Airlines in bankruptcy land

OPINION

By Charles Leocha

Travel columnist

updated 1:16 p.m. ET March 30, 2007

Charles Leocha Travel columnist • Profile • E-mail

When did bankruptcy become a deliberate management strategy for the airline industry? Somehow it has become the ultimate hammer with which to pound out excess costs and then reward executives in charge of the bloodletting for their "effectiveness."

Delta Air Lines and Northwest Airlines are the two largest airlines still in bankruptcy. But United Airlines, Continental Airlines, America West, US Airways, ATA Airlines, Braniff International, Eastern Airlines, TWA, Hawaiian Airlines and Aloha Airlines have all reorganized under bankruptcy protection at one time or another, and some of these carriers are still operating.

Bankruptcy courts have just about rolled over and played dead for airline management. I can't remember the last time I heard pilots, flight attendants or other union members had been favored in any court decision that involved a confrontation with management.

Consider the damage. Stockholders have been wiped out. Pensions have been abandoned by the bankrupt companies. Flight attendants have seen their work rules changed dramatically. Pilots are being squeezed for more and more flight time. Aircraft orders have been canceled. Contracts with suppliers have been torn up. Terminal leases with airports remain unpaid.

The only parties in the current spate of airline bankruptcies that seem to be flourishing are the airline executives, the lawyers and a handful of bankruptcy financing firms. This greedy triad has been working the bankruptcy system to line their pockets — and to hell with the rest of the players.

According to SEC filings in February and March last year, Glenn Tilton, the current CEO of United, was awarded more than $20 million by the airline's board of directors; by some estimates, he is now one of the largest shareholders in the company that he shepherded into bankruptcy. According to UnionVoice.org, his handpicked legal firm, Kirkland & Ellis, has charged more than $50 million, and one attorney has pocketed almost $2 million in fees for a recent year.

USA Today reported only this week that SEC filings showed United's top five executives received $25.7 million in the form of cash, stock or exercisable options. Of that, CEO Glenn Tilton received $9.3 million, the filing said.

CNNMoney.com reported as far back as 2003 that former CEOs have reaped stunning salaries and even more astonishing pension deals. The former CEO of Delta worked for the company less than six years and walked away with a pension promising a million dollars a year. Unlike the pensions of the airline rank and file, his retirement is protected and guaranteed by a special executive trust fund.

Daily travel blog Daily postings from ‘the last honest travel site’

Similarly, though its former CEO Donald Carty was forced to retire when the size of his pension became public, other executives at American Airlines still enjoy the protection of a special trust fund guaranteeing their pensions. The pilots and flight attendants, on the other hand, may see their hard-earned pensions slashed and eventually sent over to the Pension Benefit Guaranty Corporation. They get no guarantees.

The American Airlines pilots are incensed at the phenomenal increase in pay that their airline's top executives have seen. According to Airline Pilots Association figures, the five top executives at American stand to receive $26,498,899 this year, up from the $3,777,325 they received in 2002. During the same period, the pilots pay actually decreased 4 percent -- even though they now spend 26 percent more time in the air.

According to Arianna Huffington, quoted in WorkingForChange.com, the former CEO and the former CFO of US Airways, who together piloted that airline into debtor's land, reportedly each walked away with $35 million in salary, bonuses and stock options in 1998. They then feathered their retirement nest by receiving administrative credit for more than 20 years that they weren't actually on the job. The CEO, Stephen Wolf, left the company with a $15 million pension cash-out just six months before US Airways declared bankruptcy.

MORE FROM AVIATION

Aviation Section Front

States scramble for slice of Boeing's business Qantas cancels orders for 15 Boeing 787s NYC service could change Southwest Airlines Dreamliner delays may be boon for Airbus Historic planes draw crowds at Paris Air Show Boeing gets first Paris Air Show order Asian, low-cost airlines boost Airbus Boeing’s military wing banks of foreign sales NYT: Dark clouds hover over air show Continental crash shows safety may have price Aviation Section Front   Add Aviation headlines to your news reader: