I would like to thank our witnesses for coming before us today. I would especially like to recognize Captain Sullenberger, who is a true American hero. We all owe you a debt of gratitude for saving the precious lives of so many on US Airways flight 1549 earlier this year.
Mr. Chairman, bankruptcy law is about striking the proper balance between competing interests. The competition in bankruptcy between labor contracts and a successful airline reorganization has made modifying collective bargaining agreements one of the most difficult issues in an airline bankruptcy.
I know that rejecting collective bargaining agreements and reducing employees’ wages and benefits is not something that airlines have taken lightly. However, many airlines have been so constrained by unaffordable labor costs and union work rules that without relief, reorganization would have been impossible.
This is why section 1113 of the Bankruptcy Code reasonably balances the rights of unionized employees with a bankrupt company’s ability to eliminate labor contracts. Collective bargaining agreements can only be rejected if rejection is “necessary to permit the reorganization of the debtor.” And rejection can occur only after the parties have met to try to reach an agreement on modification.
Some would like to make it more difficult for distressed airlines to reject collective bargaining agreements. But if airlines are forced to liquidate because labor costs cannot be reduced, employees will lose their jobs and retirees will lose their benefits.
Take, for example, US Airways. It first entered bankruptcy in August of 2002 and by mid-2004, management determined that a further realignment of its costs was unavoidable. US Airways entered into a second bankruptcy in September 2004, where it sought to rid itself of historical costs that made the carrier less competitive at the lower fare structures that had become the industry norm.
During the second bankruptcy and as a result of steps taken to achieve a more competitive cost structure, US Airways was able to attract a merger partner. As it emerged from bankruptcy in the 4th quarter of 2005, US Airways was acquired by the former America West Airlines.
Through the bankruptcy proceedings, US Airways was lawfully relieved of its pre-bankruptcy pension obligations. This was a very difficult and painful step which unquestionably impacted employees. However, had the former US Airways not been relieved of pension obligations through bankruptcy, it is highly unlikely America West Airlines would have sought to merge with US Airways to begin with. The America West/US Airways merger ensured that the jobs of many thousands of former US Airways employees were preserved.
So the fundamental question we should ask ourselves is: Do we want to make it impossible for airlines to reject their collective bargaining agreements, forcing them to liquidate? Or do we want to allow them to make the cuts necessary for their reorganization?
Mr. Chairman, the Bankruptcy Code currently strikes the proper balance between distressed airlines and their labor unions.
This balance allows the airline to make the necessary changes to its cost structure and obtain the financing it needs to successfully reorganize -- saving jobs and preserving retirement benefits.
I look forward to the witnesses’ testimony and yield back the balance of my time.
