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September 25, 2012

American pilot dispute recalls Eastern Airlines demise, analyst says

Are the pilots at American Airlines repeating history?

Maxim Group analyst Ray Neidl pointed out that the American pilot dispute, which has led to increased cancellations and delays at American over the past week, may be similar to how the pilots at Eastern Airlines "killed" that carrier.

Eastern Airlines had been in financial trouble for much of the 1980s and when the machinists union decided to strike in 1989, the pilots and flight attendants also chose to not cross the picket line. Then-chief executive Frank Lorenzo hired replacements to continue to the run the airline while it was in bankruptcy. However, the airline continued to lose money and finally in 1991, the airline shut down and liquidated.

In a research note sent to investors on Tuesday morning, Neidl made the comparison saying that American dispute has gone "beyond economic considerations to the emotional level, which is always dangerous since rationality for all parties can become secondary as was in the case of Eastern."

He continued:

"Although we do not believe conditions at AMR have reached anywhere near this level as yet, we do remain concerned that it could escalate in what is a weak economy and if not resolved could lead to a possible further weakening and eventual liquidation of the company. US Airways and other airlines could then pick up parts of the company by buying various assets that had value but not necessarily guaranteeing jobs for AMR employees."

Neidl added that any pilot job action, whether it is organized by the union or not, will hurt American in the short-term if it continues.

-Andrea Ahles


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Comments

FlyAAStew in Miami

the employees of Eastern did not KILL Eastern; Frank Lorenzo & his hired gun, Harvey Miller KILLED Eastern Airlines; it should scream loudly that AMR has also hired Harvey Miller; but we, the employees of AA and Am. Eagle, will survive the likes of our executives and Harvey Miller!

TiredOfPanderingANDREA

Well, PanderingANDREA has done it again. Frank Lorenzo was so hated by his employees that he had to have bodyguards around him at all times. He deliberately ran three different airlines into bankruptcy ON PURPOSE to screw the unions. Now ANDREA finally admits that HORTON and AMR have done the same thing. He was a pariah to the industry and so is ANDREA.

Andrew

Yes FlyAA, I'm sure that the union striking while the firm was in bankruptcy had nothing to do with the eventual liquidation.

With all due respect, if you guys let your hatred for "management," which is actually only a couple of individuals out of the thousands of members of management, take down the entire airline...that is your own fault.

By the way, to any pilots out there doing anything intentionally, I hope that you understand that you are damaging the credibility of the airline to the passenger, and at the end of the day, if fewer people fly American because of it, it hurts you guys more than those couple of members of management that you hate so much.

deltaffindfw

I seriously doubt that ANY congress or president will allow something like this to happen to a large airline like American. As FlyAAStew said, all of Eastern's problems were directly due to Lorenzo. Not only did he lock out and hire scabs (which you could never do for pilots), but he sold valuable assets to his sister companies (Texas Air and Continental) to force Eastern out of business. Another analyst who knows nothing about history or reality.

Phillip

Ms. Ahles shows her true lack of experience with this piece. The comparisons may be made, but not related to the eventual shutdown of American.

Lorenzo bought multiple carriers and then transferred assets and flying between them, seeking to pit the employees against each other in a death spiral of ever-declining careers. He also sucked the cash out of them.

American's pilots are fighting today to ensure no such plan can be put into effect by AMR. When you read "Scope Clause" and "outsourcing" understand those are one and the same and the contractual protections at American existed SOLELY to keep some clown like Lorenzo from doing such a thing at AA. AMR management has cried loudly and for a long time that they needed the "flexibility" inhibited by AA's pilots Scope clause, but want is clearly different from need. Look at Delta and Comair. Delta was outsourcing much of their flying to Comair at one point, but today Comair is on the verge of complete shutdown and Delta is doing the flying themselves and making record profits.

AMR has over five BILLION dollars in cash. Management does not own the airline, the unsecured creditors do. That cash is not there for management to further fight the pilots or spend as they see fit. There are not two or three management personnel that need replacement, most if not all of them need replacement. Why? They were hired and retained by the two or three some might wishfully hope will take the entire fall.

The comparison between Eastern and American exists only in this manner:

1) Both entered bankruptcy.
2) One never exited bankruptcy because Lorenzo never intended for it to. The timeline was only accelerated by the strike.


Current AA management replacement with management that wishes to focus on the core airline as opposed to running a travel boutique and outsourcing everything possible; that will guarantee a healtyh and vibrant AA post-bankruptcy. It all starts with current management being replaced, whether it be by the UCC and Judge Lane or their voluntary departure. Since their track record is one of selfishness I expect it will be the former rather than the later.

Mark it down - I guarantee within days of current management leaving, things will be running more smoothly than can be imagined and record profits will start within two years.

Phillip

Wings367

The pilots lost the sympathy vote with this stunt. Talk about chopping off your nose to spite your face. With this bunch of cry babies, not even Doug Parker will want you.

Del Daldottoo

If the Wall Street guys are talking negative about AA, then the price of borrowing money is going to go up.

Kinda becomes a self fulfilling prophecy.

MIA EAL

Being a former Eastern employee, there are some similarities with what is currently happening at AA. Don't be surprised if Neidl is correct. I never thought I would have lost everything and I tried to be cautious and prepare for such an event, but I still lost out. American is worth more in pieces and parts than as a whole, I found that out first hand. They sold the shuttle to Trump and then it went onto US Air and Latin America went to American, some routes and aircraft went Continental and the rest was parted out and sold off. History sometimes does repeat itself a good book to read is "Grounded" which is about the demise of Eastern Airlines. Folks just be prepared, save and have a back up plan.

chris

Wings367....Do you really think pilots had a sympathy vote to begin with? The public really couldn't care less about the the career of AA pilots. They only care when the flights are delayed or the prices go up.

The general public seemed to be much more interested in the NFL referee strike than a pilot contract negotiation with AA. By the way those greedy NFL referees will be making $149,000(2011), $173,000(2013), $205,000(2019). It will cost you more to attend an nfl game than it will to fly there to watch it, and the public will complain more about the airline ticket no doubt.

LAX FA

Any analogy to a liquidated airline is not an example I'm interested in following.

Time to move on, get real and work toward a better future.

Why do so many people at AA have a hard time accepting that?

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