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How Airlines Land in Trouble

Editor's Note. With US Airways (UAIR) filing for another bankruptcy, UAL (UALAQ.OB)-unit United Airlines headed into its second year operating under Chapter 11 and Delta Air Lines (DAL - Get Report) fighting to avoid their fates, the airline industry is back on the brink of financial chaos, with no end in sight. Over the last two weeks, readers have reacted strongly to the industry's latest wave of troubles. Eric Gillin, airline reporter for TheStreet.com , responds to their questions and comments.

Q: Your paragraph concerning US Airways' bankruptcy alludes to the idea that it was the pilots alone that caused the company to enter bankruptcy for the second time. All of the employees were against the total mismanagement of US Air by its executives. All the union employees, quite rightly, refused to take another "hit" again after giving up almost $2 billion previously to get US Air out of trouble the first time. But your article lays the blame for US Air's failures on the pilots' negotiations alone! -- H.A.

A: Any management team that has filed for bankruptcy twice in two years after winning a government loan and billions in wage concessions from employees hasn't exactly done a good job. But the chronic need to assign blame here is a waste of time that hurts the industry; it is an emotional reaction to what is fundamentally a business problem in dire need of cold, rational analysis. Ask anyone on Wall Street who they blame for US Airways' second bankruptcy and they'll either say "both" or "who cares?" The industry has lost billions and billions of dollars in the last three years -- there's more than enough blame to go around here.

On a deeper level, this letter illustrates why labor negotiations are so heated. For years, airline management teams have invoked the threat of bankruptcy to get out of contracts they signed during good times, generating a great deal of mistrust among the unions. How much? A week before US Airways officially filed for a second bankruptcy, one of its local unions sent out the following message to pilots:

"We will not be party to what ultimately took the form of an opportunistic and wholesale rape of the US Airways pilots' working agreement. Any successful transformation can only be accomplished through the efforts of an enlightened management, working in concert with its workers, not through the use of threats and attempted intimidation."

The union has been so upset after years of negotiations with management that it was not even willing to sign a deal to save the carrier, with full knowledge that doing a deal on concessions under bankruptcy would likely be even worse. But when a management team squanders $5 billion in annual wage concessions and you're still upset, the only choices are to cut your pay or cut off your nose to spite your face.

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