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Published January 26, 2017
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AMERICAN AIRLINES PARENT COMPANY -- AMR -- IS BLAMING EXPENSIVE LABOR CONTRACTS AND COSTS AS A MAIN REASON FOR BANKRUPTCY
JONATHAN HOENIG: Well Cheryl, we always hear about on this program how unions help employees, they help companies, well unions and these union costs were one of the main factors cited by American Airlines in its bankruptcy. Three quarters of their workforce is unionized. Their pilots make an average of between 10 and 15 percent more than their competitors, and you know they were offered by the company, in my estimation, a pretty good deal; job security; a signing bonus. They walked away and now the company is bankrupt; seems to happen a lot with union-dominated firms.
WAYNE ROGERS: Well, when you say in a labor dispute whose fault is it; the problem really is a simple one in the following sense. Jonathan touched on it. Competition is what's going to make the airlines work or not work if they compete with each other. If they're not competing on a level playing field then somebody's going to get an advantage and that's not fair. That doesn't work in the free market system. In the free market system you need competition and that's what levels the playing field. They've got to get those costs down; they've got to lower their labor costs. By the way, they were something like six hundred million upside down in labor costs. Well, you just can't do that and compete with the other airlines.
DAVID MERCER: Well Cheryl, it's not as John had alluded to, the only cost factor that they have to bring down. They have one of the most antiquated fleets which make it fuel inefficient. They spend about 1.5 billion dollars more than they did last year. So there are a lot of factors as John had alluded to, that contribute to this. Secondly, I might point out that Delta Airlines went in to bankruptcy with a non-union labor force. So to say that labor itself causes the primary cause for a company like the airline industry to go into bankruptcy doesn't hold true with Delta being a case in point.
TRACY BYRNES: But I don't think that's what we're saying. I think that what we're saying is that for AMR, the parent company of American Airlines, 31 percent of operating expenses went to labor costs. No one could run a business like that. I think we're just saying labor costs in general have been the bane of many, many industries' existence. Look at the auto industries. There were a lot of years where the American cars cost more because of all of the legacy costs. Legacy costs, union costs, labor costs have hurt our American companies.
JOHN LAYFIELD: David is right on this. These are poorly-run businesses. Look, you've had 15 plus airlines go bankrupt since 2000, it depends on how you term things either 15 or 16 airlines. Over one hundred and ten billion dollars; you had UAL at 25 billion; American at 25 billion; Delta at 21 million; Northwest at 14 billion. All of them are going bankrupt. This model simply does not work and part of this is that entire structure that these companies have is just not conducive to making money. They have not made money since 1904 when the Wright brothers first flew at Kitty Hawk and there is a reason. It's these Legacy issues and it has something also to do with these labor unions as well.
GM ONLY SELLS 1139 VOLTS IN NOVEMBER - THE COMPANY KEEPS INSISTING THE VOLT IS THEIR FUTURE
WAYNE ROGERS: Well I think we've got to worry, yeah, because we bailed out General Motors; we bailed out Chrysler. We were just talking about bankruptcies. These are two of the largest bankruptcies that have ever occurred in the United States; I think General Motors being the fifth or sixth largest one; ninety five billion dollars or something like that. So the company is suspect in the first place. Management is suspect; they couldn't run it when they were operating gasoline engines. Why are they going to be able to do it when they're operating Volts, if you will? Now, I know that their sales are up this quarter; very strong this quarter in Chevrolet and some of the others, but that doesn't help this particular model and this particular model is not working. I can't tell you why, but the fact that it's caught on fire twice is not necessarily meaningful in the sense that it caught on fire in tests. In safety tests, not out on the road, so they're out. There's going to be clouds here.
JOHN LAYFIELD: Yeah I think they should be worried for the reasons Wayne just outlined for us on the program. The Chevy Cruz is up 54 percent. Look, it's a good little car. It's got a five star crash rating. It's got 40 plus miles per gallon, but they're not pushing the Chevy Cruz. They're pushing the Volt, and people just simply don't want it. I am a believer in the electric car. I believe it is part of our future, but the way that the government is going about it trying to get people to buy a car that they don't want is not a way to spread widespread adoption. You've got to do a lot of different things other than what they're doing.
JONATHAN HOENIG: John I am glad you're such a believer in the electric car. You can dump 50 billion dollars in to it, because you know what? The taxpayer is down a lot of money in its little foray in to the Suzuki Samurai or whatever the heck this car is. I mean Cheryl, 1,100 cars? I think the Duane Reade by the corner by the studio there probably did more business than Chevy did on this car, which as you pointed out has been touted as the end-all-be-all. Of course it's a disaster. It was created for political purposes, not economic purposes and the taxpayer has been taken for a terrible, terrible ride.
TRACY BYRNES: And they should do it, and come on now the little fire issue could turn into a big fire issue, and sure Wayne's right it happened in tests, but it doesn't really do much for the PR of the electric car does it now and look, people are buying trucks. The Silverado is on fire. This is what the people want and again as Wayne said, the government though, pushing out this green agenda; maybe we're not ready for it. Maybe Chrysler, GM, all these companies aren't ready for it. They're not ready to push this car out, so give them time to create it properly.
DAVID MERCER: You're right. The taxpayer is an investor, but they did see their return on investment in the initial bailout that accrued to GM, getting paid back the four-some-odd billion dollars. Secondly, as Wayne had pointed out GM sales are up and the auto industry is doing better than it absolutely would have been doing if it had not been supported by the American public and they've gotten 2.9 million cars sold in China. They're expanding as an international conglomerate and thirdly, we have to know that the consumer approves of this car by 93 percent. It's got the highest consumer rating, and finally I'll add that the production line has been re-tooled at GM so it can meet demand. They're expecting next year to make nearly 60,000 cars. So it was on the production side.
NATIONWIDE INTERNET SALES TAX: WILL THIS BE A NATIONWIDE JOB KILLER?
TRACY BYRNES: Well, it all comes down to jobs at the end of the day, Cheryl. Look, if I go online to buy something I got a big tax bill at the end of the day, I'm probably going to buy less. I buy less, company makes less money that means less money left to hire. It is all very cyclical and it all comes around. It boggles my mind that when they're trying to increase our consumption out there they're going to hit us with a tax and bring it down.
JONATHAN HOENIG: Yeah, think about the compliance cost; forget the costs the consumers share which are immense as you point it out. The compliance costs and of course all that money goes to whether it's Albany or Springfield or the federal government it goes towards more government spending, ultimately more government waste. Why don't they start by cutting sending as opposed to always finding an excuse to raise taxes?
WAYNE ROGERS: Well, I understand that but at the same time you go to level the playing field again. I mean why should I have to pay a tax if you don't have to pay a tax, then I'm being prejudiced against and I can't sell my products it's the same price that you can over the internet. So you've got to work out that playing field. I grant you that the state laws are terrible. That Quill vs. North Dakota was a terrible case in which they decided this way you have the presence in the state in order to sell. Well, that's nuts. They've got to clear the whole thing off. Take all the taxes off or have a simple one tax for everybody.
DAVID MERCER: No, I don't and I think small businesses expect these sales taxes to come. It does go to John's point with regard to the administration of that tax and the cost associated with that which people have to...those policy makers need to take that into account to make sure that jobs aren't lost. But going back to what Wayne had earlier said you have to have a neutral channel on tax policy and therefore it is coming.
JOHN LAYFIELD: You have a hundred and sixty five billion last year in e-commerce sales. This is coming out of retail sales which hurt states and localities, but what David and Wayne are saying about one tax that's the problem. Cause if you buy it here, you buy it in New Jersey you buy it overseas this is a convoluted mess of compliance if they try to implement this and one size fits all.
WHAT DO I NEED TO KNOW?
JOHN LAYFIELD: I don't know which is worse! That I got something stolen or the world now knows that I drive a scooter in Bermuda, thanks to my friends at DMV and everybody else reporting this. This is terrible news, and stolen out of a police parking lot by the way. Buy a Harley Davidson, buy anything but a scooter. I promise you.
TRACY BYRNES: Representatives out of Georgia proposing that unemployed people volunteer their time, twenty-four hours a week in order to receive those unemployment checks. Love it.
WAYNE ROGERS: Well, I like Jefferies they got beat up a little bit because of the European debt problem and I think that was mis-analyzed as its all time low place of trade seven times of earnings. This is a big rebound stock. Great buy.
JONATHAN HOENIG: Our backdoor bailout in Europe will because I believe Cheryl inflation right here at home. Checkout DTUS it's an exchange traded note that goes up as the two year interest rate goes up. I'm betting on higher rates, this is the one to watch.
https://www.foxnews.com/transcript/labor-costs-ground-american-airlines