Bankruptcy Reform

For decades, U.S. airlines have grossly abused the bankruptcy process with the consent of the courts, despite Congress never intending this outcome.

As just one example, after 9/11, 50 air carriers sought protection from the bankruptcy code. Airlines dictated $83.5 billion in wage and benefit reductions because of courts’ misapplication of the law, dissolving nearly every defined benefit pension plan and, in some cases, instituting 50 percent pay cuts and seven-year contracts to cement long-term employee losses. These draconian cuts were grossly disproportionate in substance and duration, far outlasting the immediate need to successfully reorganize, and did not reflect economic circumstances.

With demand for air travel potentially depressed for years, employee relief from the structurally disadvantageous and inequitable bankruptcy code is necessary.

Through a technical correction, Congress can restore the protective intent of airline employee treatment in Chapter 11 reorganizations. The Railway Labor Act (RLA), which governs labor relations in the airline and railroad industries, intends that airline workers and employers receive greater protection to preserve labor peace and commerce than they currently receive inside bankruptcy.

Accordingly, the legal system is encouraging airlines to file bankruptcy to achieve what they cannot otherwise achieve in fair negotiations under the RLA. This runs afoul of the purpose of the RLA’s primary policy goal of preserving harmony and stability of interstate commerce in the key transportation sector through collective bargaining. In fact, the bankruptcy code was intended to shield airline employee collective bargaining agreements from Chapter 11 abrogation, as it currently does for railroad employees.

ALPA’s Recommendations

  • Congress must clarify that airline employee collective bargaining agreements governing wages and working conditions are not subject to modification by the court, except in accordance with the negotiation procedures of § 6 of the RLA, 45 U.S.C. § 156, as currently provided.