ATA Airlines and Airlines and Executive pay and Bankruptcy and Transportation, Distribution & Logistics

ATA plan ticks off terminated pilots, attendants

April 14, 2008

Former ATA Airlines employees are trying to comb the wreckage of the bankrupt carrier, looking to grab their financial belongings before managers and lenders cart off what little is left.

Pilots and flight attendants are opposing retention bonuses for managers who will spend the next several months turning out the lights of the 35-year-old carrier. And another former employee filed a lawsuit to capture pay and benefits for more than 1,000 terminated workers.

ATA ceased flights and filed Chapter 11 bankruptcy April 3, simultaneously throwing out of work more than 580 employees at its Indianapolis headquarters plus another 1,700 around the country.

That is, however, with the exception of 400 managers ATA wants to keep around in declining numbers until at least October as the company is dismantled. Dozens of cars belonging to managers were parked this week out back of ATA's corporate campus at 7337 W. Washington St., with police cars conspicuously positioned nearby.

In return for the dedication of those managers, ATA has asked U.S. District Bankruptcy Court Judge Basil Lorch for permission to pay nearly $1.3 million in retention bonuses. That's on top of $2.9 million in estimated payroll costs. Lorch is to take up the matter at a hearing April 17.

But the Air Line Pilots Association, representing 580 unemployed ATA pilots, and the Association of Flight Attendants, on behalf of 750 terminated flight attendants, argue there's no basis for the retention bonus.

"The debtor seeks bonus money for unidentified members of management holding unidentified positions--the very management under whose watch ATA collapsed," states the objection filed by Frederick Dennerline of Indianapolis law firm Fillenwarth Dennerline Groth & Towe.

Richard J. Swanson, an Indianapolis attorney for the flight attendants, said the bonuses ATA wants to give are 50 percent above base salary.

He argued there is no evidence that, without the bonuses, managers would quit or fail to perform their duties during the wind-down. ATA "cites no evidence that these individuals have positions waiting for them elsewhere in the distressed airline industry."

Both unions cited court commentary in a previous U.S. Airways bankruptcy that management retention plans "have something of a shady reputation."

ATA said it would be impractical "and likely impossible" to replace workers with essential company knowledge on a temporary basis.

Flight attendants are seeking vacation pay and 401(k) contributions, among other things, Swanson said. Pilots want the same. Swanson said he didn't immediately know how much was owed.

"We're still working on getting the numbers from our individual guys to calculate what each of them is owed. But if you count unused vacation, unused commute credit and funds frozen in individual pilots' credit banks, the number should be in the hundreds of thousands at the very least and possibly much more," said Rusty Ayers, spokesman for ALPA in Chicago.

"The difficulty has been that ATA has shut down its Web-based HR functions, at least those that the regular employees used to be able to access, so it's very difficult for employees to find the most recent balances for their various accounts."

Failure to warn?

Meanwhile, on April 8, Kevin Batman, who worked at ATA's headquarters, filed a suit seeking class-action status in U.S. District Court in Indianapolis.

He alleges ATA violated the federal Worker Adjustment and Retraining Notification Act by failing to give employees at least 60 days' advance notice of termination. That would allow them to recover wages and retirement benefits for 60 days.

They're also seeking commissions, bonuses, and accrued holiday and vacation pay. And they want 401(k) contributions and health insurance benefits owed during the 60-day period, the complaint states.

The federal WARN act allows companies an exemption from the requirement to give 60 days' notice of closure in certain situations, including "unforeseeable business circumstances."

ATA said what ultimately drove it to shutter the company was the loss of a contract to haul troops for the U.S. military.

"We've seen this before, with companies that have lost contracts," said Joe DiLaura, spokesman for the Indiana Department of Workforce Development.

Matthew Helland, an attorney for law firm Nichols Kaster & Anderson in San Francisco who represents Batman, said he imagines ATA will use that defense.

"Then it's a factual dispute whether these were unforeseeable circumstances" or whether managers knew sooner of the company's demise, he said.

ATA states in its bankruptcy filing that FedEx, on whose team ATA served for passenger airlift military business, on Jan. 22 "abruptly and unexpectedly" notified ATA that it was no longer a member of the team for charters during government fiscal year 2009.

Employees said ATA had been in the "penalty box" over the last several months due to unreliable aircraft, particularly involving aged DC-10s it recently acquired from Northwest Airlines.

The FedEx decision meant the end of virtually all of ATA's $335 million in military charter business. ATA said it was the largest transporter of military personnel and their families to and from overseas deployments.

Its other big business--scheduled service--was seriously ill. Though it generated revenue of $402 million in 2007, scheduled service expenses totaled $485 million.

ATA said it proceeded early this year to start cutting unprofitable segments of scheduled service, including all flights from its Chicago Midway airport hub. It attempted to sell the company and had solid interest from five carriers, but the January bombshell from FedEx scared away acquirers and lenders, it said in court filings.

Little to recover

If employees were to prevail in court actions against ATA, there might be little or nothing to collect from the carrier. Last year, ATA borrowed $340 million from JP Morgan Chase Bank to buy Atlanta-based World Air Holdings, parent of military charter airline World Airways and North American Airlines.

In making that acquisition, ATA created a new parent company, Global Aero Logistics, based in Atlanta.

With most of ATA's assets in the form of aircraft it leased, JP Morgan is unlikely to recover all its money. The odds of recovery would be even longer for other creditors. But under federal law, a parent company potentially could be liable for certain employee benefits such as pensions, said Ice Miller attorney Henry Efroymson. The longtime Indianapolis bankruptcy attorney represents companies that leased ATA 26 aircraft and the Indianapolis Airport Authority, which leases ATA its headquarters campus for $46,000 a month.

ATA first filed for bankruptcy in 2004 after being weighed down by costly aircraft leases for a massive expansion of scheduled service. Business suffered after the 2001 terrorist attacks and fuel prices rose amid intense fare discounts in the industry.

ATA had been the 10th-largest U.S. passenger carrier. When it emerged from bankruptcy in 2006, it eliminated all scheduled service at Indianapolis International Airport, where it had been the busiest carrier.

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