merger, 59 C.A.B at 24. But the CAB
viewed the question of Mohawk’s financial distress to implicate the interests of
financial stakeholders, creditors and shareholders, and the flying public; it did not
consider the financial status of one carrier in addressing labor issues in a merger
or in constructing the LPPs applicable to a transaction. In Allegheny-Mohawk,
the CAB stated,
Mohawk is in difficult financial straits, entirely dependent on the forbearance of its creditors, with little hope of improving its position if the carrier has to go it alone. The proposed merger would be a highly satisfactory remedy to Mohawk’s financial illness, benefiting not only Mohawk’s creditors and shareholders but the traveling public and the air transportation system as a whole. Second, the merger will reduce Allegheny’s unit costs and increases its revenues, resulting in increased profits and, in turn, a decreased subsidy need. Third, the merger will result in various service benefits, present and potential.
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Allegheny-Mohawk, 59 C.A.B at 24 (emphasis added).
The CAB also noted that many Mohawk employees “would be in jeopardy
of losing their jobs if the merger is not consummated.” Id. at 34. The CAB
Hearing Examiner, however, found that the merger would have no general
adverse effect on the two companies’ employees, and “Allegheny will apply its
higher salaries, wage scales, and fringe benefits to all employees, both union and nonunion.” Id. at 69. The Hearing Examiner went on to find that “Mohawk and Allegheny personnel, generally, will be benefitted by the merger.” Id. This is a logical conclusion, of course, because it is not in the interest of the employee group with higher compensation and benefits, and therefore higher labor costs, to have a significant bloc of employees employed at lower labor costs, thereby creating an internal “whipsaw” in the merged company. So differences in pre- merger compensation were not considered by the CAB as relevant for apportioning employee rights in a merger.
Moreover, AAPSIC’s position on pre-merger pay rates contradicts the structure of protections under the LPPs. Section 3 must be interpreted in light of the entire LPP structure of which it was a part. Section 4 of the LPPs granted employees, for three years from the date of the merger, pay protection against displacement caused by integration in the merger that resulted in the employee having a lower-paying position. Section 4 as adopted in Allegheny-Mohawk stated:
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Section 4(a). Subject to the applicable conditions set forth herein, no employee of either of the carriers involved in the acquisition or merger who is continued in service shall as a result of the acquisition or merger be placed in a worse position with respect to compensation than he occupied immediately prior to his displacement so long as he is unable in the normal exercise of his seniority rights under existing agreements, rules and practices to obtain a position producing compensation equal to or exceeding the compensation of the position held by him immediately prior to such date, except, however, that if he fails to exercise his seniority rights to secure another available position, which does not require a change in residence, to which he is entitled under the working agreement and which carries a rate of pay and compensation exceeding those of the position which he elects to retain, he shall thereafter be treated for the purposes of this section as occupying the position which he elects to decline. (b) The protection afforded by the foregoing paragraph is hereby designated as a “displacement allowance” which shall be determined in each instance in the manner hereinafter described. Any employee entitled to such allowance is hereinafter referred to as a “displaced” employee. (c) Each displacement allowance shall be a monthly allowance determined by computing the total compensation received by the employee and his total time paid for during the last 12 months in which he performed service immediately preceding the date of his displacement (such 12 months being hereinafter referred to as the “test period”) and by dividing separately the total compensation and the total time paid for by 12, thereby producing the average monthly compensation and average monthly time paid for, which shall be the minimum amounts used to guarantee the displaced employee; and if his compensation in this current position is less in any month in which he performs work than the aforesaid average compensation, he shall be paid the difference, less compensation for any time lost on account of voluntary absences to the extent that he is not available for service equivalent to his average monthly time during this test period, but he shall be compensated in addition thereto at the rate of the position filled for any time worked in excess of the average monthly time paid for during the test period. (d) The protection afforded herein shall only apply to displacements occurring within a period of 3 years from the effective date of the acquisition or merger (referred to herein as the claim period); and the period during which this protection is to be given
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(referred to herein as the protective period) shall extend for a period of 4 years from the date on which the employee is displaced.
59 C.A.B. at 45 (emphasis added).
An employee received Section 4 displacement pay protections if he could not, in the regular exercise of seniority, obtain a position that paid the same as the position he held at the time of the displacement. Section 4(a). The pay comparison was based on post-merger pay, not pre-merger pay rates, and ran for three years from the date of the merger. Sections 4(c), 4(d). The seniority the employee exercised in an effort to obtain a similar paying job was the integrated
seniority established under Section 3.24/ The notion, therefore, that the Section 3 seniority list integration would use pre-merger pay differences to discount the seniority rights of employees, and treat a lower-ranked post-merger job such as narrowbody First Officer as equivalent to a higher-ranked pre-merger job like narrowbody Captain because of pay improvements received through the merger, goes completely against the Section 4 displacement protection that was
measured based on the pay rate at the time of the displacement event, i.e., the
post-merger job. Such a result would mean the integrated seniority list
established under Section 3 would drive displacement events under Section 4
following integration of the operations and dramatically increase the carrier’s
24/ The standard procedure for integration of seniority lists under Section 13(a) required the arbitrator to issue an award within 90 days from the date of the merger. Id. at 49 (Section 13(a)). The displacement pay protection ran for years after the ISL was implemented even where the dispute was arbitrated.
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costs under the LPPs. The LPPs were obviously designed to work together in protecting employees against adverse effects of the merger, not work against each other.25/ Yet, AAPSIC concedes, as it must, that its proposal results in the demotion of East Pilots to lower paying positions from the job they will hold on
implementation of the ISL. See, e.g., Tr. 2695-98 (Stephens response to Arb.
Jaffe’s questions where he acknowledged the displacement effect of AAPSIC’s
proposal on East Pilot Cronin).
The AAPSIC’s gerrymandering of pre-merger compensation to justify
prejudicial seniority placement of East pilots violates the merger-related goal,
acknowledged by the CAB, of economic uniformity among the employees and
advancing the rates of pay, rules and working conditions of all covered
employees. Allegheny-Mohawk, 59 C.A.B. at 69 (Allegheny and Mohawk
employees would benefit from the merger and the application of Allegheny’s pay,
rules and benefits to Mohawk employees). ALPA Merger Policy similarly
recognizes that it is the joint collective bargaining agreement negotiations process, not the seniority list integration process, which advances the interests of all employees in higher pay, work rules and benefits in the merged carrier. East
083, at 2 (“The JCBA is the means by which the employment interests of the
flight deck crew members are protected and economic benefit – value for ALPA
25 The MOU similarly had a structure of seniority integration protections in paragraph 10 and displacement pay protections in paragraph 12. Just as the AAPSIC pay-based proposal contradicts the original structure of the LPPs, it also contradicts the original structure of the MOU’s seniority integration and displacement pay protections. JE 009, at 6-9. 118
members – is obtained from the merger.”) And AAPSIC’s position ignores the
obvious reality that similar pre-merger American and pre-merger US Airways jobs
have been paid the same since the Snapshot Date.
AAPSIC’s assertion that US Airways pilots should receive lesser seniority
rights in the SLI process because they supposedly got an offsetting pay raise
through the merger further ignores record evidence here that US Airways pilots
freely bargained for the gains they obtained under the MOU, including giving
concessions when American pilots gave none. See, supra, at 23-29 (Discussion
of MOU and JCBA negotiations history). And the MOU/MTA was not the final
result sought by APA and USAPA in their negotiations with American; rather they
established a process leading to a final JCBA that would substantially enhance
the contract for all pilots. JE 009. The JCBA ratified in January 2015 did just that
-- providing $1.73 billion in contract value to all American pilots over the gains
made in the MTA. East 033, at 58.
The AAPSIC further ignores that American pilots alone will benefit from the
financial strength of New American in funding the pre-merger American
employees’ defined benefit pension plan, which will impose billions of dollars of
costs on the merged company. East 045. Indeed, American pilots have already
benefited from $816 million in advanced funding of pre-merger American
employees’ pensions by New American. Id.
The AAPSIC also ignores the benefit to American pilots from the greater
job security and reduced risk of working for New American compared to their pre- 119
merger company. Professor Tannen’s analysis of the increase in value of
American pilot jobs as a result of the merger shows they benefited from a
significantly strengthened carrier, such that each of the illustrative jobs studied
gained hundreds of thousands of dollars in value due to the reduction of risk over
the 20-year period examined. East 078. The APA also recognized the greater
career security American pilots obtained through the US Airways merger when
they vigorously defended the merger against challenge by the Department of
Justice. East 075 (“[The merger] would also provide for a more secure future for
the 100,000 men and women who work for American Airlines and US Airways…If this merger is blocked, American Airlines would emerge from bankruptcy as a standalone airline in a weaker competitive position, which would have long-term negative effects for our airline, our industry and our profession.”); East 076 (“Our primary goals were to help ensure American would survive and thrive, thereby ensuring long-term career stability for our pilots. This merger will accomplish both goals.”)
The AAPSIC ignores these realities to justify a proposal that is unfair on its face. As noted, its proposal fails to take into account the reality of American’s pre-merger condition and its inability to successfully compete with Delta and
United even as it faced increased pressured from low cost carriers. It also ignores the reality of diminished career prospects facing American pilots under
American’s “standalone” plan before they turned to US Airways to negotiate the
CLA. But even more troubling, the proposal fails to recognize that the purpose of 120
the ISL is to order the seniority rights of pilots for the merged carrier, not to
perpetuate divisions among the pilots.
B. The AAPSIC proposal grants massive windfalls to American pilots while severely and permanently prejudicing East Pilots in the ISL and must be rejected
It should come as no surprise that the AAPSIC proposal works severe
prejudice to East Pilots, discounting their seniority equities in the merged carrier
and condemning many senior US-East pilots to irreparable job loss given the
short period of time they will be employed in the merged operation. The East
Pilot Committee produced numerous analyses concerning the AAPSIC proposal
during its rebuttal case. It will not revisit that entire presentation here. But East
084, rendering for the AAPSIC proposal an analysis that the American
Committee performed on the East Pilot Committee’s proposed ISL but not on its
own, highlights the grossly unfair impact of the AAPSIC proposal.
East 084 shows that the AAPSIC proposal imposes thousands of
demotions on East Pilots while transferring those jobs to American pilots,
including transferring all of American’s Snapshot Date furloughs to East Pilots.
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East 084, at 2.
Under the AAPSIC proposal, 114 of 183 East Group 4 Captains would be demoted one step as would 91 of 177 Group 3 Captains. Among 960 East
Group 2 Captains, the result is more severe, with 333 demoted to Group 4 First
Officer and 268 demoted two steps to Group 3 First Officer. All 336 East Group
4 First Officers suffer a demotion, with more than half demoted two steps to
Group 2 First Officer. East Group 3 First Officers suffer a similar fate, with all being demoted one or two steps. The proposal is even more severe in its effect on East Group 2 First Officers, demoting 899 of these 960 pilots to a “no job”/furlough status. All East Group 1 pilots are also demoted to “no job”/furlough status, completing transfer of all American furloughs to East Pilots.
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East 084, at 3. The AAPSIC’s own analysis shows the cascading job displacements that the American proposal would impose on East Pilots.
The “time in position” analysis of the East Pilot Committee, East 42.1, also shows the plain inequity of the AAPSIC proposal, demoting East Pilots to lower positions across the ISL while advancing American Pilots into higher positions, including the transfer of all furloughs from the American Pilots to East Pilots.26/
26/ Even the AAPSIC’s proposed “Letter T” treatment to move down a small number of American pilots to the next lower job category to supposedly account for furloughed American pilots who return to service by ISL implementation effectively displaces the same number of East Pilots into furlough status. Tr. 5336 (Durham); AAPSIC Exh. R-DD-001 at 313. 123
124
East 042.1, at 14, 30. As AAPSIC witness Bruce Case conceded, the smaller size of the East Pilot group compared to the American Pilot group
magnifies the effect of loss in relative seniority. Tr. 5084-85 (B. Case
testimony).
These massive jobs losses are imposed by the AAPSIC proposal
because it stacks American pilots above East Pilots in relative seniority,
garnering preeminent ISL placement for their pilots that only grows over
time, while relegating East Pilots to dwindling insignificance in the merged
operation, as shown by East 054.
East 054, p. 26.
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Examples from the analysis of Dr. Peter Gall in East 040.1 similarly show
that the American proposal pushes East Pilots down the ISL, uniformly reducing
their pre-merger progression across the ISL into the future. The relative seniority
demotion relegates East Pilots to junior status and inevitable job loss for the
shorter time they have remaining in the merged operation. By contrast, the
AAPSIC proposal substantially advances the younger and larger American Pilot
group across the ISL for the duration of their longer service in the merged
operation with expected gains in time in higher positions. There is no sharing or
exchange of benefit among the pilot groups under the AAPSIC proposal.
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127
128
129
East 040.1, at 6, 7, 15, 16, 24, 25.
Like the Continental Pilot proposal, the AAPSIC proposal ignores length of
service and denigrates East pre-merger jobs to “unfairly, inequitably and disproportionately benefit” American pilots at the expense of East Pilots.
Continental-United, at 21-22 (Continental Committee ignored longevity in order to justify unfair stacking of United pilots at bottom of ISL). It stacks far more junior pre-merger American pilots (including those hired in December 2013) ahead of senior East Captains, not simply imposing inevitable job loss through displacement on those East Pilots, but creating “blockers” who will stand in the way of East Pilots for the duration of their far shorter time in the merged carrier.
Id.; see e.g., East 059.1, at 114 (AAPSIC informational seniority list showing AA
First Officer Bedrossian, hired 12/3/2013, ahead of East Captain Cronin, hired
9/14/1987 with no furlough time). Also, like the Continental proposal, the
AAPSIC proposal would create divisive and poisonous crew relations for years to
come in the new airline. Id. It must be rejected.
V. East Pilot SIC Position On Certain Outstanding List Build Issues
A. West “Letter T” proposal
The West Committee proposed to reduce the number of American pilot
furloughs it counts in the category and status ISL build under its hybrid
methodology proposal to 400 and treat the remaining 765 American furloughs on
the Snapshot Date as inactive pilots to be “pulled and plugged.” West Rebuttal
Exhibit G. The East Pilot Committee opposes this proposal because it is not
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grounded in a measurement of the pilot groups’ actual equities on the stipulated
Snapshot Date. While AAPSIC repeatedly asserted that currently furloughed
American pilots would not return to service, that is utter speculation. Tr. 3599-
3605 (Colello). All furloughed American pilots retain ongoing recall rights -- the
expiration of the Letter T extension of recall deferral only changes the nature of
the recall right, not the fact that furloughed American pilots may return to the
merged carrier. Id. Many of these furloughees also retain reinstatement rights.
Tr. 3579 (Colello). That job right for hundreds of pilots for whom American had
no job on the Snapshot Date poses an ongoing risk of career suppression to
junior East Pilots who faced no such risk pre-merger.
Treating furloughed pilots, whether voluntary or involuntary, as if they were
on leave of absence is without precedent in an SLI proceeding. As the East Pilot
Committee has shown, the American furloughees were not, in fact, treated like
pilots on leave of absence by either American or APA. East 038.2 at 2-14.
There was no discounting of the number of furloughed pilots among United pilots
in the Continental-United proceeding. In the Frontier-Lynx-Midwest-Republic
proceeding, there were Frontier pilots who remained on voluntary furlough after
the merger under a “voluntary leave of absence” furlough mitigation program,
even though all involuntarily furloughed pilots had been recalled by the time of
the SLI proceeding. Frontier-Lynx-Midwest-Republic, at 18. However, only
management pilots, pilots on military leave and pilots on long-term medical leave
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were “pulled and plugged” as inactive pilots in that proceeding. Id. at 36.
Because furloughs or furlough equivalents mean that a pilot group has more
pilots with rights to a job than jobs available for the pilots, it is not appropriate to
treat them as pilots on leave of absence, which is a routinely occurring event
accounted for by an airline’s pilot staffing.
To be clear, the AAPSIC has falsely asserted a “Letter T” status where
none in fact exists simply to advance its entire pilot group at the expense of East
Pilots and transfer the burden of American pilot furloughs to East Pilots. It did
not raise this issue out of concern for “ratio compression” in the category and
status build ISL. It no doubt recognizes that the East proposed ISL is not
constructed using ratios, but through the hybrid weighting of a longevity ISL and
category and status ISL. And it also must recognize that updating the base lists
prior to populating the final ISL is the only certain way to address unfilled slots on
the hybrid ISL.
The West “Letter T” proposal illustrates the unfair windfall that counting
furloughed pilots as inactive grants American Pilots at the expense of East Pilots.
A review of pages 27-28 of West Rebuttal Exhibit G shows that the West
Proposal simply elevates American Pilots and pushes down East Pilots, again
transferring the burden of American furloughs to East Pilots. And the proposal
drives changes throughout the bottom half of the West Proposed ISL -- all at the
expense of East Pilots. Tr. 4371 (Payne). All Letter T pilots remain junior to
West Pilots on the West proposed ISL, so the West Committee simply gave away 132
East Pilot seniority under their proposal. The proposal is unfair and speculative
and should be rejected.
B. The Board should use the job counts established by the East Pilot Committee
In terms of the actual count of jobs on the Snapshot Date, the East Pilot
Committee and West Committee have agreed on that count with the exception of
the number of West furloughees. The correct number is 61 West furloughees.
The West Committee failed to accurately count furloughed West pilots who were flying in the East operation as furloughed on the West pre-merger seniority list.
Otherwise, the two committees agree on the count of Snapshot Date jobs between the three pilot groups.
The AAPSIC, however, undercounts jobs for both East and West Pilots.
The AAPSIC fails to count 82 East pilot jobs and so undercounts the East Pilot group by 3 percent. AAPSIC undercounts the West Pilot group by 72 jobs or 5 percent. The East Pilot Committee provides the accurate job counts for all pilot groups.
The Board should treat all pilots on sick leave/short term disability as active. AAPSIC recognizes its pilots and East Pilots on sick leave as active, but asserts West Pilots on short-term disability are inactive. But the status of these
West Pilots is not materially different than American and East Pilots on sick leave
(or “MED” leave among East Pilots). While West Pilots have a contractual right
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to elect between use of sick leave or STD benefits, that is an immaterial
difference in the CBAs. Since there is no dispute these West Pilots would be
counted as active had they been covered by the American or East Pilot contracts
on the Snapshot Date, they should be counted as active for the job count to have
an “apples to apples” basis for counting jobs.
The AAPSIC also raises a factually incorrect complaint concerning East
Pilots designated as “SPV” (supervisory) by the East Pilot Committee, in
asserting that the EPSIC failed to identify certain management pilots as inactive.
In fact, the East Pilot Committee identified 18 former management pilots as inactive pilots who should be pulled and plugged in the seniority list integration.
C. Pull and Plug method for reinserting inactive pilots
The East Pilot Committee reinserts inactive “pull and plug” pilots in the manner that has been repeatedly recognized by arbitrators -- placing them immediately senior to the pilots who were immediately junior to them on their pre- merger seniority list. See, e.g., Continental-United at 46; Delta-Northwest at 29-
30; Frontier-Republic at 36. The AAPSIC, however, asserts that inactive pilots should be reinserted immediately junior to the pilot who was immediately senior to them. The effect of reversing the preferred method is to make inactive pilot reinsertion occur at the expense of the other pilot group. Two (or more) pilots from one airline go ahead of a pilot from the other airline who might not actually have gone ahead of that pilot had the inactive pilot been treated as active in the
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SLI process. The Board cannot know if an inactive pilot in this proceeding would
have been integrated ahead of the pilot from another group simply because the
pre-merger pilot who was senior to him was integrated ahead of that other pilot.
By contrast, if the inactive pilot is placed immediately senior to the pre-merger
pilot who was immediately junior to him on their pre-merger ISL, the Board can
know with certainty that inactive pilot would have been placed senior to the other
group’s pilot who is also behind the pilot who was junior to the inactive pilot. The
Board should use the accepted method of reinserting “Pull and Plug” pilots. And
those inactive pilots should be limited to the population identified by the East Pilot
Committee. East 038, at 33.
VI. The Board Should Reject Certain Conditions Proposed By the American Pilot Committee and West Pilot Committee
The Board should adopt the conditions and restrictions called for in
Paragraph 10.b of the MOU, also set forth at paragraph 7 of the parties’
stipulations. Certain of the conditions and restrictions proposed by the AAPSIC
and the West Committee should be rejected as contrary to the JCBA and
inequitable.
A. AAPSIC Group 4 position condition
The Board should reject the Group 4 position condition proposed by the
AAPSIC. The AAPSIC proposed condition would count the protected jobs not as of the Snapshot Date, but at whatever later date coincides with ISL implementation. This would create unwarranted priority rights for American pilots
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in hundreds of additional Group 4 jobs created by post-merger aircraft deliveries
to American pilots. This would perpetuate the benefit that American pilots
obtained from exclusive access to a majority of their carrier’s post-merger
widebody deliveries occurring prior to ISL implementation. East 036.1, at 15
(showing American pilots received exclusive access to 60% of American’s post-
merger Group 4 aircraft and positions). See, Continental-United, at 22 (rejecting
as inequitable Continental Pilot Committee’s use of a post-Snapshot Date to
include post-merger positions in job count). The unfairness of the AAPSIC
Group 4 Condition is compounded by the fact that the vast majority of US
Airways Group 4 aircraft deliveries will be made to a post-ISL integrated
operation, gifting American pilots with both an inflated number of Group 4 jobs
under AAPSIC’s proposed condition and access under the ISL to even more
Group 4 jobs from future deliveries.
B. The Board should reject AAPSIC’s proposed restriction on the displacement rights of pre-merger US Airways pilots
AAPSIC proposes to restrict the Section 17 displacement rights of pre-
merger US Airways pilots in the event of displacement. See, AAPSIC Prehearing
Brief, at 87-88. Specifically, it proposes to restrict stand-in-stead rights and West
Pilots’ displacement rights to pre-merger US Airways bases. The asserted
ground for this restriction on contractual rights is to protect pre-merger American
pilots from “rationalization” of bidding under the Nicolau Award. Id. Since
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adoption of the Nicolau Award ISL is impermissible and inequitable, the AAPSIC
proposed restriction is irrelevant.
The AAPSIC, of course, proposes no restriction on the displacement rights
of American pilots. The ISL will apply to the integrated operation and it will reflect
a balancing of all pilots’ rights in the integrated operation. American pilots are
not entitled to exempt themselves from the effect of the ISL. And any claim of
“pent up demand” among West Pilots, whatever that means, is plain speculation.
Notably, the AAPSIC argues for expansion of Supplement C rights for former
TWA pilots even while acknowledging those priority positions under Supplement
C may have to occur at legacy US bases. It proposes no restriction on the
exercise of Supplement C rights. The AAPSIC condition is simply further
evidence of the inequity of the AAPSIC proposal and its effort to gerrymander the
ISL to maximize benefit for American pilots at every turn -- in this instance, by
restricting the contract rights of US pilots so that only pre-merger US pilots of the
lowest seniority can displace into pre-merger American bases.
The East Pilot Committee does not believe it is within the authority of the
Board to restrict the displacement rights of pilots under the JCBA. Rather, the
Board should consider the potential for displacement in the ordering of the ISL,
as the East Pilot Committee did, and in the adoption of the limited Group 4
condition proposed by the East Pilot Committee. But it should not restrict the
displacement rights of pilots.
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C. AAPSIC proposal concerning extension of the retirement age should be adopted
The East Pilot Committee agrees with the AAPSIC proposal that a Group 4 condition should be extended by the same number of years that the mandatory retirement age is extended if that occurs. Extension is appropriate to safeguard
those pilots against displacement.
D. The Board should reject AAPSIC’s effort to enhance Supplement C rights in this arbitration
The Company, APA and USAPA already negotiated how Supplement C
would be addressed in the seniority list integration process through Paragraph
10.i of the MOU. The parties agreed, “Nothing in this Paragraph 10 shall modify
the decision of the arbitration panel in Letter of Agreement 12-05 of the 2012
CBA.” JE 009, at 7. It has already been agreed that the result of the
Supplement C arbitration will be adopted into this process without modification.
The AAPSIC effort to revise Supplement C by restating the termination
conditions of the arbitration award must be rejected as beyond the authority of
the Board. AAPSIC Prehearing Brief, at 88-90. The priority rights granted to
former TWA pilots will deprive former US pilots of Group 3 Captain and First
Officer and Group 2 Captain opportunities. Further extending those rights
beyond the period established in the Supplement C decision would be
inequitable and contrary to the agreement established in MOU Paragraph 10.i.
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E. The Board must reject the West Committee’s effort to obtain enhanced recall rights for “dual lister” pilots
The West Committee casts as a “technical issue” its efforts to gain for
certain West Pilots the right to elect between a ISL position based on either an
East position or a West position. West Prehearing Brief, at 40. The Board does
not have the authority to grant pilots recall rights not given by the JCBA. The
APA Board of Directors rejected an effort to extend recall rights for these pilots
as sought by the West Committee. The East Pilot Committee believes that “dual
lister” pilots may be integrated on the basis of AA and US positions and be
granted the right to elect between their respective ISL placements only to the
extent that under the JCBA they retain a recall right to both positions.
Accordingly, the West Committee proposed condition that the Board should
extend any Section 17.W recall right that existed on September 29, 2015 must be
rejected as improperly modifying the JCBA.
VII. The Board Should Adopt Step 6 of the Continental-United Award ISL Methodology To Update the December 9, 2013 Premerger Seniority Lists To Remove All Pilots Who Have Left The Company’s Employ Since the Snapshot Date Prior to Populating the Final Hybrid ISL
The final step adopted by the Continental-United arbitration panel in its
hybrid methodology was to update the pre-merger seniority lists prior to placing
pilots from those lists into the slots apportioned to their pilot group on the ISL.
The ISL is still constructed based on the Board’s analysis of the Snapshot Date
seniority equities, including the pilot populations on December 9, 2013.
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Updating the pre-merger seniority lists removes any pilots who have left the Company’s employment since December 9, 2013. This includes retirements,
furloughed pilot whose recall rights have ended, and pilots who have otherwise
terminated employment. This step ensures that the Board integrates pilots who
remain employed by the merged carrier. Also, it addresses the concern about
unfilled slots accorded one group or the other on the hybrid list. Tr. 4364 (Payne).
It is the only accurate way to address that question and avoid speculation about the future actions of pilots. And since retirements since the Snapshot Date will unquestionably result in unfilled slots for a pilot group on the ISL, updating the base lists is appropriate. Accordingly, after constructing what it concludes is the appropriate ISL based on the pilots’ Snapshot Date equities, we urge the Board to instruct the Company to identify all pilots who have terminated employment since December 9, 2013 as of a date reasonably close to finalization of the award, and have the Technical Team update the pre-merger lists to account for that attrition prior to populating the final hybrid ISL with the named pilots.
VIII. While the East Proposal Is the Only Fair Basis for Integration of the Pilot Groups, If the Board Believes Adjustments Should Be Made to Specific Areas of the ISL, Those Adjustments Should Be Limited and Targeted to the Portion of the ISL Where the Concern Arises and Not Result In Changes in Relative Seniority Ordering Across the Entire ISL
As reflected by the foregoing, the East Pilot Committee believes its proposal is the only fair basis for integrating the three pilot seniority lists in this case. The Board must satisfy itself what constitutes a fair and equitable ISL.
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Both the American Committee and the West Committee raised complaints about
the placement of the junior-most pilots on their pre-merger seniority lists under
the East Proposed ISL. The American Pilots complained about the 766
American pilots who appear at the bottom of the East Proposed ISL because
some were actively working in jobs they obtained through more senior furloughed
pilots bypassing recall. As discussed already, this placement reflects both the
impact of 1,165 American pilot furloughs on the Snapshot Date and a relative
lack of length of service among the most junior American pilots to offset furlough.
But this lower figure shows the East Proposed ISL moves approximately 400
American pilots who were in the furlough category on the category and status ISL
to be integrated with active pilots, mitigating the effect of American furloughs by
over 33 percent. That means East Pilots are in effect sharing the impact of one-
third of American pre-merger furloughs and the necessary risk of career
stagnation those furloughs pose in the integrated system.
If the Board believes further balancing among this junior-most portion of
the list is necessary, it should not be achieved by altering the Snapshot Date
count of American furloughs. That will simply move East Pilots to the bottom of
the list in place of American pilots, as shown by both the AAPSIC and West
Committee “Letter T” proposals. Rather, the East Pilot Committee believes that
the Board would need to adopt a different methodology to address any concern
for placement of junior American pilots without simply swapping East Pilots in
their place. 141
Similarly, the West Committee complained of the placement of pilot Dave
O’Dell among 2013 East hires and the placement of 2007 West hires among
2013 hire East pilots. These West Pilots were furloughed on the Snapshot Date.
Their placement on the East Proposed ISL reflects the objective weighing of their equities under the East methodology. Indeed, the East Pilot Committee enhanced the placement of these West Pilots by greater weighting towards length of service, which allowed them to use their several years of longevity to offset their furlough status and move hundreds of spots up the ISL. The East
Pilot Committee is not proposing a seniority list integration based solely on length of service, so no pilot or group of pilots’ placement can be weighed by only looking at the pilots’ service time compared to their peers or their date of hire.
Indeed, across most of the East Proposed ISL, East Pilots are more senior by years than the West Pilots with whom they are integrated. Of course, the West
Committee did not raise any complaint across the approximately 70 percent of the East Proposed ISL where East Pilots hired years earlier are integrated with
West Pilots hired many years later. See, e.g., East 043, at 3-9.
The East Pilot Committee similarly has concern with the placement of East
Pilots hired in 1989-90 under its proposal. These 1989-90 East hires are
integrated with pilots hired eight to ten years later. See, e.g., East 043, at 8-9.
For example, East Pilot John Gerring, ISL# 7528, hired January 3, 1989, is
integrated with West Pilot Brett Swain, ISL# 7533, hired December 1, 1997, almost nine years later, and American Pilot Joe Riley, ISL# 7527, hired February 142
8, 1993. East 059.2, at 77. The last East pilot hired in 1989-90, Michael
Bauernfiend, ISL# 9696, hired March 26, 1990, is placed behind West Pilot
Thomas Brunskow, ISL# 9693, hired February 22, 2000 and American pilot
Michael Jensen, ISL #9695, hired January 10, 2000. Id., at 93.
The East Pilot Committee submits that these pilots’ placement raises more
legitimate equity concerns than those of the most junior West Pilots, who are at
the bottom of the West pre-merger seniority list and 61 of whom were furloughed on the Snapshot Date. The 1989-90 East hires also deserve more equitable consideration than the bottom 766 American pilots, who are the bottom of the
American pre-merger seniority list and are among the 1,165 pre-merger furloughees in the AA system with little length of service. These East Pilots are not the most junior pilots on the East pre-merger seniority list; they have considerable service time and are 900 or more positions from the bottom of the
3,594 pilot East pre-merger seniority list. Their furloughs ended many years before the American-US Airways merger occurred. And these 1989-90 East
Pilots are much older with far less time to enjoy the merged operation than the
American and West Pilots highlighted by their committees.
If the Board gives weight to these situations as creating anomalies in the
East Pilot Committee proposed ISL, it should address them only after first constructing an integrated seniority list under an objective measurement of the
Snapshot Date equities using the East Proposal. Only after the Board can see the ordering established by a fair and consistent measurement of the pilots’ 143
equities will the Board be able to accurately identify potential areas for
adjustment. And any adjustments should be targeted so as to only address the
areas of anomaly without “squeezing the balloon” in effect and driving changes
across the ISL, like adjusting category and status job counts or changing
weighting of the two hybrid method factors would do.
We submit the Board likely will have to use a different methodology to
achieve such a targeted solution if it finds that equitable considerations so required. In an SLI proceeding of the scope and demographic diversity of this case, it simply is not possible to avoid apparent disharmonies at some points of
an ISL derived from principled analysis that treats all pilots consistently. It is the
overall ISL that must be fair and equitable and, if that goal is achieved, each portion ought to show that the pilots at that point are comparable within a range of reasonableness. The East Pilot Committee of course, will cooperate in any process adopted by the Board to develop targeted solutions for perceived disharmonies within the ISL.
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CONCLUSION
The East Pilot Committee appreciates the diligence the Board has shown so far and will further devote to its work of constructing the integrated seniority list covering the pilots of New American. It is the hope of the East Pilot
Committee that over the course of what were admittedly voluminous presentations, it has provided the Board with the necessary information to fulfill the important task it must perform in establishing an integrated seniority list that is fair and equitable to all the pilots involved and will provide the basis for them to move forward as a single, unified pilot group.
Dated March 28, 2016. Respectfully submitted,
/s/William R. Wilder Roland P. Wilder, Jr. William R. Wilder Baptiste & Wilder, P.C. 1150 Connecticut Ave., N.W. Suite 315 Washington, D.C. 20036 (202) 223-0723 (202) 223-9677 [fax] [email protected]
Attorneys for US Airways (East) Pilot Seniority Integration Committee
cc: M. Myers (for service on all parties)
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APPENDIX 1
East Pilot Committee Proposal Methodology Explanation
A. Overview of East Committee Proposal
The East Pilot Committee proposal uses the “hybrid weighting” of a length
of service based integrated list and a status and category integrated list adopted by the arbitration panel in the United/Continental proceeding to construct the final integrated list. East 038 (East Committee proposal methodology explanation). It constructs that integrated list according to the steps identified by the Panel in that proceeding with certain adjustments appropriate to this proceeding. One step of the methodology established by the Continental/United Panel, to update the base seniority lists used to construct the integrated lists to remove pilots who left carrier since the snapshot date, we did not implement in our proposal because the parties had not yet addressed that issue. The Panel may wish in the future to direct the parties to discuss a process for such updating of the base lists if it chooses to implement that step of the methodology.
1. The length of service integrated list
The base lists are then used to construct the separate integrated length of service and status and category lists. For the length of service list, each pilot’s days of service are calculated to establish the pilots’ length of service value. The inevitable anomalies among pilots on each premerger list, where pilots may have more or less time than a pilot below them on their premerger list, are resolved by
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reordering the length of service of each premerger list, so that the LOS values
are listed in descending order from most number of days to least. The premerger
relative order of pilots on each list is then placed alongside the numerically
ordered length of service calculations so that the most length of service is
assigned to the most senior pilot and then descends successively down the list
until the lowest length of service value is assigned to the least senior pilot on the
premerger list. This reassignment eliminates the “blocker/lifter” dynamic among
the premerger lists, so that a pilot with an anomalous amount of service does not
prevent the appropriate numerical ordering of pilots junior to him with pilots on
the other premerger lists. The premerger lists are then integrated in accordance
with the length of service calculations assigned to the pilots, with pilots with more time going ahead of pilots with less credited length of service. If pilots on the integrated list have the same longevity calculation, tiebreakers among pilots should occur by date of birth with the older pilot going ahead of the younger pilot..
2. The status and category integrated list
An integrated list is created according to status and category with the number of positions (aircraft category and “seat”/status) identified. The positions are assigned a hierarchy beginning with widebody Group 4 Captain and ending
with the Furlough category. The number of jobs in each status and category are
counted for each premerger group. An integrated list is then constructed by a
ratio of the number of jobs in each position in each premerger group. The larger 147
group is used as the numerator to determine the fraction for each group that is
then counted to determine the score for each job that group holds in the category
and status. The larger group will be divided by its own number and so its scores
will be begin with 1 and then accumulate by ones until each position is assigned
a value; the smaller group’s number of positions is divided into the larger groups,
yielding a higher number, which is then added consecutively until all positions for
the smaller group receive a value. The values are then arranged in order on the
ISL with the smaller group’s scores inserted at the appropriate point between the
scores of the larger group. The pilots are then slotted into the scores on the ISL
for their respective groups based on relative premerger seniority order.
Once the two integrated lists are constructed, each pilot has a score
corresponding to the relative seniority number assigned on the integrated list.
The numbers for a given pilot will normally differ between the length of service list
and category and status list. A weighted percentage for the two lists (e.g., 50/50,
40/60, 60/40, etc.) is selected and each pilot’s score on the separate integrated
lists is multiplied by the respective numeric fraction and then the two resulting
numbers are added together to produce a final score. The pilots are then
ordered according to their total scores from highest to lowest.
B. Calculating Length of Service
Each pilot’s length of service is calculated by counting the pilot’s days in
service for the covered air carriers beginning either with the pilot’s either date of
hire with the carrier or his effective seniority date with the carrier. The 148
overwhelming numbers of pilots in the three groups have as their date of hire the
date they first began training for the carrier and it corresponds with their
competitive seniority date.27 For these pilots, the East Committee calculated
length of service beginning from this date of hire. Only time on furlough or
furlough equivalent, when the pilot was not flying for the carrier, was deducted
from a pilot’s length of service.28
1. Effective seniority dates for pilots integrated into the premerger systems through earlier seniority list integration transactions
For pilots who were integrated into either the American system or US
Airways system pursuant to a seniority integration, if the pilot’s date of hire at his
predecessor airline was not recognized in the seniority integration (as occurred
for example with the pilots of Reno Air and Trans World Airlines at American and
Trump Shuttle at US Airways), the East Committee assigned an effective
seniority date based on the American or US Airways original pilot immediately
senior to that integrated pilot. Unlike the Continental/United proceeding, where
27 American pilots have a “four part” seniority date consisting of their date of hire, which for most American pilots is their first day of training, their classification date, which is used for pay purposes, their occupational date, which is the first date in revenue operation and is used for competitive seniority purposes, and Company date, which is the first date of hire at American, regardless of classification and is used for vacation and nonrevenue flying. The Occupational Date is assigned to a pilot by the Company generally using 47 days from the pilot’s date of hire to reflect the completion of initial new-hire training.
28 A number of West pilots who were furloughed from the PHX domicile flew in the East Operation following the 2008-09 PHX furloughs. The East Committee credited that time flying in the East Operation to the length of service of those pilots. 149
the numerous previous seniority integrations at Continental precluded this
traditional method, the overwhelming demographic of pilots in this proceeding
having an actual date of hire with either American or US Airways (East and West)
allows its use for previously integrated pilots. No West Pilot was placed on the
West seniority through prior seniority integration so this process was not
necessary for West Pilots.
To the extent former TWA pilots flew for TWA, LLC after its acquisition by
American Airlines, that time in service was counted toward the pilot’s length of
service since it was credited to him in the American seniority system. The TWA,
LLC pilots were part of the American pilot craft or class following that carrier’s
acquisition by American Airlines. The East Committee did not include a pilot’s
time in service for a legacy airline (Reno, TWA, Trump Shuttle, etc.) except to the
extent that legacy time was credited to the pilot in the American or US Airways
seniority system. Such flying was not performed for the air carriers involved in
this transaction and is not appropriate to include, except to the extent it is
effective in the premerger seniority system. Also, as noted above, calculating
length of service among the pilots in this proceeding does not pose the problem
faced in the Continental/United proceeding because outliers are overwhelmed by
pilots with “original” dates of hire at American or US Airways who can be used as
the basis for assigning effective seniority dates.
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2. Mid-Atlantic Pilots
Certain US Airways pilots flew in service for US Airways from 2004-2006 under what US Airways called its “Mid-Atlantic Airways Division.” See East 044
(MidAtlantic supporting documents). The operation was established by Letter of
Agreement No. 84 to the US Airways/ALPA contract to permit US Airways to operate large cabin Embraer 170 aircraft in return for the flying position to be
available for US Airways pilots subject to a reduction in force in their large jet
position. The Embraer 170 aircraft is the same aircraft type as the Group 1
Embraer 190 aircraft under the American/APA Joint Collective Bargaining
Agreement and was similar to the Fokker F28 aircraft previously operated by US
Airways. The operation was referred to as the “small jet” operation under LOA
No. 84. MidAtlantic was not a subsidiary of US Airways, however. All operations
were conducted by US Airways on its operating certificate. Pilots who were
furloughed from their large jet pilot position could elect to go to MidAtlantic. A
pilot not facing furlough could bid for the MidAtlantic position to eliminate the
furlough of a more junior pilot. Also, pilots who were employed by one of US
Airways’ wholly-owned “regional airline” subsidiaries were included on a
Combined Eligibility List, by their date of hire at the regional subsidiary, to be
hired by US Airways to fly in the MidAtlantic division. US Airways performed all
employment activity and training for “CEL” pilots hired to fly under MidAtlantic.
Pilots who were hired from the wholly-owned subsidiaries to fly in the
MidAtlantic division received a US Airways date of hire that continues to be 151
reflected on the current East Pilot system seniority list. They underwent full new-
hire training by US Airways. US Airways conducted each part of the hiring
process. For these pilots, the East Committee used their date of hire in the
MidAtlantic Airways division, their first day of training at US Airways, for
calculating length of service. This is the date of hire recognized by the Company.
And those pilots are in relative seniority order to other East Pilots based on that
date of hire.
For all pilots on the premerger East Pilot seniority list who flew in the
MidAtlantic division, the East Committee counted that time toward the pilot’s
length of service. We did so because it was flying for US Airways, one of the
“covered air carriers” in the covered transaction under McCaskill-Bond, US
Airways. 49 U.S.C. § 42112, Note 117(b)(1). The pilots were part of the US
Airways pilot craft or class and were members of the same ALPA Master
Executive Council as other US Airways pilots. When in service in MidAtlantic,
these pilots would have qualified as “covered employees” under McCaskill-Bond.
49 U.S.C. § 42112(b)(1)(c). Accordingly, flying performed for the covered air
carriers is appropriately included in the length of service calculation. However,
the East Committee did not include in its calculation any time flown by a US
Airways pilot who was furloughed and flew in a job at one of the wholly-owned
subsidiaries of US Airways or code-share affiliate under the US Airways “Jets for
Jobs” program since those were separate carriers and their pilots were not part
of the US Airways pilot craft or class. 152
3. American Eagle Pilots
Certain American pilots were placed on the American seniority list under a flowthrough agreement between American, American Eagle, APA and the Air
Line Pilots Association. And some of those pilots were the subject of contract
disputes between the parties, alleging that American wrongfully denied the Eagle
pilots the right to “flow up” to American. As with pilots from US Airways hired into
US Airways’ MidAtlantic operation, for any American Eagle pilot who flowed up to
American, the East Committee used the pilot’s first date of training at American
as his effective seniority date. Also, as with pilots hired by US Airways from its
regional subsidiaries or for US Airways pilots who flew at a regional affiliate while on furlough, the East Committee did not include any service time at American
Eagle in the length of service calculation for American pilots. Similarly, when an
American pilot “flowed down” to Eagle during a furlough, the East Committee did not credit any of that time because American Eagle is a separate carrier, whose pilots were not part of the American Airlines pilot craft or class.
C. Ordering of the Category and Status groupings
The East Committee ordered category and status groups as follows:
10. Group 4 Captain
11. Group 3 Captain
12. Group 2 Captain
13. Group 4 First Officer
14. Group 3 First Officer 153
15. Group 1 Captain
16. Group 2 First Officer
17. Group 1 First Officer
18. Furlough
The East Pilot Committee ordered Group 1 Captain separately because it is a pilot-in-command position, with more pilot responsibility than First Officer positions, but its pay rate falls between Group 3 First Officer and Group 2 First
Officer, on average $4 less than Group 3 First Officer pay rates and $6 more than Group 2 First Officer pay rates
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