One big family

Louis Proyect lnp3 at
Mon Mar 12 11:44:22 MST 2001

NY Times, March 12, 2001

Judge Approves American's Purchase of TWA


Filed at 1:11 p.m. ET

WILMINGTON, Del. (AP) -- A federal judge on Monday said he is going to
accept the $742 million bid by AMR Corp.'s American Airlines for the assets
of bankrupt Trans World Airlines Inc., pleasing TWA workers who feared
their company might be acquired again by billionaire financier Carl Icahn.

U.S. Bankruptcy Judge Peter Walsh said he will approve the bid in part
because he feared TWA would be forced to liquidate its assets if the deal
with American did not go through.

``I think it is in the best interests of the estate for that not to
happen,'' Walsh said.

The purchase still must be approved by the U.S. Justice Department, which
is conducting an expedited review. American has said it expects to offer
jobs to most of TWA 20,000 workers, and TWA's unions are expected to
approve the deal.

As a result, TWA's name will eventually disappear as the company and its
employees are folded into American, said American spokesman John Hotard.

``We want everyone to be part of one big family,'' Hotard said. ``You're
better off from an employees' standpoint and marketing standpoint to have
everyone under a single name.''


The New York Times, September 5, 1993

CRANDALL HAD PUT ALL the pieces in place to expand American Airlines in the
early 1980's -- except one. He still needed a strategy to lower labor
costs, which consumed more than 38 cents out of every dollar of revenue.

Crandall had a serious cost problem. Like the other major airlines,
American was a high-cost carrier. The meal service, the baggage handling,
the ticketing, the thousands of employees who were paid high union wages
with restrictive work rules all represented enormous costs embedded in
American's system.

For four decades, the Federal Government had regulated fares and routes.
The Civil Aeronautics Board had built a rate of return into fares based on
actual industry operating costs, whichmeant that carriers had little
incentive to operate efficiently by holding down expenses for labor and
other items. Costs ballooned over the years.

When deregulation arrived in 1978, the airlines were free to add routes
where they wanted and to price their services as they wished. But such
freedom also had its price. Deregulation brought new carriers like People
Express into the market -- carriers that enjoyed much lower costs because
they started from scratch with nonunion workers.

Fast growth could enable American to achieve the kind of size and market
dominance that could give it competitive advantage. But Crandall understood
that American could not afford to grow unless it reduced its operating costs.

Crandall's solution was to sign a deal with the major unions in 1983 that
established a two-tier wage structure. It protected the salaries of current
employees while allowing American to make new hires at lower wages. That
meant subsequent growth would be achieved with low-cost labor. The faster
American grew, the faster its average unit costs would go down.

Louis Proyect
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