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September 14, 2004

Screwing Workers in Bankruptcy Ct.

Bankruptcy court is a weird beast in a capitalist system. Essentially, businesses that have failed and are refusing to honor contracts with various other economic actors are allowed to keep in business, while selectively being allowed to default on payments owed to various creditors.

Now, US Airways is getting special help from the federal government to continue its operations. The judge in the proceedings is alllowing the company to use a portion of its $750 million federally guaranteed loan to fund its continuing operations.

But not included in its proposed operations are the payments it owes to workers pensions, which the company is asking the court for permission to no longer pay:

The airline told Mitchell at a hearing yesterday that it considers a $110 million pension contribution due Wednesday to be a debt incurred before its filing Sunday, making the payment unnecessary under bankruptcy law.

The company said in a court filing it may freeze or terminate the pension plans, a move that could make its already tense labor relations more difficult. Mitchell scheduled a hearing on the pension issue for Oct. 7.

Unions are stiffening their resistance to givebacks under the threat of bankruptcy. Airlines have been using bankruptcy courts in recent years to drive down wages throughout the industry, so unions may face a choice of driving US Airways out of business and using the sale of its assets to pay off as much of the pension obligations owed them as possible.

That strategy would leave current US Airways workers unemployed-- although hopefully many would get fired by other airlines-- but it might deter this kind of misuse of the bankruptcy courts by other airlines. Back in the 1980s, workers at Eastern Airlines faced union-busting by the notorious Frank Lorenzo, who similarly used bankruptcy courts abusively. Rather than let him destroy standards in the industry, the workers struck and put the company out of business-- an act that deterred airlines for the next decade or so from similar attacks on the airline unions. A similar lesson -- based on sacrifice by workers at a major airline -- may be needed to preserve standards in the rest of the industry.

Unfortunately, the unionized airlines face low-wage competition from the new budget airlines like Jet Blue, so the survival of high wage standards in the industry is going to be tough no matter what. But the bankruptcy courts should not be aiding the union-busters.

Posted by Nathan at September 14, 2004 06:44 PM