In a column in the April 29, 2012 Washington Post, Steven Pearlstein discusses how American Airline unions may have turned the tables on American Airline management’s plans to restructure the airline. American management’s plan focused on cutting costs, and in particular labor costs. Right now it appears that management is unlikely to implement their plan as American’s three largest unions have come to an agreement with US Airways that will involve fewer cost cuts and will focus instead on marketing synergies between the networks of US Airways and American Airlines in a way that will expand the merged airline’s ability to compete for business customers with United and Delta Airlines, which are much larger than either US Airways or American Airlines alone.
Advisor to National Association of Letter Carriers Advised American Airlines Unions
Lazard, the investment Advisor that supported the airline unions is the same Advisor that is working for the National Association of Letter Carriers and wrote an alternative to the Postal Service’s plan for profitability in the paper, “Delivering Change to Protect an American Icon.” The general outline of the business strategy that convinced US Airways that working with the unions could work is very similar to what Lazard outlined as an approach for return the Postal Service to financial viability.
US Airways Agreement With American Airlines Unions Limited Pain of Financial Restructuring
US Airways agreements with American Airlines still have significant cost cuts over the current contract but significantly fewer than what American Airlines management felt was necessary for it to remain as a stand-alone airline. Only 6,800 jobs will be lost under US Airways-union plan as opposed to 13,000 jobs American Airlines stated it would cut. Part of the cuts will come from voluntary buyouts worth $22,500 to employees 45 years old and older in the Transport Workers Union and unspecified buyouts to members of the Flight Attendants Union.
In addition members of Transport Workers and Flight Attendants Unions at American Airlines will see changes in work rules, 401-K retirement programs that lower unit costs. Employees will see small wage increases over the next few years that appear to be close to about equal to a cost-of-living increase. [Source Wall Street Journal] Pilots would see major rule changes that put American Airline pilots under the same rules that US Airlines Pilots operate which will increase the number of on-duty hours per month. All of these work-rule and compensation changes that US Airlines agreed to are significantly better than what American Airlines was planning to impose.
H.R. 2309 Is Similar to American Airlines Management’s Approach for Exiting Bankruptcy
H.R. 2309, which is being managed in the House of Representatives by Representatives Darrell Issa and Dennis Ross, would allow the Postal Service management to follow an approach that is similar to what American Airlines management proposed. H.R.2309 assumes that opportunities to grow revenue are minimal. By requiring the Postal Service to continue to manage its business under a legislative mandate that constrains its ability to fully exploit its capital, labor and intellectual property assets to gain new customers or increase revenue per mail piece by either adding extra value to the service or charging more rational prices. Therefore, the bill gives the Postal Service mandates to cut particular services, authorizes the Postal Service to cut other services, and creates mechanisms for abrogating labor agreements and forcing cuts in the network irrespective of the impact on service or the value of the mail to customers.
The Postal Service’s “Plan for Profitability,” includes most of the service changes that H.R. 2309 includes but does not include the abrogation of labor contracts. In many ways the Postal Service’s Plan for Profitability would implement service changes even faster than H.R. 2309 would require as it includes full implementation of the Network Optimization Initiative announced earlier this spring. Therefore, it is not surprising that the Postmaster General as effectively endorsed H.R. 2309.
S.1789 Doesn’t’ Provide a Business Plan Either
The Senate’s approval of S. 1789 did not put in place a coherent business model that would allow the Postal Service to develop a balanced plan to return to financial viability. The Senate made a number of small tweaks in restrictions in the ability of the Postal Service to broaden its product line but it kept in place many if not most of the restrictions that hamper the Postal Service from getting the maximum returns from its capital, labor or intellectual property assets or remove restrictions that continues to force the Postal Service to price its products irrationally.
While the Senate’s action is not a long term solution, it may provide enough breathing room for innovative management to prepare the Postal Service for a solution along the lines Lazard developed that helped American Airlines Unions convince US Airways to acquire American Airlines out of Bankruptcy and outlined in its paper for the National Association of Letter Carriers.
S. 1789 includes two provisions that could help Congress develop a rational postal policy that would allow the United States Postal Service to join all other national posts with charters that allow it to manage the enterprise as a service and customer focused business with the freedom to fully generate revenue from the value of its capital, labor, and intellectual property assets. The first is the requirement that the Postal Service have a Chief Innovation Officer with a broad mandate that includes areas that traditionally are not considered “postal services.” The second is the Strategic Advisory Commission on Postal Service Solvency and Innovation which if it has sufficient independence to develop strategies for national postal operators that clearly are successful for implementing innovation and making the national post solvent.
Postal Service Labor Unions Need Follow American Airlines Unions Example.
American Airlines unions that if creditors accepted the plan that American Airlines management proposed to bring the airline out of bankruptcy, they would face major losses in jobs, compensation, benefits and significant changes in working conditions. Instead of accepting those conditions, the unions hired outside financial counsel and found new owners for American Airlines that had a plan that significantly reduced the pain that employees would experience as the airline came out of bankruptcy.
The current owner of the Postal Service is the federal government. The creditor committee is also the federal government but more specifically it is the Congress of the United States. Right now the portion of that creditors committee that controls legislation in the House of Representative wants to implement a plan similar to what American Airlines management proposed for the Airline. The portion of the committee that is the Senate doesn’t have a plan but does believe that a plan focusing on service cuts and abrogating labor contracts will not solve the Postal Service’s financial problems.
What the unions need now is what American Airlines unions found.
- They need to find a new owner for the Postal Service.
- They have to convince the creditors committee (the House and Senate) that the new owner and its approach will pull the Postal Service out of its financial difficulties, maintain universal service including service to the remote and economically depressed communities and not burden taxpayers in the process.
The National Association of Letter Carriers has taken an important first step needed to find that new owner in hiring Lazard to develop an outline of an approach for bringing the Postal Service out of its financial distress. What they don’t have is sufficient meat on Lazard’s skeleton to attract a white knight similar to what American Airlines unions found in US Airways.
What is clear is that this white knight is unlikely to emerge as long as Postal Service unions only look for one that must come under the current ownership structure and the legislative framework that established a quasi-governmental Postal Service. Forty years of Congressional interference shows that government ownership with Congress as both shareholder and creditor imposes costs and payment schedules for obligations almost randomly, stifles innovation, and reduces the likelihood that customer and creates a more adversarial labor-management relationship.
As a white knight cannot emerge as long as Congress is both the owner and creditor, it must come from the private sector. While introducing private investment into the Postal Service has a large number of opponents among the rank and file of postal unions, the experience of American Airline unions illustrates that unions working with private investors can produced a better outcome for employees than what current Postal management and H.R. 2309 offers.
The first step in finding the outside investor that will free the Postal Service from ownership of Congress involves putting some meat on the skeleton that Lazard created for the National Association of Letter Carriers. This is clearly needed to prepare for the Strategic Advisory Commission on Postal Service Solvency and Innovation that the Senate included in S.1789. More importantly, the details are needed in order to help craft a legislative approach in the House that would both give the Postal Service short term breathing room and force serious consideration of a financial restructuring that includes a balanced business model that would attract new ownership that includes private investors.
Postal Unions and other stakeholders should have little confidence that any change in managment at the Postal Service coming out of bankruptcy. That new owner would replace existing Postal Serivce management and would also require removal of the Postal Service from restrictions imposed by Congress that
The Senate also included
S. 1789, the 21st Century Postal Act,