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Bankruptcy, Overcapacity and the US Airline Industry
by Seth Sandronsky
October 31, 2004

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Do you recall the “new” economy hype of last decade? Its cheerleaders claimed that the American business cycle was over. With the luxury of hindsight, we see the foolishness of that claim. On that note, consider the U.S. airline industry today. Its revenues are down. Expenses are up, led by rising oil prices. So domestic carriers are slashing their costs by any means necessary. This process brings into clearer view the social conflict between airline employers and employees.

Currently, there are too many airline flights for too few business and leisure customers. The NY Times of Sept. 14 reported that airline overcapacity “is plaguing the industry.” Overcapacity is a condition in which more goods are produced or services provided than can be sold to buyers. Air transport is a service. Overcapacity is not a condition of nature but a consequence of a certain social formation.

In the meantime to stem the red ink, U.S. carriers are cutting jobs and employee costs for the present (wages) and the future (pensions). US Airways and United Airlines are using bankruptcy protection law as a weapon against their work forces. Delta Air Lines has chosen the threat of a potential bankruptcy to convince its pilots (the only union employees with the carrier) to accept lower pay and pensions.

Some 110,000 airline workers at the major carriers have lost their jobs since the East Coast terrorist attacks. At the same time, the federal government (Air Transportation Stabilization Board) rushed in with financial help for these carriers after Sept. 11, 2001. The federal government is also helping airline owners to squeeze their work forces. Recently, a federal bankruptcy judge ruled that US Airways can void the union contracts of its employees. They get no vote in the matter. According to the NY Times of Sept. 24: “Bankrupt companies are allowed to seek emergency cuts under Section 1113 of the federal bankruptcy code. The code also allows a company to ask the bankruptcy judge to set aside labor contracts and impose permanent, less-generous terms.” Such are the rights of unionized workers under American democracy!

We turn from anti-labor actions by the federal government to private capital markets. American Express has lent money to Delta, which may file for bankruptcy, the carrier’s CEO says. Tentatively, Delta’s pilots have agreed to wage cuts followed by a wage freeze through 2009. The carrier’s share price rose on this news. General Electric has lent to US Airways.

Presumably, GE is pressuring the carrier to lower its current and future labor costs. When lenders and shareholders speak, debtors listen and act.

Airline workers get downsized and outsourced. For instance, United just announced plans to close a reservation call center in the U.S. and move that work to India.

Crucially, overcapacity is not unique to the U.S. airline industry.

Currently, the domestic auto industry has a growing inventory of unsold cars. Dealers are slashing new car prices to try and attract buyers. Last decade, overcapacity hammered the U.S. telecommunications industry. Some 2.5 percent of the underground fiber optic cables installed by companies in the 1990s were being used by early 2001. An example of overcapacity can also be found in the rise of the U.S railroad industry. Wall Street fueled over-investment that led to the build-up of rail capacity and bankruptcies in the 19th century.

In brief, corporate over-production and under-utilization are built into a capitalist economy. The “why” of this is due to the very nature of investment itself. Capital investment increases the capacity of a company.

Investors expect their capital to grow. Yet the future demand for what a company can sell can’t be predicted. What people actually need to thrive at work and in their daily lives is secondary. Investors’ drive to realize a return on their capital is primary.

The airline industry, like capitalist industry generally, exists for a single purpose—to produce a surplus for a wealthy few. That surplus is commonly called profits. A labor process that compels people on the pain of starvation (unemployment) to produce a surplus that increasingly flows away from them also creates conflict. Thus employers and employees face each other antagonistically. We see these relations more clearly when the business cycle turns sour. Today in the U.S. airline industry, lenders, owners and shareholders are trying to protect their capital by breaking unions, with a big hand from the judicial arm of the federal government.

As you read, the living and working standards of those who labor for domestic carriers are being driven down. The effects of this may likely push the nation one more step towards becoming a low-wage economy. If current labor trends continue, the U.S. working majority will experience less personal and social stability. This is something to ponder amid the political rhetoric leading up to Election Day and beyond.

Seth Sandronsky is a member of Peace Action and co-editor with Because People Matter, Sacramento’s progressive paper. He can be reached at:

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