Commentary: TWA Flies West

Air Line Pilot, August 2001, p. 5
By Capt. Mike Day, Chairman, TWA MEC Merger Committee

TWA, a pioneer in the airline industry, effectively made its final flight west on April 9, 2001, when American Airlines purchased most of TWA’s assets.

With an illustrious and sometimes checkered past, TWA was the oldest continuously operating airline in the United States. In spite of all of its difficulties over this long tenure, the last few years of the 20th century saw TWA achieve one of the most amazing turnarounds in airline history. TWA set company records in on-time performance, load factors, reliability, consistency, safety, and professionalism under extremely adverse conditions. TWA often celebrated No. 1 Department of Transportation rankings. TWA was a more efficient, on-time airline than almost all of the 10 other large U.S. airlines in all methods of measurement (other than profit).

On Jan. 9, 2001, TWA reached the most momentous turning point in its history—declaring bankruptcy while simultaneously announcing American’s bid for substantially all of its assets.

As reported by CFO Magazine, May, 2001, "AMR Corp. quite literally courted Trans World Airlines, Inc.—by insisting that TWA file under Chapter 11 as a precondition of its $500 million acquisition." AMR, the parent corporation of American, required the TWA Board of Directors to choose bankruptcy to allow American to buy the assets under "better economic terms."

Thanks to this bankruptcy, American could rid TWA of some tremendous drags on its profit.

As a result, TWA became a cash-flow–positive operation immediately after the transaction closed. This enhanced American Airline’s long- and short-term outlook.

In June 2001, Goldman Sachs analyst Glenn Engel raised his outlook for 2002 profits at AMR Corp., from $3.75 to $4.25 per share. "We believe that the earnings accretion from AMR’s purchase of TWA will come sooner and with greater magnitude than investors and even AMR anticipate," Engel said.

Engel is not the only analyst aware of the many hidden assets TWA brought to the transaction. Sal Colak, an analyst with CIBC World Markets, stated, "In the long term, we believe that American will be successful in integrating TWA. There are lots of unused rights [to routes] into foreign countries that will be revenue-positive for American. The biggest gain for American may be the systemic growth that the acquisition will allow."

He estimates that, once TWA is fully integrated, part of American will grow at around 10 to 12 percent over 3 to 5 years.

Some of the "hidden" assets to which Engel refers include valuable gates and slots at ORD, DCA, JFK, and LGA. TWA’s operation, its airplanes, its pilots, its hub, its slots, its gates, and its innovative processes forever will be a part of American Airlines.

TWA was once the world’s greatest airline whose remaining assets and vibrant history now live under the roof of American Airlines. Despite all that TWA’s pilots bring to American, they are facing a challenge in the final phase of their saga—the fair integration of seniority with their future co-workers.

ALPA’s Executive Board, at its April meeting, passed a resolution pledging the Association’s full moral support, along with, as the resolution stated, "necessary funding in accordance with current ALPA policies and the ALPA Constitution and By-Laws to enable the TWA MEC to properly represent the TWA pilots through this crisis and to properly complete the tasks before them."

One of the primary challenges facing the two pilot groups is the sheer magnitude of the integration. The combined pilot group will number more than 13,000. To help in this task, the TWA Merger Committee has retained a highly regarded labor economist and econometrician, Professor Michael B. Tannen.

After thoughtful and intense preparation, involving literally hundreds of man-hours, the TWA Merger Committee presented its proposal to the APA Mergers and Acquisitions Committee during the week of June 15. Under the proposal, each pilot would be placed on a combined seniority list in such a way so as to protect the realistic career expectations of all pilots from both groups. The proposal that Tannen developed uses actual seniority data applied to widely accepted seniority principles to place every TWA and American pilot in his or her rightful place on the consolidated, post-merger seniority list.

Under the Rightful Place plan, neither group would receive undue consideration, nor would any pilot suffer from injurious windfalls as a result of the operational merger. No American pilot’s career advancement would suffer negative effects. The proposal allows for pilots on both sides of this negotiation to share proportionately in a much larger pie.

The ALPA Communications Department and ALPA’s president, Capt. Duane Woerth, helped the TWA MEC provide extensive information about the integration process and the proposal in June. A PowerPoint presentation and webcast about the proposal is available on the public section of the TWA MEC Internet site at http://twapilots.alpa.org.

Many have said the American–TWA merger would serve as a template for future mergers of this magnitude. TWA pilots, with the full support of all of ALPA, are preparing for the next phase in their careers. The best long-term result is a fair seniority integration that will promote unity and solidarity within the combined pilot group for the future. The challenge for both pilot groups is how to achieve that goal. The Rightful Place proposal is constructed to both meet the concerns of the American pilots and recognize the value that TWA pilots bring to American.

The seniority dispute has just entered the "facilitation phase." The facilitator will be working intensively with the parties this summer to help them in their efforts to reach a mutually acceptable solution to their dispute. The task facing the facilitator and the parties is formidable, as suggested by the American pilots’ proposal to staple almost two-thirds of all TWA pilots onto the bottom of the American system seniority list.

Nonetheless, we remain committed to the negotiating process, which, in contrast to other forms of dispute resolution available to us, is the preferable means for developing an integrated seniority list. But whatever the means employed, TWA pilots insist on a fair integration and will do what they must to achieve that goal.