- PROTECTING EMPLOYEES AND RETIREES IN BUSINESS BANKRUPTCIES ACT OF 2010

[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]

PROTECTING EMPLOYEES AND RETIREES IN BUSINESS BANKRUPTCIES ACT OF 2010

=======================================================================

HEARING

BEFORE THE

SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW

OF THE

COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

SECOND SESSION

H.R. 4677

----------

MAY 25, 2010

----------

Serial No. 111-123

----------

Printed for the use of the Committee on the Judiciary

Available via the World Wide Web: http://judiciary.house.govFOR
SPINE deg.
PROTECTING EMPLOYEES AND RETIREES IN BUSINESS BANKRUPTCIES ACT OF 2010

PROTECTING EMPLOYEES AND RETIREES IN BUSINESS BANKRUPTCIES ACT OF 2010

=======================================================================

HEARING

BEFORE THE

SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW

OF THE

COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

SECOND SESSION

H.R. 4677

__________

MAY 25, 2010

__________

Serial No. 111-123

__________

Printed for the use of the Committee on the Judiciary

Available via the World Wide Web: http://judiciary.house.gov

U.S. GOVERNMENT PRINTING OFFICE
56-639 WASHINGTON : 2010
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202�09512�091800, or 866�09512�091800 (toll-free). E-mail, [email protected].

COMMITTEE ON THE JUDICIARY

JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California LAMAR SMITH, Texas
RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, Jr.,
JERROLD NADLER, New York Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina ELTON GALLEGLY, California
ZOE LOFGREN, California BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas DANIEL E. LUNGREN, California
MAXINE WATERS, California DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts J. RANDY FORBES, Virginia
STEVE COHEN, Tennessee STEVE KING, Iowa
HENRY C. ``HANK'' JOHNSON, Jr., TRENT FRANKS, Arizona
Georgia LOUIE GOHMERT, Texas
PEDRO PIERLUISI, Puerto Rico JIM JORDAN, Ohio
MIKE QUIGLEY, Illinois TED POE, Texas
JUDY CHU, California JASON CHAFFETZ, Utah
TED DEUTCH, Florida TOM ROONEY, Florida
LUIS V. GUTIERREZ, Illinois GREGG HARPER, Mississippi
TAMMY BALDWIN, Wisconsin
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DANIEL MAFFEI, New York
JARED POLIS, Colorado

Perry Apelbaum, Majority Staff Director and Chief Counsel
Sean McLaughlin, Minority Chief of Staff and General Counsel
------

Subcommittee on Commercial and Administrative Law

STEVE COHEN, Tennessee, Chairman

WILLIAM D. DELAHUNT, Massachusetts TRENT FRANKS, Arizona
MELVIN L. WATT, North Carolina JIM JORDAN, Ohio
DANIEL MAFFEI, New York HOWARD COBLE, North Carolina
ZOE LOFGREN, California DARRELL E. ISSA, California
HENRY C. ``HANK'' JOHNSON, Jr., J. RANDY FORBES, Virginia
Georgia STEVE KING, Iowa
ROBERT C. ``BOBBY'' SCOTT, Virginia
JOHN CONYERS, Jr., Michigan
JUDY CHU, California

Michone Johnson, Chief Counsel

Daniel Flores, Minority Counsel

C O N T E N T S

----------

MAY 25, 2010

Page

THE BILL

H.R. 4677, the ``Protecting Employees and Retirees in Business
Bankruptcies Act of 2010''..................................... 3

OPENING STATEMENTS

The Honorable Steve Cohen, a Representative in Congress from the
State of Tennessee, and Chairman, Subcommittee on Commercial
and Administrative Law......................................... 1
The Honorable Trent Franks, a Representative in Congress from the
State of Arizona, and Ranking Member, Subcommittee on
Commercial and Administrative Law.............................. 36
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Ranking Member, Committee on the Judiciary. 37

WITNESSES

Ms. Babette Ceccotti, Cohen, Weiss and Simon LLP
Oral Testimony................................................. 45
Prepared Statement............................................. 48
Mr. John Prater, Captain, Air Line Pilots Association, Intl.
Oral Testimony................................................. 151
Prepared Statement............................................. 153
Mr. James H.M. Sprayregen, Kirkland and Ellis LLP
Oral Testimony................................................. 183
Prepared Statement............................................. 185
Ms. Janette Rook, Association of Flight Attendants-CWA
Oral Testimony................................................. 203
Prepared Statement............................................. 205
Mr. Thomas Conway, United Steel Workers of America
Oral Testimony................................................. 232
Prepared Statement............................................. 234
Mr. Michael L. Bernstein, Arnold & Porter LLP
Oral Testimony................................................. 241
Prepared Statement............................................. 244
Mr. Robert Roach, Jr., International Association of Machinists
and Aerospace Workers
Oral Testimony................................................. 293
Prepared Statement............................................. 295

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan,
Chairman, Committee on the Judiciary, and Member, Subcommittee
on Commercial and Administrative Law........................... 39
Prepared Statement of the Honorable Henry C. ``Hank'' Johnson,
Jr., a Representative in Congress from the State of Georgia,
and Member, Subcommittee on the Constitution, Civil Rights, and
Civil Liberties................................................ 43

APPENDIX
Material Submitted for the Hearing Record

Response to Post-Hearing Questions from Babette Ceccotti, Cohen,
Weiss and Simon LLP............................................ 326
Response to Post-Hearing Questions from John Prater, Captain, Air
Line Pilots Association, Intl.................................. 336
Response to Post-Hearing Questions from James H.M. Sprayregen,
Kirkland and Ellis LLP......................................... 338
Response to Post-Hearing Questions from Janette Rook, Association
of Flight Attendants-CWA....................................... 341
Response to Post-Hearing Questions from Thomas Conway, United
Steel Workers of America....................................... 343
Response to Post-Hearing Questions from Michael L. Bernstein,
Arnold & Porter LLP............................................ 347
Post-Hearing Questions posed to Robert Roach, Jr., International
Association of Machinists and Aerospace Workers................ 350
Prepared Statement of the International Union, United Automobile
Aerospace & Agricultural Implement Workers of America (UAW).... 351
Letter from Brian Cove, Chief Operating Officer, Commercial
Finance Association............................................ 364

PROTECTING EMPLOYEES AND RETIREES IN BUSINESS BANKRUPTCIES ACT OF 2010

----------

TUESDAY, MAY 25, 2010

House of Representatives,
Subcommittee on Commercial
and Administrative Law,
Committee on the Judiciary,
Washington, DC.

The Subcommittee met, pursuant to notice, at 11:05 a.m., in
Room 2142, Rayburn House Office Building, the Honorable Steve
Cohen (Chairman of the Subcommittee) presiding.
Present: Representatives Cohen, Delahunt, Watt, Lofgren,
Scott, Chu, Franks, Jordan, Coble, and Issa.
Staff Present: (Majority) James Park, Counsel; Andres
Jimenez, Staff Assistant; and (Minority) Daniel Flores,
Counsel.
Mr. Cohen. This hearing of the Committee on the Judiciary,
Subcommittee on Commercial and Administrative Law will come to
order. Without objection, I shall be authorized to declare a
recess to the hearing.
I now recognize myself for a brief statement. Congress
enacted Chapter 11 of the Bankruptcy Code to give all
interested parties a say in how a struggling business should be
reorganized. In theory, financial returns and sacrifices should
be shared in an equitable manner.
In the 110th Congress, this Subcommittee conducted three
hearings on how American workers and retirees are treated in
cases under Chapter 11. These hearings revealed that Chapter 11
may not be working as we intended, with some businesses using
the bankruptcy process to bust unions and deprive retirees of
hard-won wages and benefits, while at the same time paying
their executives outrageous amounts of money; millions and
millions and millions of dollars.
Even prior to the country's recent economy troubles,
workers and retirees had been hit very hard by the growing
number of corporate bankruptcies. Working families have been
asked, and in many cases forced to make substantial sacrifices
including cuts in pay and benefits and wholesale default by
their bankrupt employers on their pension obligations.
To pick just one example, United Airlines successfully
convinced a bankruptcy court to terminate its collective
bargaining agreements with new, harsher terms implemented in
their place. United pilots had to take a 30-percent pay cut,
less job security, harsher work rules, and a terminated pension
plan. They were also forced to call the company's telephones
and be put on hold for a long time, like customers are too, and
be intermittently told which button to push.
United employees faced the threat of personal bankruptcy, a
loss of retiree medical benefits and other significant
financial hardship, after having devoted years of their lives
to their company. Sadly, this story seems to repeat itself
through many cases in many different industries.
The sting of these sacrifices may have been slightly easier
for workers and retirees to stomach were it not for the fact
that these same bankrupt employers would be paying their CEOs
and other senior management executives almost what could
conservatively be called obscene amounts of compensation.
These are the reasons why I am an original cosponsor of the
House Judiciary Committee Chairman John Conyers' bill, H.R.
4677, the ``Protecting Employees and Retirees in Business
Bankruptcies Act'' which makes urgently needed changes to the
Bankruptcy Code to ensure that the interests of workers and
retirees are protected in corporate bankruptcies and to ensure
that executive compensation is reasonable and fair.
[The bill, H.R. 4677, follows:]

__________
Mr. Cohen. The American public is tired of seeing
executives come away with tremendous moneys and workers lose
their jobs and/or their pension benefits and/or their job
security.
I commend Chairman Conyers for his leadership in attempting
to address what is an obscenely unfair treatment of workers and
retirees in business bankruptcies. And I thank our witnesses
for being here today to share their perspectives on this
important legislation as well. I think the American public is
fed up with bankruptcies being a bonanza for executives and
desperation for employees. Accordingly, I look forward to the
testimony of the witnesses.
I now recognize my colleague Mr. Franks, the Ranking Member
of the Subcommittee, for his opening remarks.
And, Mr. Franks, you are recognized.
Mr. Franks. Well, thank you, Mr. Chairman.
Mr. Chairman, as the Second Circuit Court of Appeals has
noted, ``section 1113 of the Bankruptcy Code requires unions to
face those changed circumstances that occur when a company
becomes insolvent, and it requires all affected parties to
compromise in the face of financial hardship. At the same time,
section 1113 also imposes requirements on the debtor to prevent
it from using bankruptcy as a judicial hammer to break the
union.''
In other words, section 1113 strikes a careful balance
between competing interests in businesses and in their
reorganizations.
The legislation we are examining today will destroy that
balance, Mr. Chairman. In fact, Harvey Miller, a bankruptcy
expert the majority has called to testify before this Committee
on multiple occasions, wrote that this legislation is comprised
of ``ill-considered proposed amendments that are antithetical
to the policy of rehabilitation and reorganization of
distressed businesses. The proposed amendments may preordain
the failure of a reorganization to the real prejudice and
detriment of all employees and all other stakeholders.''
Mr. Chairman, this bill puts the interests of labor unions
above all others. However, labor issues do not exist in a
vacuum. They are surrounded by many other interests and
constituencies, all of which must be dealt with fairly and
equitably in order for reorganization to be successful.
Additionally, this legislation increases substantially the
costs of Chapter 11. It impedes debtors from restructuring
labor costs to market levels. It makes it much more difficult
for debtors to attract and retain the management necessary to
turn a company around. It impairs debtors' ability to find
affordable bankruptcy financing. It gives unions the right to
strike after a court has determined that they have unreasonably
rejected modification of a collective bargaining agreement. And
by moving organized labor to the front of the line, the new
priority claims in this legislation may stymie otherwise
workable reorganizations.
These changes will make it more difficult for a company to
successfully reorganize. But Mr. Chairman, reorganization is
the goal of Chapter 11. As Congress observed in enacting
Chapter 11, ``It is more economically efficient to reorganize
than to liquidate because it preserves jobs and assets.''
Simply naming this legislation the ``Protecting Employees
and Retirees in Business Bankruptcies Act'' does not mean that
either group will be protected. Yes, this bill will allow
unions a few Pyrrhic victories in court, but at the end of the
day all parties will lose if this legislation is enacted.
We have recently seen unions get handed the keys to
Chrysler and General Motors during their bankruptcies. And we
are currently seeing public employee unions push many cities
and towns to the brink of insolvency. And I have to question
whether we shouldn't be considering legislation to weaken the
inordinate union influence in bankruptcies rather than
legislation aimed at strengthening it.
So Mr. Chairman, with that, I look forward to the
witnesses' testimony and yield the balance of my time.
Mr. Cohen. Thank you, Mr. Franks. I appreciate your
statement.
Mr. Watt, would you like to make an opening statement or
would you like to yield to the Ranking Member if he would like
to make a statement?
Mr. Watt yields. Mr. Smith, the distinguished gentleman
from Texas, close to Continental Airlines, you are recognized
for a statement.
Mr. Smith. Thank you Mr. Chairman. Thank you, Mr. Watt, as
well. I will be happy to follow him, too.
Mr. Chairman, American businesses no longer operate in the
same economic climate of the 1950's and sixties. Today they
must compete in a global marketplace. And in this marketplace,
unionized businesses that thrived decades ago now face stiff
competition from domestic and international competitors. In
labor-intensive industries from manufacturing to the airlines,
unionized businesses have been burdened by high wages,
stringent work rules and crippling pension liabilities. This
has allowed competitors not burdened by similar constraints to
overtake their unionized counterparts. As a result, for many
unionized businesses, their only path to survival is
reorganization through Chapter 11 of the Bankruptcy Code.
Unfortunately, H.R. 4677, the ``Protecting Employees and
Retirees in Business Bankruptcies Act'' cuts off that path of
survival. H.R. 4677 makes it nearly impossible for unionized
businesses operating in labor-intensive industries to
reorganize successfully. This undermines the purpose of Chapter
11 and threatens our economic recovery.
Chapter 11 is designed to enable financially troubled
companies to restructure their operations and obligations so
they can remain in business. If financially troubled companies
are forced to liquidate, employees lose jobs, retirees'
pensions are slashed, and creditors, customers, suppliers and
communities suffer. Chapter 11's labor provisions work, and
there is no need for the major overhaul this bill represents.
Certainly employees and retirees face hardships when jobs,
salaries, and benefits are cut in Chapter 11 reorganizations,
but these hardships will be even greater if, as a result of
this legislation, reorganization is no longer a viable option.
American workers, retirees, and their families are living
through difficult times. We do not need to make these times
more difficult by forcing businesses, which could otherwise be
restructured, into liquidation through misguided legislation
like H.R. 4677.
What employees and retirees really need are economic
policies that help American workers and small businesses
rebuild our economy and create jobs. They do not need more pro-
union special interest legislation that is aimed at only 7
percent of the private sector workforce.
Despite its name, this legislation protects neither
employees nor retirees. Instead, it puts companies at greater
risk of liquidation, and employees and retirees in danger of
losing not just some of their income, but all of it.
Mr. Chairman, I look forward to the testimony today and
yield back the balance of my time.
Mr. Cohen. Thank you Mr. Smith.
[The prepared statement of Mr. Conyers follows:]

__________
[The prepared statement of Mr. Johnson follows:]

Prepared Statement of the Honorable Henry C. ``Hank'' Johnson, Jr., a
Representative in Congress from the State of Georgia, and Member,
Subcommittee on the Constitution, Civil Rights, and Civil Liberties

__________

Mr. Cohen. The other Members' opening statements, without
objection, they will be included in the record if they are not
desirous of making a statement.
I am now pleased to introduce the witnesses on the panel
for today's hearing. I want to thank each of you for your
willingness to participate in today's hearing. Without
objection, your written statements will be placed in the
record.
I would ask that you limit your remarks to 5 minutes. We
have a lighting system. Green means you are within the first 4
minutes, yellow means you are in the last minute, and red means
you should be finished. There is also a little button to push
to turn on the microphone. Make sure you can be heard.
After each witness has presented his or her testimony, the
Subcommittee Members will be asked to ask questions subject to
the same 5-minute rule.
Our first witness is Babette Ceccotti. Ms. Ceccotti is a
partner at Cohen, Weiss and Simon LLP, in New York City, a law
firm specializing in the representation of labor organizations,
employee benefit plans and individual employees. Ms. Ceccotti
divides her time between the firm's bankruptcy practice and
employee benefits practice. She represents labor organizations,
numerous bankruptcy cases and a wide range of industries, and
serves as outside counsel for the AFL-CIO in bankruptcy matters
since 1998.
Ms. Ceccotti, will you proceed with your testimony

TESTIMONY OF BABETTE CECCOTTI,
COHEN, WEISS AND SIMON LLP

Ms. Ceccotti. Good morning, Mr. Chairman, Ranking Member
Franks, and Members of the Subcommittee.
I would like to thank you and Chairman Conyers for
convening this hearing on H.R. 4677.
I am appearing today on behalf of the AFL-CIO, a labor
federation with affiliates representing 10.5 million workers.
H.R. 4677 is a vitally important bill that would amend the
Bankruptcy Code to provide greater protection to employees and
retirees in business bankruptcy cases.
As envisioned by Congress when the bankruptcy laws were
modernized in 1978, the fundamental purpose of bankruptcy
organization is to restructure a business's finances so that it
may continue to operate, provide its employees with jobs, pay
its creditors, and produce a return for its stockholders. But
as the bankruptcy system has grown over the past 30 years, it
has become clear that bankruptcy has been working well for
powerful, moneyed constituencies, but is disastrous for workers
and retirees.
Rather than a vehicle for the preservation of jobs,
bankruptcy has come to mean the loss of good jobs, decent
wages, pensions and health care.
And at the same time that workers are seeing their own
financial security deteriorate through their employer's
bankruptcy cases, they also see company executives being
rewarded with bonuses and other pay schemes that reflect
executive compensation practices at their worst. Corrective
action by Congress is long overdue and is urgently needed.
The bill provides a comprehensive set of reforms to the
Bankruptcy Code that would increase workers' recoveries, reset
the rules when labor costs are addressed in bankruptcy, restore
job preservation as a true principal goal of business
reorganization, and halt the use of bankruptcy as a safe haven
for executive pay schemes.
Bankruptcy is intended to provide a debtor with legal
remedies in aid of restructuring its business. But the law was
never intended to allow a debtor absolute control or unfettered
discretion to impair the interests of other stakeholders. By
design, creditors retain important rights in their dealings
with the debtor. The law is, in fact, designed to develop
negotiated solutions, and this can only work when stakeholders
are able to effectively counterbalance the advantages that the
law gives to the debtor.
In crafting the bankruptcy laws, Congress has historically
provided special protections for employees and retirees.
Sections 113 and 114 reflect Congress' recognition that
bankruptcy policy must be balanced by important nonbankruptcy
policies, those favoring the resolution of disputes through
collective bargaining, and the protection of retiree health
benefits. However, protections that were built into the law
have been severely weakened over time. Some statutory
provisions simply have not kept pace with the growth of the
bankruptcy system. Others have been undermined by court
rulings.
Court rulings have restricted the collection of the wage
priority, severance pay, and WARN Act damages. Other rulings
have hollowed out the protections under sections 1113 and 1114
by reading out of those sections the nonbankruptcy policies
Congress intended to apply.
Some employees have been left literally defenseless by
court rulings prohibiting them from engaging in self-help and
suggesting that they may not even have a damages claim for
contract rejection. As a result, workers are collecting less
and losing more in business bankruptcies. The erosion of
protections under section 1313 and 1114 have made workers and
retirees particularly vulnerable because these protections go
to the very heart of their financial security.
The bankruptcy system's capacity to absorb ever larger and
more complex business situations and the broad advantages given
to a debtor under the law have proved to be a toxic combination
for workers and retirees. Labor costs have become irresistible
targets for the debtors and the restructuring professional that
advise them, to a large degree, because systemic industry and
economic conditions that may adversely be affecting the
business cannot be controlled, even by a debtor in bankruptcy.
In effect, workers and retirees are paying for problems because
their wages and benefits can be controlled by bankruptcy but
other forces cannot.
In my written testimony, I have described a recent study
that was conducted of cases filed in two popular venues, the
Southern District of New York, and the District of Delaware,
that showed that in 32 instances in which the courts ruled on
motions under section 1113, the courts granted rejection in all
of them. The author of that study concluded that section 1113
as currently drafted is defectively ambiguous and provides
insufficiently clear direction to the court regarding the
protection of labor agreements.
The bill would amend section 1113, to interject more
specific direction to the debtor and to the courts to promote
collective bargaining and prevent workers from
disproportionately bearing losses, and adopt similar changes
for section 1114.
In addition, the preservation of jobs would become an
express statutory purpose of Chapter 11. Although this
fundamental goal has been at the heart of the business
bankruptcy system, it is often lost among competing stakeholder
concerns, as bankruptcy increasingly becomes the vehicle of
choice for significant transactions.
The bill would also improve the application of the wage
priority, clarify that WARN Act damages are entitled to
priority, and enhance recoveries for lost pension benefits. In
addition, the bill would increase court oversight of executive
compensation programs.
Amendments enacted in 2005 to rein in these programs have
led their proponents to devise strategies to circumvent the new
rules, and with considerable success. Workers continue to lose
money, but executives are doing well. Congress correctly took
action to halt these practices in 2005, and more expansive
rules are now needed to effectively curtail these programs.
Mr. Cohen. Can you wrap it up?
Ms. Ceccotti. Yes. Mr. Chairman, I will be happy to answer
any questions any of the Members of the Committee have
concerning the legislation.
I would simply like to close by saying that labor groups
worked very hard under difficult circumstances to achieve
pragmatic outcomes in bankruptcy cases. H.R. 4677 would correct
the seriously imbalanced bankruptcy process that has eroded the
financial security----
Mr. Cohen. Thank you ma'am. We need to keep with our times.
We appreciate everybody else doing so as well.
[The prepared statement of Ms. Ceccotti follows:]

Prepared Statement of Babette Cecotti

ATTACHMENT 1

ATTACHMENT 2

ATTACHMENT 3

__________
Mr. Cohen. Our second witness is Captain John Prater.
Captain Prater is the eighth President of the Air Line Pilots
Association, ALPA, since 2006.
As ALPA's chief executive administrative officer, Captain
Prater oversees daily operation of the association, presides
over meetings with ALPA's governing body and serves as chief
spokesperson for the union. Captain Prater currently serves as
a Boeing 767 captain and knows the importance of on-time
takeoffs and finishing his statement in 5 minutes.
Captain, would you begin your testimony.

TESTIMONY OF JOHN PRATER, CAPTAIN,
AIR LINE PILOTS ASSOCIATION, INTL.

Mr. Prater. Good morning, Chairman Cohen, Ranking Member
Franks, and Members of the Subcommittee. I will keep my PAs
fairly short and, I hope, make some key points.
I am pleased to represent the nearly 53,000 pilots of the
Air Line Pilots Association. Since our founding in 1931, ALPA
members have delivered safely to their destination millions of
passengers and millions of tons of cargo. ALPA pilots have
helped our companies thrive in good economic times. We have
also repeatedly sacrificed to help save our airlines in bad
times, and we deserve to be treated fairly in bankruptcy
process.
Despite the original intent of Congress, section 1113 of
the U.S. Bankruptcy Code today fails to protect workers or
serve as the mechanism of last resort to save a failing
business. Instead, it has been exploited as a business model of
the first resort for companies to gain long-term economic
concessions by gutting the wages and working conditions of
airline and other employees. The 1113 process allows employers
to unilaterally impose contract changes through the court and
outside of the normal collective bargaining process.
Recent court decisions have significantly loosened the
standards that employers must meet before forcing unnecessary
economic concessions from workers and have greatly limited
employee recourse when it does happen.
As a result, employers are now able to breach their
employees' contracts with impunity. Workers have lost critical
leverage in the process, removing any incentive for management
to bargain in good faith during bankruptcy, which has yielded
grossly unfair results.
In just the last 10 years, more than two dozen U.S.
airlines declared bankruptcies, with workers at nearly all of
them taking severe wage cuts.
Attached to my written testimony is a series of slides that
illustrates the carnage that the bankruptcy process has brought
to our industry, and to pilots in particular. This data shows
the nearly $30 billion in wage concessions that pilots have
given up and the nearly 50 percent overall decrease in pilot
wages that has occurred at carriers filing Chapter 11. The data
also shows that over 135,000 good American jobs have been lost
from their industry.
I will reiterate just one example. After the travesty of 9/
11, a typical pilot at United Airlines endured two rounds of
concessions that included a 30 percent pay cut, followed by a
12 percent cut in pay, harsher work rules, less job security,
and a terminated pension plan. Thousands of United pilots were
laid off. In 2009, the pilots who remained recaptured all of
1.5 percent of their lost wages. In the face of this, the
airline's CEO received a total compensation package worth more
than $40 million.
Now United is adding insult to injury by attempting to
outsource significant trans-Atlantic flying based upon the job
security concessions that were forced upon the United pilots
during the bankruptcy process. This gross abuse is just one of
many examples that I have detailed in my written testimony.
This miscarriage of justice is bad for pilots at these
individual airlines, bad for our profession. It is also bad for
the U.S. airline industry and our economy.
After 9/11, many airline managements not only used the 1113
process to eviscerate employees' contracts, they also misused
it to cut staff to the bone, with deteriorating customer
service as just one of the outcomes.
ALPA supports this legislation because it clarifies that
bankruptcy courts must only permit concessions that are truly
necessary, rather than those that are simply desired by
management. It also directs courts to weigh in their
deliberations the ramifications that a reorganization plan will
have for all workers, and ensure that employee sacrifices are
fair and proportional to those of other stakeholders, including
the corporate executives.
In summary, this legislation will restore balance to the
bankruptcy processes and, with it, an incentive for management
to bargain in good faith. It reestablishes collective
bargaining as the primary means to make changes to a labor
contract. It clarifies that a union may seek damages from the
employer or strike if there are forced changes to a
collectively bargained agreement.
These critical reforms will promote bargaining, help
restore battered employee morale and trust, and make labor a
more effective partner in rebuilding the long-term financial
health of airlines. This bill will also make certain that
working families are not forced to deeply sacrifice, while CEOs
reward themselves with lavish bonuses. This bill will level the
playing field and share the pain of bankruptcy, rather than
leaving workers to unfairly shoulder the burden.
We urge Congress to swiftly pass this comprehensive reform
legislation. Thank you. I would be more than willing to take
any questions.
Mr. Cohen. Thank you, Captain. Another on-time arrival.
[The prepared statement of Mr. Prater follows:]

Prepared Statement of John Prater

__________

Mr. Cohen. Our third witness is Mr. James Sprayregen. Mr.
Sprayregen is a restructuring partner in the Chicago and New
York offices of Kirkland and Ellis. Mr. Sprayregen has
extensive experience representing U.S. and International
companies in and out of court, as well as buyers and sellers of
assets in distressed situations. He also has extensive
experience advising boards, in general representing domestic
and international debtors and creditors, and insolvency
restructuring workout in bankruptcy matters, handle matters for
clients in industries as varied as manufacturing, technology,
transportation, energy, media and real estate.
He returned to Kirkland and Ellis in December 2008 after
nearly 3 years with Goldman Sachs. Prior to joining Goldman
Sachs----
Mr. Issa. Mr. Chairman, I couldn't quite hear you. Could
you repeat that for the record?
Mr. Cohen. Mr. Sprayregen has spent 16 years at Kirkland
and Ellis where he has led bankruptcy cases for United Airlines
and Conseco, among many others.
Mr. Sprayregen, please begin your testimony.

TESTIMONY OF JAMES H.M. SPRAYREGEN,
KIRKLAND AND ELLIS LLP

Mr. Sprayregen. Mr. Chairman and Members of the
Subcommittee, I thank you for inviting me to testify today in
connection with this proposed bill. As noted, I am a senior
partner at the law firm of Kirkland and Ellis and run our
restructuring and bankruptcy group. We primarily represent
large- and middle-market companies in a wide variety of
bankruptcy and insolvency situations.
I have personally represented many international and U.S.
companies in these types of situations, including TWA in their
third bankruptcy, United in its bankruptcy, and currently Japan
Airlines--the U.S. aspects of that.
I offer my testimony from the perspective of the debtor
company. We have somewhat of an asymmetrical situation in that
there are not many prospective debtor companies that will come
and testify before you and give their perspective on what they
think will happen if they go bankrupt in the future, so it is
left to folks like me who are generally in the industry
representing companies like this in their situation.
I would note that while this legislation seems to be very
well intended, I believe that, if passed, it will have severe,
and I mean severe, unintended consequences. It will be
counterproductive. I believe it will, unfortunately, contrary
to the goals of the legislation, result in less jobs, less
money for employees, there being less employees, retirees being
less protected, and more liquidations of companies that have
large employee bases of industrial companies in America.
Why do I say that? Unfortunately, the bankruptcy system is,
by definition, used for companies that are unable to comply
with their promises that they have made to a number of
stakeholders, including employees. And in those situations,
there needs to be, to be able to fix the company, compromise
from all of the stakeholders in the situation: the creditors,
union employees, nonunion employees, secured creditors, et
cetera. This legislation would tilt that balance that has been
carefully crafted in the 1978 Code and a number of amendments
that have been made to the Code since then and some court-
imposed, U.S. Supreme Court-imposed elaborations on the Code
and those amendments.
And there being no free lunch, to the extent that this
legislation were to pass, we are going to have a situation
where secured creditors and lenders in the capital markets will
look at this legislation, evaluate the prospects of a company
continuing to exist and making it through a bankruptcy, and
decide whether to lend to that company or not. Both out-of-
bankruptcy and before there ever is a bankruptcy, that type of
thing is evaluated; and once there is a bankruptcy, the
lifeblood of a bankruptcy is debtor-in-possession financing,
and debtor-in-possession financing is only available for
companies that the lender believes can actually be reorganized.
Many of the amendments that are contained in the
legislation will make it much more costly for a company to
reorganize; will make it harder for the company to reorganize;
and will set a standard for what compromises can be made by the
court, or can be agreed to, that is only what is necessary for
reorganization in a 2-year time period.
Now, again, that is something that sounds good; but in the
fullness of time, lenders look at whether there is a 5-year
business plan for a fix of a company. If the changes that can
be made to a labor agreement are only those related to what is
absolutely necessary to avoid liquidation, and only for a
period of 2 years, I submit that, unfortunately, lenders will
not be lending to companies on debtor-in-possession financing
basis, or to be able to exit the bankruptcy itself, and that
will cause a situation which again is counterintuitive and
counterproductive and not the intent of this legislation. But
that is where it will take us.
I am highly sensitive to all of the pain taken by many of
the employees and the people that represent those employees
sitting with me at the table. But I will tell you, many of the
cases that they are citing were very close calls, not as to
whether these companies would do those difficult things to
their employees, but whether those companies would reorganize
at all and whether they would liquidate.
We talked about TWA, we talked about United. There are
other companies that we talked about. If we move the balance a
little bit here, we are going to put companies in a situation
where they may not be able to survive the Chapter 11 process.
And that would be unfortunate, because I agree with the intent
that has been stated by the two previous witnesses and the
upcoming witnesses that it is intended to save jobs and
reorganize the company and share the sacrifice.
I submit that is exactly what has been going on, and this
is not something that is broke in this legislation. With all
due respect, it is unnecessary. Thank you for hearing me.
Mr. Cohen. You are welcome, Mr. Sprayregen, and I
appreciate your testimony and allowing me to not have the right
pronunciation and to help me with that, your name.
Mr. Sprayregen. It happens all the time.
[The prepared statement of Mr. Sprayregen follows:]

Prepared Statement of James H.M. Sprayregen

__________

Mr. Cohen. Our fourth witness is Ms. Janette Rook. Ms. Rook
was hired as a flight attendant by Northwest in July 1998. In
2006 she was elected the Detroit Local Council Representative
of the American Flight Attendants Union. Ms. Rook was elected
to the Master Executive Council Vice President in May 2008, and
has served as President from March 2009 to the present.
Thank you, Ms. Rook, and will you proceed with your
testimony.

TESTIMONY OF JANETTE ROOK, ASSOCIATION OF
FLIGHT ATTENDANTS-CWA

Ms. Rook. Good morning and thank you, Chairman Cohen and
Members of the Subcommittee, for holding this important
hearing. My name is Janette Rook. I am the Master Executive
Council President of the Association of Flight Attendants-CWA
at Northwest Airlines, now Delta Airlines. I am also here on
behalf of AFA-CWA's 55,000 members at 22 airlines around the
country.
In July 1998, I became a flight attendant with Northwest
Airlines. A union contract negotiated since the mid-1940's was
handed to each and every one of us. That contract provided
decent pay, benefits, and working conditions, and was our
admission to the great American middle class. I put my trust in
that agreement with the knowledge that government institutions
and the laws of the land would protect my contract.
I testify today to tell a different story about how the
laws of my country failed to protect airline employees during
bankruptcy. My testimony is about my experience during
bankruptcy at Northwest Airlines but, unfortunately, my story
mirrors what occurred to thousands of airline workers at many
airlines. The lives of so many airline workers and retirees
have been devastated by the exploitation of our bankruptcy laws
by airline management and their armies of outside lawyers,
financiers, and consultants.
I witnessed how management uses the bankruptcy laws like a
weapon to obliterate pay, pensions, health care, and the jobs
of hardworking Americans.
Mr. Chairman, Northwest employees were told to pull things
out of the trash, shop at thrift stores, and cut coupons as
ways to manage the 40-percent pay and benefits cuts we
experienced during bankruptcy. Meanwhile, our executives were
paid bonuses of nearly $400 million. This insult to the dignity
of Northwest employees best exemplifies why Congress must enact
H.R. 4677.
Congress must act to level the playing field so that
bankruptcy is no longer a business strategy that transfers
money to executives' pockets, while those with union contracts
are forced by law to take drastic pay cuts, face devastated
health care and retirement benefits, and the risk of outsourced
jobs.
On September 14, 2005, Northwest Airlines filed for Chapter
11 bankruptcy protection in a New York court. Minutes before,
in the same court Delta Airlines also filed. These filings set
in motion drastic cuts in pay and slashed benefits at both
airlines before the merger was announced in April 2008. It soon
became clear that Northwest executives were poised to use
bankruptcy laws to extract draconian pay and benefits cuts from
employees and to abrogate our contract.
Ultimately, Northwest executives failed to succeed in
ripping up our contract. But along the way, they exploited
loopholes in bankruptcy laws to attempt to impose concessions
on our group and deny us the greatest bargaining leverage we
have: the right to strike.
The company filed a motion pursuant to section 1113 of the
Bankruptcy Code that began an assault on our contract. This
motion came with a message from management that negotiating was
not an option. They intended to impose pay and benefits cuts on
flight attendants with the stroke of a pen. Northwest
executives also attempted to use the bankruptcy laws to
outsource our work to the lowest bidder. We relied on remaining
contractual protections and a public campaign to save our jobs.
We thought that our country's bankruptcy laws protected workers
but, instead, the laws were used against us at every turn.
Meanwhile at United, Mesaba, Aloha, ATA, Midwest, Delta and
US Airways' corporate executives used the bankruptcy laws in
the same manner as Northwest management. Across the industry,
management had the green light from bankruptcy courts that it
was open season on our careers.
When employees looked for protection in the laws of our
land, we found no advocate.
At Northwest, management won a U.S. district court case
that eliminated our right to strike during bankruptcy, even
though our right to self-help was our only leverage to fight
back. H.R. 4677 restores that right.
Northwest management also froze our pensions, as did other
carriers in our bankruptcy. However, management's pension plan
survived bankruptcy at many carriers. Bankruptcy judges ruled
on executive compensation motions, they had sympathy for rank-
and-file employees, but essentially said said there was nothing
they could do about it because the law did not give them the
authority to second-guess management compensation.
H.R. 4677 levels the playing field by curbing excessive
executive compensation during bankruptcy.
Mr. Chairman, my testimony, unfortunately, can be repeated
in the near future if we don't act now. The airline industry is
indeed volatile, and we know that events can spoil what looks
like a hopeful recovery. Bankruptcy is not new to the airline
industry. One hundred fifty airlines have filed for bankruptcy
since the deregulation act of 1978, with 21 bankruptcies just
since 9/11. We received a fresh reminder on January 5 when Mesa
Airlines filed for Chapter 11.
Left unchecked, airline executives can once again use the
laws of our land to destroy careers and cause chaos to family
budgets. You can stop it by passing H.R. 4677.
Thank you. And I look forward to answering your questions.
Mr. Cohen. Thank you, Ms. Rook.
[The prepared statement of Ms. Rook follows:]

Prepared Statement of Janette Rook

__________

Mr. Cohen. Our fifth witness is Mr. Thomas Conway. Mr.
Conway was appointed International Vice President of the
Steelworkers in 2005 and elected to a full term in office a
year later. He became an activist in the Steelworkers soon
after he was hired in the Burns Harbor Works at Bethlehem Steel
in 1978. While working as a millwright in a coke plant, he
served as a griever for the plant-wide maintenance group and
was a member of the Safety and Contracting-Out Committees.
Appointed as a United Steelworkers staff rep in 1987 and
assigned to Indiana's former District 31. Appointed secretary
of the basic industry conference, Steel Industry Conference in
1995. Was responsible as a court of appeal mobilization of the
Steelworkers stand-up for steel campaigns and related trade and
legislative efforts at the Federal and State levels.
Mr. Conway, would you proceed with your testimony.

TESTIMONY OF THOMAS CONWAY,
UNITED STEEL WORKERS OF AMERICA

Mr. Conway. Thank you Mr. Chairman. I appreciate the
opportunity to be here. Our members in the Steelworkers work
nearly every segment of manufacturing, not only steel but
paper, forestry, rubber, energy, mining, automotive parts and
chemicals. And while we think back over the last decade, we
think of 40 steel companies who have gone into bankruptcy, many
as a result of great over-global capacity in the steel markets,
followed by a rash of unfair trade issues. The human dimensions
of that were vast. The PBGC terminated some 240,000 steelworker
pensions and retirees; 200,000 retirees and surviving spouses
lost their health insurance they counted on, while the steel
industry recovered substantially due to both tariffs and
sacrifices made by our members. This onslaught goes on now,
both in our other industries aluminum and steel, glass, iron,
paper, every manufacturing sector is facing these issues.
The last major reforms to the Bankruptcy Code that focused
on worker interests were in the 1980's and were designed to
provide a balance between an employer with a proven distress to
obtain necessary leave from their labor agreement; and we
believe Congress always intended this imbalance to be in place.
But the experience of the last 25 years illustrates the balance
has been upset dramatically, and courts regularly grant
employer requests for relief under a standard we believe
Congress had not intended.
Congress should first now seek to restore that balance,
give stronger recognition to the role, the important role of
collective bargaining; include demanding that fulsome
bargaining occurs before a debtor asks the court to intervene;
define more narrowly the meaning of the term ``necessary to
reorganization,'' and put meaningful limits on the length of
proposed concessions within there.
Secondly, the reform should assign a higher priority to the
payment of employee retiree obligations, allowing them to be
paid before the claims of other creditors who are typically
more able to absorb those losses. Among those other creditors
with greater financial reserves are highly compensated
executives, lawyers, and investment bankers who gather around
these travesties.
Third, the reforms should explicitly inscribe the
principles of shared sacrifice, meaning executives should not
be allowed to improve their own salaries and benefits while
workers and retirees are forced to sacrifice their quality of
life. Courts should ask the executives have they first made
those sacrifices themselves before exposing workers and
retirees.
Linked to this principle is the need to rein in so-called
incentive plans which are designed for executives by
compensation firms, retained by those same executives, and
shower them with new and oftentimes lavish benefits for results
that may have nothing to do with the ultimate success or
reorganization.
The unions are not the only ones expressing a concern about
this. Recently, in the Southern District of New York, in the
Ventura Corporation, the judge recognized that there is this
ever-going compensation arms race that is going on. And by
acting now, Congress can put an end to this arms race by
forcing debtors to justify the fairness of the efforts to
increase managing compensation through the guise of all these
incentive programs and retention programs.
Fourth, bankruptcy reform must also take into account the
impacts of sales and liquidations upon workers and retirees.
Congress should clarify that a judge may, in reviewing the sale
or auction of a company's assets, favor a purchaser that plans
to retain jobs and benefits over a purchaser that would simply
liquidate assets.
And as borne out in numerous recent cases, the need for
sale-related protections has risen. We have observed with
greater frequency, cases in which a company secured lenders
which appear to be unwilling in the current climate to extend
long-term financing needed for these companies to allow--they
pressure the companies to sell the assets quickly. In some
instances, the lenders themselves can serve as the buyer. In
too many of these cases, the bankruptcy case appears to be run
for the exclusive benefit of the lenders and to the detriment
of all other credit groups. Congress must act to protect the
interests of workers and retirees in those types of
transactions.
Long after the banks have been paid, the hedge fund
investors have moved on on the next deal. The so-called workout
turnaround experts have jetted off to their next assignment,
and workers and retirees who depended on this company will
remain. This is an opportunity for Congress to put rebalance
back into the Bankruptcy Act, to allow workers and retirees a
place at the table during these transactions that they deserve.
And I look forward to answering any of your questions.
Thank you.
Mr. Cohen. Thank you, sir. I appreciate it, Mr. Conway.
[The prepared statement of Mr. Conway follows:]

Prepared Statement of Thomas Conway

__________

Mr. Cohen. The next witness is Mr. Michael Bernstein, a
partner at Arnold & Porter, representing secured and unsecured
creditors, creditors committees, bondholders, investors, assets
purchasers, debtors and other parties in a wide variety of
bankruptcy and workout matters and related litigations
throughout the U.S.
He has been involved in large bankruptcy cases including US
Airways, TWA, Adelphia and Continental Airlines, as well as
many other such cases throughout the United States.
He has coauthored two books, published many articles on
bankruptcy-related topics and also testified previously before
Congress as an independent expert on the status of collective
bargaining agreements and retiree pensions and benefits in
bankruptcy. Mr. Bernstein, please.

TESTIMONY OF MICHAEL L. BERNSTEIN,
ARNOLD & PORTER LLP

Mr. Bernstein. Thank you, Mr. Franks and Members of the
Subcommittee. I appreciate your inviting me to testify at your
hearing today. I am a partner in the law firm of Arnold &
Porter LLP and chair of the firm's National Bankruptcy and
Corporate Restructuring practice; however, I am here testifying
today in my individual capacity and not on behalf of my law
firm or any of its clients.
Chapter 11 is intended primarily to enable a financially
troubled business to restructure its obligations so that it is
able to emerge as a viable, going concern. A debtor that
achieves this objective benefits its creditors, suppliers,
customers, employees, local communities and other
constituencies.
H.R. 4677 would modify many provisions of the Bankruptcy
Code. Some of these modifications are difficult or impossible
to reconcile with the fundamental goals of Chapter 11 and would
be likely to impair the ability of debtors to reorganize.
I will make five points in this regard. First, the bill
would increase the cost of Chapter 11 reorganizations,
including by creating substantial new administrative and
priority expenses. Debtors that are unable to pay such expenses
would be forced to liquidate.
Second, the legislation would create additional hurdles for
a business that needs to modify its labor and retiree cost
structure in order to remain viable. It would do so in several
ways.
First, it would raise the already very stringent legal
standard for obtaining relief.
Second, it would effectively preclude labor cost
modifications where a debtor is paying incentive-based
compensation to its managerial employees, even if the
Bankruptcy Court has found that such compensation is necessary
and appropriate.
Third, it would slow down the 1113 process and thereby in
most cases slow down the entire reorganization.
Fourth, it would reduce the likelihood of negotiated
resolutions, resulting in more litigation, which is contrary to
the stated intention of Congress when 1113 was enacted. And
even after the labor issues are resolved, whether by settlement
or court decision, the bill would permit the union an unlimited
opportunity to relitigate the same issues.
Finally, the bill would limit modification proposals to the
bare minimum necessary to enable the company to exit bankruptcy
and survive for a short time. This would discourage new
investment in reorganizing debtors and make repeat bankruptcy
filings more likely.
The bill would also prohibit creditors and other interested
parties from even participating in the section 1113 hearing, so
the court would be unable to hear their views, even though the
outcome of the proceeding may have a profound impact on their
recoveries.
Finally, the bill would threaten potential havoc for
companies that seek 1113 relief. For example, it would give
unions what they sometimes refer to as the ``nuclear'' option,
allowing them to strike in retaliation for a debtor's
implementation of court-approved modifications, even where such
a strike would destroy the company. And it would make the mere
filing of an 1113 motion grounds for termination of
exclusivity.
These provisions are obviously intended to create a
disincentive for a company to seek modification of its labor
costs. But they create an untenable situation for a company
that legitimately needs that relief in order to be able to
successfully reorganize. If these provisions are implemented,
it is almost certain that some debtors who truly need to modify
burdensome and above-market labor costs would be unable to do
so.
Such companies are likely to be unable to attract new
capital and, instead, would be forced into liquidation. This
would be detrimental to all stakeholders, including the
employees who lose their jobs in a liquidation.
Third, several of the proposed modifications would make it
materially more difficult for Chapter 11 debtors to attract and
retain qualified managerial employees. In order to retain and
attract management talent, the debtor must be able to pay
market-competitive wages and benefits to its management
employees, including in many cases incentive-based
compensation. This bill would make doing so much more
difficult. It would thus make it easier for competitors to
cherry-pick a debtor's best management talent.
Several provisions in the bill would directly link the
wages and benefits paid to managerial employees to the wages
and benefits of hourly employees. While there may be a
superficial appeal to such a linkage, it fails to take into
account the economic reality that there are different labor
markets for different types of employees.
Fourth, certain of the provisions would substitute
inflexible one-size-fits-all rules for the judicial discretion
that exists under current law. Because each company, each
industry, and each Chapter 11 case is different, the
reorganization goal of Chapter 11 is better served by allowing
judges to make decisions in each case based on the evidence
before them, rather than trying to create identical rules for
every case without regard to the facts.
And, finally, by elevating the claims and rights of union
employees, the bill would diminish the recoveries and rights of
other constituencies. For example, the bill would create
substantial new administrative priorities that must be paid in
full before any other creditor gets anything at all. It would
elevate certain equity interests held by employees to the level
of debt. It would create new rejection damage claims that would
dilute the recovery of other creditors. It would allow
employees to assert pension plan termination claims that are
duplicative of the PBGC's claims. And it would appear to allow
retirees greater rights in bankruptcy than they have outside of
bankruptcy.
And where there are competing Chapter 11 plans, it would
require the court to confirm the plan labor favors without
regard to the interests of creditors or any other constituency.
Viewed in isolation, these new priorities, claims, and
rights may not seem particularly problematic. However, in
evaluating the extent to which they should be created, it is
necessary to consider two points.
One, these administrative and priority claims must be paid
in full for a debtor to reorganize; thus, the creation of these
claims will make it more difficult for these companies to
reorganize and emerge from bankruptcy.
And, finally, the new employee claims will leave less money
for the holders of other claims. Thus, while it may be
appealing to ``say we are giving greater claims to employees,''
it is important to keep in mind that by doing so you are
diminishing the recovery of other creditors such as, for
example, taxing authorities, trade vendors, customers or tort
victims who are injured by a debtor's products.
The rights of employees are important but they need to be
balanced against the rights of other constituencies, and the
debtor's need to achieve a sustainable cost structure.
This bill elevates the rights of unions and employees to
such a great degree that it would be damaging to the rights of
other parties and to reorganization process.
Mr. Cohen. Thank you Mr. Bernstein.
[The prepared statement of Mr. Bernstein follows:]

Prepared Statement of Michael L. Bernstein

__________

Mr. Cohen. The final witness is Mr. Robert Roach, Junior.
Mr. Roach started with the International Association of
Machinists as a ramp serviceman for TWA and a member of the
local lodge in New York City. He has been a union
representative since 1979, holding numerous worker advocate
positions. He became a member of the IAM Executive Council,
General Vice President of the Transportation Department in June
1 of 1999, reelected in 2001, 2005 and 2009.
As General Vice President of Transportation, he oversees
and coordinates 150 collective bargaining agreements covering
U.S. Rail and air carriers, foreign-flag airlines, and airline
service companies.
Thank you Mr. Roach. We always like to see people who win
elections. Thank you for your testimony.

TESTIMONY OF ROBERT ROACH, JR., INTERNATIONAL ASSOCIATION OF
MACHINISTS AND AEROSPACE WORKERS

Mr. Roach. Thank you, Mr. Chairman and Ranking Member
Franks for the opportunity to come and speak before this
Committee. My name is Robert Roach, Junior. I am the General
Vice President of the Transportation Department for the
Machinists Union. I am appearing as the designated
representative of International President R. Thomas
Buffenbarger. The IAM is among the Nation's largest industrial
trade unions, representing nearly 700,000 active and retired
members, covering more than 5,000 collective bargaining
agreements in transportation, aerospace, ship building and
defense-related industries.
I am speaking to you today as a union representative with
25 years experience in bankruptcy and with extensive bankruptcy
experience, and as a retired airline employee who has
personally felt the effects of airline bankruptcy. I have
personally witnessed the destruction of tens of thousands of
lives with the Chapter 11 process. The Machinist Union strongly
supports the passage of H.R. 4677 to protect employees in
corporate bankruptcies.
While Chapter 11 bankruptcy can provide struggling
companies an opportunity to regroup and avoid liquidation, it
has increasingly been abused as a means to get a leg up on the
competition.
In 1984 Congress created section 1113 of the Bankruptcy
Code in response to companies using bankruptcy as a weapon to
eliminate employee collective bargaining agreements; however,
section 1113 of the current law has deteriorated the collective
bargaining process and not enhanced it. Recent court decisions
actually incentivized employees not to reach an agreement with
their unions. Good-faith bargaining can only be achieved when
there is a level playing field and both parties have something
to gain or lose at the bargaining table.
The employee's right to withdraw services ensures that both
the parties understand the consequences of failing to reach a
negotiated agreement.
The current inequitable bargaining process has dramatic
consequences. United Airlines' IAM members were forced to
sacrifice more than $4.6 billion. Workers lost wages, pensions
and jobs.
US US Airways,. In US US Airways,' first bankruptcy in
2002, IAM members were forced in two rounds of contract
concessions totaling $276 million per year, $1.8 being over
6\1/2\ years.
In the second US US Airways, bankruptcy, pay cuts of up to
15 percent. Northwest bankruptcy, pensions were frozen 11.5
percent, wage cuts, and jobs eliminated.
At the same time, the executives who fail to operate these
airlines as an ongoing concern, who put the airlines in
bankruptcy in the first place, then reap benefits of high
bonuses, stock options, lucrative salaries and perks.
Since these bankruptcy cases focus more on what could be
extracted from employees, rather than developing a new business
plan, as a result these same carriers seem to be still
struggling today. Bankruptcy carriers forced other airlines who
were operating as ongoing concerns, like American and
Continental, to threaten employees with bankruptcy if they
didn't agree to cuts. The current bankruptcy laws were used as
a bargaining weapon, not because of the need to restructure,
but as an alternative to liquidation.
In the end, somebody must pay. I think the Congress seems
to understand that when people lose their jobs, when people
lose their health insurance, that somebody pays. And these
people either wind up on some social service program, Medicaid,
Medicare, or the PBGC assumes these liabilities. And the PBGC
today is some $30 billion underfunded. Auto, steel, banking,
newspaper, cable television, and trucking companies are among
the more than 100 publicly traded companies that seek Chapter
11 bankruptcy protection each year.
IAM members, at auto parts supplier Dana Corporation, saw
their company eliminate retiree medical benefits in bankruptcy.
IAM members at Kaiser Looms saw their pensions terminated in
bankruptcy, resulting in the loss of some promised.
Bankruptcy laws should be amended to ensure employees
engaged in good-faith bargaining bankruptcy laws must strictly
limit executive bonuses, stock grants and other executive
compensation.
Bonuses paid to executives after emerging from bankruptcy
must be reviewed by the court and take into account the amount
of pain inflicted upon employees during the filing of
bankruptcy. The PBGC, the quasi-governmental agency, should
have the financial resources available to guarantee all the
vested benefits promised in a pension plan without reduction of
maximums.
Congress should make bankruptcy a less attractive mechanism
to dump pension obligations onto the Federal Government. The
PBGC needs to have the ability to enforce pension funding rules
on a level playing field, increase the priority claims limit
for wages, provide employees and retirees with the ability to
recover pension losses, direct judges to consider how
reorganization plans will impact jobs, collective bargaining
agreements, pensions, and retiree benefits when approving
reorganization plans.
The MachinistS Union strongly supports comprehensive
bankruptcy reform contained in H.R. 4677 that will protect our
Nation's workers, require shared sacrifice among all
stakeholders.
Thank you for the opportunity to speak and for the
invitation. I look forward to your questions.
Mr. Cohen. Thank you, Mr. Roach.
[The prepared statement of Mr. Roach follows:]

Prepared Statement of Robert Roach, Jr.

__________
Mr. Cohen. We have now concluded our testimony and we will
go to the questioning period. I will recognize myself first for
5 minutes.
Mr. Sprayregen, I appreciated your testimony and I think
you made some really good points. But in your testimony, you
said that the debtor's perspective is different than the others
testifying today, because the debtor is charged with the
responsibility of weighing the interest of creditors,
employees, retirees and consumers, among others. ``Employees''
includes the executives, I guess.
Would you not see a conflict of interest in the executives
who bring about, have to bring about, even if they think so,
don't want to, to bring their companies into the bankruptcy
proceedings, who hire the attorneys who represent the company,
having their own compensation and benefits be part of what has
to be. The debtor has its duty, being the responsibility of
weighing those interests. Can the management really do that?
Don't they have a conflict of interest?
Mr. Sprayregen. Sir, yes, they actually do. And that is why
in most situations those issues are actually handled at the
board of directors' level rather than by management, because of
that precise issue.
Mr. Cohen. Let's face it. The board of directors are picked
by the president. It is an incestuous situation.
Show me an independent board, and I will show you a
dysfunctional company.
Mr. Sprayregen. I would tell you, sir, with all due
respect, the boards that I have represented over the years have
strived to do a very good job. But more importantly, they have
to go before the court with notice and opportunity for all of
the various stakeholders to have input on whatever the proposed
plan is, and then there have been numerous tweaks to the
compensation legislation over the years. And the judge takes
into account all of those inputs from various parties.
And my point on that is it is not that that system works
perfectly, but more that it needs to be dealt with; with more
like a scalpel than a sledge hammer, that I think this bill is.
Mr. Cohen. Well, Mr. Sprayregen, you and Mr. Bernstein both
take the position that this bill gives too much to labor. And
you don't address too much--and let's say labor should take
some hits. But the executives, they are labor too, they may not
think it but they are--shouldn't just because they are not
organized, because they don't have to be organized because they
write the checks--shouldn't there be some changes to what their
compensation is?
And to be honest, what was it--in the United Airlines, how
much was the package for executives; 40 million or 400 million?
Mr. Sprayregen. Yes, there absolutely should be
compensation cuts on the shared sacrifice and shared pain
basis. And in fact, United Airlines is a good example. On the
first day of the bankruptcy case, the senior management took
double-digit pay cuts to lead the way.
Mr. Cohen. Double-digit pay cuts. That was from what to
what?
Mr. Sprayregen. I don't have the specific numbers, but they
took a percentage of pay reduction. Ultimately, everybody in
the company, both unionized and nonunionized personnel, all
took pay cuts. And then as part of the overall exit, there were
various compensation packages approved in the plan of
reorganization by the court.
Mr. Cohen.. Mr. Bernstein, if it is a pro rata cut, is that
what you generally see as pro rata, everybody gets 20 percent
or something? Is that what happens?
Mr. Bernstein. Do you mean among management and the labor
groups?
Mr. Cohen. Yes, sir.
Mr. Bernstein. Not in all cases. I think the way companies
tend to look at these issues is by labor market. In other
words, what a company's goal is to do is to pay each group of
its employees, from the most senior management to the lower-
level management to hourly employees and to the various
represented employees, a wage and benefit package that is
market-competitive; that is, that is commensurate with the
market for those particular services.
Mr. Cohen. So if Masa charges $300 for sushi, and in
Memphis they only charge $30 for sushi, they should get more
money to buy the sushi to benefit the sushi chefs?
Mr. Bernstein. I am not sure, Mr. Cohen, that I understood.
Mr. Cohen. The New York cost of living being outrageously
high, and people live there and pay for things that, really,
the costs are just insane--that we should pay those people to
continue to foster those lifestyles of the rich and famous?
Mr. Bernstein. What happens is if a company has employees
in New York playing a certain role, it needs to look at what
the going wage is for those services in that particular city
for comparable companies.
Now, obviously, the going rate for a CFO is different than
the going rate for a mid-level manager, is a different rate
than the going rate for a truck driver.
But what a debtor in Chapter 11 can't do is to ignore the
economic situation in which it operates, the competitive
framework in which it operates. No debtor wants to pay
materially more money than it needs to to any group of its
employees.
Mr. Cohen. I just have 10 seconds. I have to cut you off
and ask Ms. Ceccotti to tell me what you think about their
arguments and this idea that management is taking a fair cut.
Ms. Ceccotti. I think, Mr. Chairman, what that we are
seeing here and I think what your questions are alluding to is
that the bankruptcy code is now harboring or fostering an
indefensible double standard. The notion that executives can
use bankruptcy to further various pay schemes, bonuses,
retention, and the like is something that is not supported,
certainly, by anything in the law.
At the same time, what bankruptcy is supposed to do is it
to provide a means for everyone to share the sacrifices. So if
we are going to have shared sacrifice, then that means
everybody shares. It doesn't mean we have a double standard
where some groups are constantly sharing, and sharing to the
point of changes to their living standard, while others are
simply pocketing money or getting rewards under the guise of
incentives or bonuses or however you want to phrase them.
So I think that what we have to do is we have to get back
to the notion that the purpose of bankruptcy is to restructure
the business through shared sacrifice, and ``shared'' means
everybody.
Mr. Cohen. Thank you, Ms. Ceccotti.
My time has expired, and I recognize the Ranking Member,
Mr. Franks, for 5 minutes.
Mr. Franks. Well, thank you, Mr. Chairman.
Mr. Sprayregen, I would like to try to just, kind of, get
to the bottom line here. The union leaders at the table with
you assert that labor unions currently have too little power
during the reorganization process. That is essentially, you
know, the purpose of the bill here that is being offered.
Tell me, do you agree with this assessment? And, if not,
why not? Give us a little perspective on why you think that the
unions either have too little or not enough power in the
reorganization process.
Mr. Sprayregen. Sir, I disagree with that perspective for
numerous reasons. My experience in a number of cases and
dealing with many of the witnesses at this table is there is
tremendous power and tremendous leverage.
And we have to remember that most of those situations are
resolved in the conference room, not in the courtroom. So we
hear a lot of citations to things being rejected by judges, but
ultimately these statutes are intended to foster bargaining,
which is exactly what has happened. And the reason why most of
these situations get to agreements is because there is
tremendous leverage among the employee bargaining units of the
various industries that we are talking about. And management
and the boards and the other stakeholders know that and have to
deal with that.
And, with all due respect to the folks at this table, the
recoveries that are generated by these groups are healthy
compared to the recoveries of other stakeholder groups. That is
not to say they are good compared to what were the original
promises, but the problem is there is not enough money to go
around, by definition, in these situations.
Mr. Franks. Mr. Bernstein, would you like to take a shot at
that same question? Essentially, do unions have too little
power in the reorganization process as it stands now?
Mr. Bernstein. No, I think, actually, the balance of
leverage is quite good now. And that is consistent with what
Congress stated its intention to be when it enacted Section
1113, to have a balance where each of the company and labor had
risks, and that encouraged the negotiated resolutions.
And if you look empirically to what is actually happening,
the facts on the ground, so to speak, in fact the overwhelming
majority of labor management situations in bankruptcy are
resolved through consensual negotiation.
We hear a lot about the Northwest Airlines case, and it was
talked about today. But even in that case, which is held up as
an example of a litigated case, in reality, six out of the
seven labor unions reached an agreement with the debtor. It was
consensually resolved in six out of seven. And, actually, even
the seventh one, the flight attendants, was consensually
resolved, except that the membership didn't agree with what its
own union had done and vetoed its union's solution.
The reality is that the litigated cases get a lot of
attention, but what is actually happening is that the
overwhelming majority of the situations are resolved through
negotiation, precisely because there is a delicate balance of
leverage that Congress achieved in 1113.
What would happen in this bill is that we would upset that
balance of leverage in many ways, some of which I alluded to in
my written testimony. And, by doing so, it would result in more
litigation and fewer negotiated solutions, which is
inconsistent with Congress's goal.
Mr. Franks. Let me go ahead and ask you another question.
We have had several hearings related to labor unions and
bankruptcies during which union leaders have asserted that
companies file for bankruptcy simply to get out of their union
contracts, that that is the main predicate.
In your experience, do companies file for otherwise
avoidable bankruptcies in order to force labor concessions?
Mr. Bernstein. Absolutely not, Mr. Franks.
There are some cases in which the labor cost burden is so
great that a company must, in connection with its
reorganization, restructure its labor costs and rationalize
them in order to be able to remain competitive. But no company
that can otherwise remain competitive chooses to file Chapter
11 simply because they want to take potshots at labor. This is
a very hard thing for a company to do. It is very hard to get
approved by the courts. It affects morale, it affects
relationships, and no company wants to do this.
But there are companies that have no choice because they
are paying above-market wages and above-market benefits, and
their very survival as an entity depends on their ability to
rationalize their labor costs.
Mr. Franks. Mr. Sprayregen, I would like for you to take a
shot at that same question. In your experience, do companies
file for bankruptcy that, you know, would otherwise be
avoidable in order to force labor concessions?
Mr. Sprayregen. Companies file for bankruptcy because they
are running out of money. And that is the reason that they
file. It is not a decision taken lightly. It is not a fun
process, even in the cases where there are no labor issues. It
is a difficult process. I would also note that upwards of 65
percent of management, senior management, gets changed out,
historically, as bankruptcy cases proceed.
So, no, that is not the purpose or the reason why
bankruptcy cases are filed. And, as noted by Mr. Bernstein, if
the cost structure of the company is not competitive, that is
one of the things that is addressed through the bankruptcies,
and that may be one of the reasons why the company is running
out of money. But healthy companies very rarely file for
bankruptcy.
Mr. Franks. Well, thank you, Mr. Chairman.
Thank all of you.
Mr. Cohen. I now recognize the distinguished gentleman from
the Bay State, Mr. Delahunt.
Mr. Delahunt. Thank you, Mr. Chairman.
You know, I can see this playing out, you know, that there
has to be competition with those who are paying--or companies
that find themselves in trouble because they are paying above-
market benefits, above-market wages. I can just imagine a
continuum of bankruptcies so that the end result will be the
lowering of wages and benefits in an entire industry. Not bad.
It increases the disparity in income and wealth, and those
companies that survive, that management team is going to be
doing pretty well. That management team is going to be doing
pretty well.
I hear the term ``balance,'' and I think many of the
witnesses have used that term.
Mr. Bernstein, am I correct in assuming that you think the
balance is right where it ought to be right now?
Mr. Bernstein. Yes, sir, I do believe----
Mr. Delahunt. Yes, thank you.
And Mr. Sprayregen?
Mr. Sprayregen. It is not perfect, but it is generally----
Mr. Delahunt. Well, how would you improve it?
Mr. Sprayregen. I believe that the amendments contained in
this bill largely, as I said, would not improve the----
Mr. Delahunt. But how would you improve it?
Mr. Sprayregen. I do think there can be more concentration
on the proper compensation structures for both union and non-
unionized employees----
Mr. Delahunt. I would be very interested if you would, when
you leave here today, if you could forward to the Committee
just a list of your recommendations.
Mr. Sprayregen. I would be happy to do so.
Mr. Delahunt. I think it would be educational.
You know, I think what is particularly sad or disturbing to
me is not only the fact that this is really about people at the
bottom line--that is my bottom line. And I think there is a
particular segment that really have been done a terrible
disservice, and those are the retirees, you know, men and women
who thought they had a promise and that promise wasn't
fulfilled, who thought they were going to get a pension that
they didn't end up getting, that they thought that their health
care coverage was going to continue and they went to the
druggist and were told a day after or a day before the filing
of a bankruptcy that they were no longer covered. I am thinking
of a case in Massachusetts, the Polaroid company, who really, I
thought--it was the ultimate in terms of callousness, et
cetera.
Would you all agree that it is Congress that really
establishes the priorities, that, you know, maybe--and I would
be interested in anybody--Mr. Conway, Mr. Prater--that there
ought to be a different treatment to those who have retired
that no longer--who oftentimes their skills are outdated,
promises have been made to them, and they find themselves so
disadvantaged that they are not in a negotiating position.
I have to also allude to this consensual negotiation or
resolutions. I mean, the truth is, Mr. Bernstein, you know,
when you have a gun to your head, okay, you don't have a
consensual relationship there. That is just sheer baloney. You
have a choice of either saying, ``Pull the trigger and blow my
head off'' or, ``I am going to do what you''--you know, I don't
have a choice.
In any event, let me just pose that last question out
there. Mr. Prater? Mr. Conway? Anybody?
Mr. Conway. I think, as I was listening to both Mr.
Sprayregen and Mr. Bernstein describe all the settlements that
are reached outside of the court, it is exactly why this law
needs to be revised. Because the unions know you can't go in
that courtroom because you are not coming out. So you do have
that gun to your head, and you have to reach some deal as best
you can that impacts all those retirees and all those people.
And that proves the balance that we need restored here. It
is so out of balance that to step in front of the judge in the
courtroom, surrounded by all the lawyers and the bankers, the
union stands little chance, so we cut our deals outside of----
Mr. Delahunt. Who are being well-paid, by the way.
Mr. Conway [continuing]. As best we can. And it speaks to
the need for the change of this law.
Mr. Prater. Congressman, I would agree with that. The
balance has been completely destroyed. In fact, all you have to
do is look at companies that have filed bankruptcy while they
were profitable just so they could keep up with the Joneses
across the street who had filed bankruptcy to destroy their
labor contracts.
The impact and effect on our retirees is critical, to watch
a 58-, 59-, 60-year-old man or women be told that they have
lost 75 percent of the income they have counted on. What we are
missing here is, the CEOs and management teams don't stick
around. It is the employees we represent that stick around for
25, 30, 35 years. We are the most vested people wanting to see
a company reorganize, but they have thrown it completely out of
whack by the imbalance created by the judges.
When 1113 was created, I was one of those employees in
bankruptcy on strike to prevent Frank Lorenzo from throwing out
our contract at Continental Airlines. 1113 was supposed to
introduce fairness to the equation. However, under the recent
court decision, it has been thrown out of whack. That is why we
are here supporting this legislation.
Mr. Roach. Yes, certainly, retirees, retirees at U.S.
Airways lost their health insurance. At United Airlines, their
health insurance costs were dramatically increased. At
Northwest Airlines, there had to be a restructuring of health-
care benefits.
And I think, again, I would like to say that many of these
people wind up on programs funded by the government, and others
just drift away. Pensions have been cut, and there is really
nobody to speak for them.
And when you say about negotiated agreements, well, the
choice is either they give you a number--$950 million, $1.2
billion--either you reach that number or they go into court,
and the judge's alternative is to keep everything the way it
is, which he is not going to do, or terminate that collective
bargaining agreement and you start out with zero.
So these things, there is no balance. And you have to
argue--I would have to argue that, when somebody goes into
bankruptcy and people lose their pensions and health insurance
and salaries are cut anywhere from 10 to 25 percent, and the
same people who put that company into bankruptcy come out with
a $40 million pay package, and you say, ``Well, we need to keep
these people around,'' those are the people you need to get rid
of you. Those are not the put you keep around. They put them in
bankruptcy in the first place. And so we pay them additional
money to keep them around.
You have every major bankruptcy in the airline industry
where people have put airlines into bankruptcy--Dave Siegel
from U.S. Airways, he stuck around for about 6 months and got
$5 million. These are the types of things that we are talking
about. We are not talking about talented people.
When you talk about a level playing field for companies,
you got American Airlines and Continental Airlines paying the
same wages as United and U.S. Airways, but they didn't go into
Chapter 11. The management ran the business, and so--but they
were forced to go to their employees to get cuts because
United, U.S. Airways, and Northwest, they go into bankruptcy
and cut the wages of the people. Southwest Airlines, 95 percent
unionized, pays the highest wages and benefits in this country
to their airline employees, and they run a profitable airline.
It has to do with somebody who is running the business has
an ongoing concern, or somebody who is looking for the perks
and the bonuses and the incentive packages that come along to
putting a company into bankruptcy, hiring my good friend, Mr.
Sprayregen, who I have spent many nights with, having to deal
with the bankruptcy issues, and coming out. My allegiance is to
the members, his allegiance to the client. And so, if the
client says, ``You get me $40 million, $50 million,'' that is
what his job is to do. And so my job is to protect the
interests of members, and that is what I try to do to the best
of my ability with people like my counsel, Sharon Levine from
Lowenstein Sandler.
Thank you very much.
Mr. Cohen. Thank you, Mr. Roach. That was an interesting
perspective. Sounds like maybe you had some experience in
Japan, where the management does take responsibility for
catastrophic consequences.
Mr. Watt, you are recognized.
Mr. Watt. Thank you, Mr. Chairman.
Mr. Delahunt asked the primary question I wanted to ask,
especially Mr. Sprayregen, about adjustments that need to be
made to, particularly, Section 1113. So I would be interested
in getting your written comments on that.
Both you and Mr. Bernstein were pretty unhappy about the
contents of this bill. Is there anything in it that is worth
salvaging, from your perspective?
Mr. Sprayregen. I don't believe this bill comes at it from
the perspective of taking into account what happens in real
life in these bankruptcy cases----
Mr. Watt. I don't need a speech. I am just asking about, is
there anything specific in the bill that you think is worth
salvaging, either you or Mr. Bernstein? Any particular
provision in the bill that you think is worth salvaging?
Mr. Sprayregen. I have to admit, I don't have off the top
of my head a provision I can refer to. But one----
Mr. Watt. Okay. Would you mind addressing that question
when you give us the written response?
Mr. Sprayregen. Absolutely.
Mr. Watt. Mr. Bernstein, anything in the bill that you can
think of that is worth salvaging? Tell me ``yes'' or ``no,''
first. And if you have some ``yes,'' then I am happy to have
you elaborate.
Mr. Bernstein. I think there is one provision in the bill
that, while it could causes problems, also has some merit, from
a fairness perspective. And that provision would allow a
rejection damage claim when a collective bargaining agreement
is modified or rejected through the 1113 process.
Mr. Watt. Okay. That is fine. We will look at that
provision.
Now, there is one provision in the bill, in particular,
that accords wages up to $10,000 a higher priority. What was
the rationale originally for making wages a lower priority than
unsecured claims?
Mr. Bernstein. Mr. Watt, the wages are not a lower priority
than unsecured claims under the current code, and, to the best
of my recollection, they never were.
The question is, what amount of wages is a higher priority
than any other claim? And that number has been going up and up.
In a typical case, this is not a real-world issue, and the
reason is because, typically, when companies file bankruptcy,
they file----
Mr. Watt. Don't give me a speech, Mr. Bernstein. I have a
limited amount of time.
Mr. Sprayregen, what was the rationale for making wages a
lower priority than unsecured creditors?
Mr. Sprayregen. Well, ordinarily, the wages are of a like
priority, except there is a certain amount of them that
actually get a higher priority. And the question there is, what
should be the right amount? Should it go from $10,000 to
$20,000? I think there is a legitimate judgement call as to
what the right amount----
Mr. Watt. Do you think that is one of those things that
maybe needs to be adjusted?
Mr. Sprayregen. I think that is something that can be
looked at, and take into account inflation and the like.
Mr. Watt. What about severance pay? Where should that fit
in the order of priorities, from your perspective?
Mr. Sprayregen. Severance pay, unfortunately, is a
difficult concept because, as noted, many of these employees
have worked 25, 30 years and have tremendous amounts of
severance owed to them. Unfortunately, if that is made a high
priority, that is the type of thing, while well-intentioned,
will put a company in a position of not actually having the
money to pay all that.
Mr. Watt. What is the rationale for making that a lower
priority than an unsecured creditor? I mean, I am not getting,
you know, philosophical about this. I am just trying to figure
out, why would anybody think that that would be a lower
priority than an unsecured creditor?
Here is somebody that has worked their entire life. They
built up an entitlement, one would think, over time to these
benefits. And, yet, they get a lower priority than an unsecured
creditor. What is the rationale? I don't understand that.
Mr. Sprayregen. They actually get a like priority. The
problem is----
Mr. Watt. Or even a same priority. You know, let's not get
into the details of it. I don't understand how you can give
that person a same priority as an unsecured creditor.
Mr. Sprayregen. Unfortunately, in most of these cases, the
unsecured creditors' recovery is very di minimus. So unless you
give a higher priority to claims like severance or the wages,
the recovery is not likely to be that great. And so----
Mr. Watt. So you see agree with me? Is that--are you saying
that you agree----
Mr. Sprayregen. Philosophically. The problem is, the
Congress has the right to set the priorities. But the capital
markets----
Mr. Watt. Well, that is what we are talking about here,
whether we should adjust the priorities. I mean, you know, we
are not talking about the world as it exists. We are talking
about the world as it should exist, which is why I wanted to
start with both of you and give you a chance to tell me what
part of the bill we ought to be trying to salvage, going
forward, rather than worrying about--I mean, nothing we can do
about what has already happened back there. But we can adjust
the status of these things, going forward.
So my time has expired, Mr. Chairman. I appreciate it.
Mr. Cohen. Thank you, Mr. Watt.
And I now recognize the distinguished Chairman of the
criminal law Subcommittee, Mr. Scott of Virginia.
Mr. Scott. Thank you. Thank you, Mr. Chairman.
Mr. Sprayregen, let me follow through on that a little bit.
Where are wages, traditionally, in bankruptcy, in terms of
priority?
Mr. Sprayregen. Wages, traditionally, are even with general
unsecured creditors, except there is a certain amount of wages
that have a priority above unsecured creditors if they were
earned at approximately 6 months prior to the filing.
In most bankruptcy filings, wages are not the biggest
problem, because wages are generally current in most of these
companies. It is more of the other obligations, like health and
severance and the like, that are more problematic.
Mr. Scott. In a reorganization, the wages are kind of
ongoing. What happens to wages in a reorganization?
Mr. Sprayregen. Post the filing of the bankruptcy case, the
wages have a very high priority, only below the secured
creditors. And in very few cases are the post-bankruptcy wages
impaired. In almost all cases, those are paid 100 percent.
Mr. Scott. Somebody asked the question about filing
bankruptcy to void collective bargaining agreements. Is that
legal? Is it legal to file, use bankruptcy court simply to void
a collective bargaining agreement?
Mr. Sprayregen. There is a line of case law that has
developed that says bankruptcy cases generally need to be filed
in good faith, and if they are filed in bad faith, the court
can dismiss the case.
So if someone were to raise--if that were purely the only
reason, which I haven't seen in my career as the only reason to
file a case, someone could debate whether that is a good-faith
reason to do that if the company didn't otherwise need to
adjust its costs.
Mr. Scott. And what happens to stockholders when there is a
reorganization?
Mr. Sprayregen. In most cases and I think in all of the
cases we have discussed here, the stockholders have been wiped
out.
Mr. Scott. On reorganization?
Mr. Sprayregen. In most of the cases. There are some where
equity survives. But in most of the types of cases we are
talking about here, the recovery to equity is either zero or
virtually zero.
Mr. Scott. When we talk about wiping out pensions and
benefits like that, in a defined contribution plan is the
account of the employee beyond the reach of the bankruptcy
court? Is that an asset of the employee or an asset of the
company? A defined contribution plan.
Mr. Sprayregen. That is an asset of the employee and would
not be impacted by the employer's bankruptcy.
Mr. Scott. A defined benefit plan, on the other hand, is
that subject to loss in bankruptcy?
Mr. Sprayregen. Yes, it is.
Mr. Scott. Is there any requirement that a defined benefit
plan be guaranteed?
Mr. Sprayregen. Guaranteed by?
Mr. Scott. Well, you can fund a defined benefit plan with
an annuity, so that the annuity would be the asset of the
employee, beyond the reach of bankruptcy court.
Mr. Sprayregen. Yes, there have been resolutions in some
cases where annuities have been bought, generally not at 100
percent of what is owed. But that has been a solution in some
situations.
Mr. Scott. And, about 20 years ago, the accounting rules
required companies to put on their books unfunded liability for
future benefits. Is that right? It used to be, about 40 or 50
years ago, it wasn't counted as a liability. But wasn't it
about 20 years ago, it is required to be placed in your
financial statement what your unfunded liabilities are?
Mr. Sprayregen. I am not an accounting expert, but
generally I am familiar that that is now the case, yes.
Mr. Scott. So that the liability of future benefits that
have been promised are on the books but not funded and are
subject to evaporation. Is that the present situation if it is
a defined benefit, not a defined contribution plan?
Mr. Sprayregen. Generally, yes. And there is no question
that the lenders to the companies take into account whether
they are on the books or not, what those obligations are, and
the cash flow impacts of that.
Mr. Scott. Is that something we need to look into on
another Committee I sit on, the Education and Labor Committee?
Mr. Sprayregen. I haven't seen that to be a particularly
different problem than what we are talking about generally
here. I think it is of the same problem. And there is no
question that when defined benefit payments are interrupted to
employees it causes terrible hardship to employees. And I have
tremendous empathy for that. We keep getting back into the
situation of, what do we do if there is not enough money to go
around? How do we handle that?
Mr. Scott. Yeah, but you don't have that problem if it is a
defined contribution plan.
Mr. Sprayregen. That is correct, yes. But most of these
situations involve defined benefit plans.
Mr. Cohen. Thank you.
Ms. Chu of California, you are recognized.
Ms. Chu. Thank you, Mr. Chair.
Well, over the past decade, I have been becoming far too
familiar with stories of companies that are squeezing massive
concessions from their employees as a part of the corporate
restructuring plans. And, to me, it is even worse that these
sacrifices are not equally shared by management. And that is
why I have, indeed, joined Chairman Conyers as a cosponsor of
the ``Protecting Employees and Retirees in Business
Bankruptcies Act,'' so that there is some fairness and equity
in this process.
But what I wanted to do was to see what Ms. Ceccotti had in
response to some of the allegations by Mr. Bernstein that doing
this bill would create new and potentially substantial claims,
that it would slow down the 1113 process, that it would
increase the amount of litigation, and that it would make it
materially more difficult for Chapter 11 debtors to attract and
retain talented management employees.
Ms. Ceccotti. Thank you, Congresswoman. Certainly.
I think what is interesting to remember about Mr.
Bernstein's comments is that the various charges or
contentions, I guess, that he brought up with respect to the
bill really would not be borne out by the changes that are in
H.R. 4677 because, by and large, those changes are actually
designed to foster better negotiated solutions.
Right now, of course, the bankruptcy code does require
negotiations over proposed concessions. I think what the labor
groups at today's hearing have said is that the system is now
too unbalanced, so you do not get fair negotiated solutions.
I don't think that by better specifying in the bill, as
H.R. 4677 does, how the process will work, that the result of
that process will be a slower system or a system that debtors,
you know, may not want to participate in or that would, in
fact, lead to fewer debtors participating in bankruptcy. If
anything, with the rules more clearly spelled out, the parties
will be better able to focus on exactly what it is that needs
to be fixed and how the employees can participate in fixing it.
And I will give you one example from the proposed changes
to Section 1113, or a couple of examples, designed to do this.
Right now, the current law does not require a debtor to
specify a dollar amount. Very often, debtors do. They go to a
labor group and they say, ``We need X from your group and Y
from your group and Z from another group.'' However, that is
not required. But the bill would require that there be, quote/
unquote, a ``defined ask,'' so that the labor groups and the
companies could immediately focus on what is the amount; is it
the right amount; and if it is the right amount, how it is that
the employees will contribute that amount.
What we saw, for example, in the auto sector particularly,
you had large auto suppliers filing for bankruptcy with broad
goals that were defined as labor transformation goals. And they
would file 1113 motions and simply say, ``We need to change all
this stuff.'' Therefore, you have a lengthy, protracted, and
prolonged discussion over what it is that needs to be changed,
and how much, and how much needs to come from the workers.
So I actually think that, by adopting the changes that are
in H.R. 4677, the parties would be able to quickly, much more
quickly, get to the true issues that are at stake and figure
out a way to resolve them. And in order to facilitate that,
first, you need more defined rules. And I do think the bill
provides that. But, second, you need to give the labor groups a
sense that the playing field is balanced, for the reasons that
you have heard today: We have had court decisions that say, you
don't have a rejection damages claim. Or you have court
decisions that say, certain employees can't strike.
All of these court rulings have affected the negotiating
process, in that workers do not have a sense that their
solutions are being given equal consideration, that their
solutions are being given credible consideration, despite the
fact that, as one of our witnesses pointed out, it is the
workers who are going to be with this company long after the
bankruptcy has left the courts.
So that the best way to get a truly negotiated solution
that happens the business is, in fact, to make sure that the
debtor and the non-debtor stakeholders each have interests that
they legitimately--and that the bankruptcy system recognizes
are legitimately protected even in bankruptcy, to figure out
ways to direct the parties to get to the issues that need to be
resolved.
And that will lead the parties to roll up their sleeves and
do the work to resolve them without the distraction of
litigation, without undue efforts to try to uncover what it is
exactly that the company is trying to do, and particularly
without the distraction of management programs and bonuses and
court time and litigation that is taken up needlessly with
inflammatory proceedings that only poison the atmosphere while
the workers are being asked to seriously consider measures that
are needed to save the company and to allow it to survive.
Ms. Chu. Well, thank you for that thorough answer. I see
that my time is up.
Mr. Cohen. Thank you, Ms. Chu.
We have concluded our first round. Mr. Franks, do you--if
anybody has any questions, or we will conclude. Or do you want
to go to a second round?
Mr. Franks passes.
Mr. Delahunt?
He is a lame duck; he is eager to get in some more
questions before he goes into mothballs.
Mr. Delahunt, you are recognized.
Mr. Delahunt. Well, thank you.
Mr. Sprayregen, you indicated, in your experience--I think
it was Mr. Scott that posed the question about is it legal, and
you indicated that, you know, a bankruptcy that is not filed in
good faith clearly would violate the statute, and you had never
seen it in your own career.
I mean, the reality is, to establish a lack of good faith
is extremely difficult to prove. Would you agree with that?
Mr. Sprayregen. Generally, yes, but for good reasons, the
reasons basically being that companies don't really want to
file for bankruptcy unless they have a reason to do it.
Mr. Delahunt. Well, I would suggest that that is still an
open question. But the proof of good faith or lack thereof is
almost an impossible burden of proof, in the real terms, you
know, in a courtroom situation.
I guess I would direct this to you, as well. I think it was
earlier referenced. How do you feel about when concessions are
made, in terms of workers, as far as pension and health
benefits, et cetera, that there be--when the company is
restored to vitality and is operating and establishing a
process, that the promises that were made to the workers in
terms of benefits and health and wages are restored?
``Deference,'' I think that was the term that was used. Do you
have an issue with that?
Mr. Sprayregen. Conceptually, I don't. But it is another
one of those with unintended consequences. Because to get the
company to be able to come out of bankruptcy, some investor or
lender needs to give it money. And burdened with that type of
obligation in the future--it is sort of an unknown obligation,
depending on the performance--will make it much more difficult
for the company to attract that capital.
Mr. Delahunt. But we could direct, you know, benchmarks. I
mean, clearly, we want to make sure that, you know, capital is
respected and there is a good return on the investment.
But, in terms of a bankruptcy plan, a reorganization plan,
I really find it difficult not to understand why that is not
more frequently offered, as far as a consensus reorganization
plan.
Mr. Sprayregen. Well, I will--oh, I am sorry.
Mr. Delahunt. But having said that too, you know, what is
missing here in terms of--I would put this out for anyone that
wants to respond--it is always the worker, the retiree, that is
going to end up costing the taxpayers.
Mr. Roach referenced in his testimony that we are going to
have to pick up the Medicaid bill. We are going to have to go
to the Pension Benefit Guaranty Trust to take care; it is
already $30 billion in deficit. So, you know, the creditors are
clearly in a different financial position. They are investors.
They are going to survive. Management is going to survive
rather well--a $40 million bonus. We read about these retention
bonuses that absolutely boggle my mind, because I think Mr.
Roach is right, you get rewarded for mismanaging the company
because somehow it is necessary that you stay on. But, neither
here nor there.
When we are reviewing what priorities ought to be
established, would you think that we should consider the burden
on the taxpayer? Because it is the worker that is costing--to
keep the worker and his or her family, you know, from drowning,
the taxpayer, the American taxpayer is picking up the bill for
the creditor, for the financial markets. It is another form of
a bailout, I would suggest.
Anyone? Mr. Conway? Does anyone have--Mr. Roach? Does
anyone have--Mr. Sprayregen?
Mr. Sprayregen. I would absolutely say that the burden on
the taxpayer should be taken into account. But what I would
urge the Committee to consider in that is, I always call it
``compared to what?'' If these companies had liquidated, the
burden on the taxpayer would have been tens of thousands more
workers with those issues. These companies did things that
people don't like and were very painful and very hard, but they
did save tens of thousands, if not hundreds of thousands, of
jobs.
And it is the ``compared to what'' that needs to be taken
into account, because the alternative is not that they get
their old benefits, because, unfortunately, there are just not
available.
Mr. Roach. May I respond to that?
I think part of this law is to make corporations make
better decisions. And let me give you an example. United
Airlines is a very typical example. United Airlines proposed to
the machinists union an increase of 40 percent in pension
benefits. And, as we reviewed the books and reviewed their
pension plan, we rejected that pension increase. Because we
said, ``You will never pay it, and people will go out on a
promise that you will never pay.'' And they continued to insist
that we take this pension increase, to the point that they
testified on the record at the Presidential Emergency Board at
United Airlines that they wanted to give this pension increase
because, under that current law, they don't have to pay for it,
because they have credits in pension.
So people took this--we took the pension increase. How long
can you say no? People went out, retired based on what they
were promised by United Airlines. And once they got out there,
the pension plan was terminated because it had ballooned
because of this massive pension increase to a $6 billion
deficit. And now that deficit, part of that deficit, a
majority, belongs to the Federal Government, and somebody is
going to pay.
But this was a plan--now, had they been thinking or had
they realized or recognized that, you know, maybe we shouldn't
make this promise in the first place, had we had a law like
this in existence then, that we shouldn't make this ludicrous
promise, maybe United Airlines would not have went into
bankruptcy.
That is the point we are trying to make. We don't want
people to go into bankruptcy. We don't want laws that make it
difficult or hard to go into bankruptcy. We want people to
understand, when you make promises to people and they base life
decisions and their family decisions on the promises that you
make, then they should be expected to keep those promises.
Mr. Prater. And one just very quick anecdote. In the Mesaba
case, when the judge was informed that, in fact, his decision
to cut the wages down below the Federal standards, that, in
fact, they would put pilots with a family of three onto the
Federal subsidy rolls while working full-time, he said his
concern was not with the workers, his concern was only with the
debtor.
Mr. Cohen. Thank you, Mr. Delahunt.
Our final questioning will be by Mr. Issa from California.
Mr. Issa. Thank you, Mr. Chairman. And I apologize for my
absence, but I am shuttling between two Committees today.
Mr. Sprayregen?
Mr. Cohen. ``Sprayregen.''
Mr. Sprayregen. Like ``Ronald Reagan.''
Mr. Issa. Oh, okay. I would not spray Reagan.
But anyhow, I heard your testimony, and let me ask you some
questions, because I am former businessman--I guess I am still
a businessman, but I am recovering by spending other people's
money here, to where my friends in business don't actually want
to associate with me anymore.
But over the years, watching bankruptcy, particularly cram-
downs and Chapter 11s, it appears to me, as a Member of this
Committee and as a businessman, that we have a culture that
does need to be dealt with, which is the culture of ``I will
disburse to my stockholders in the good times, and then I will
use Chapter 11 in the bad times.''
Certainly, we are seeing it in real estate. We have
certainly seen it in the repeat offenders in the aviation
business. With the exception of Southwest, basically--and I
know there is a lot of aviation-related people here--but,
basically, you are in an industry that doesn't plan for profit;
they plan for bankruptcy.
Would you like to tell me, in your opinion, what we could
do, if not this bill, what we could do to actually break that
cycle of Chapter 11s being part of the business plan of the
aviation industry?
Mr. Sprayregen. Now, I am not----
Mr. Issa. Briefly.
Mr. Sprayregen. Yeah. I was going to say, I am not an
economist, and I am not sure it is an economic question. But I
think----
Mr. Issa. Well, let me narrow it. And you actually can give
me the answer for the record, if you would like, as all of you
could.
What could we change in the bankruptcy law that would cause
the penalty of haphazardly going into bankruptcy, not just once
because of an event but multiple times because it is part of
business plan, to stop? What could we do to stop that?
Now, many of you were talking about how we can keep
employees from losing pension benefits. From this side of the
dais, I want to know what I can do to cause companies, instead
of to beat each other into endless losses, to actually run
their companies for a profit because Chapter 11 would be more
onerous.
So that is what I would like each of you, from both sides
of it, all of you, please, to consider answering for this
Committee. Because I don't actually like the legislation before
us, but I don't like the idea that Chapter 11 is a part of the
cycle of the aviation industry.
If you would like to answer, as long as the Chairman gives
me plenty of time.
Mr. Cohen. All the time you need.
Mr. Issa. Thank you, Chairman.
Mr. Sprayregen. I can try. And maybe I will try coming at
it the opposite way. Let's assume there was no bankruptcy law
whatsoever and it just wasn't option and it didn't exist----
Mr. Issa. If we did away with 11 and made it 7 only, and
the other airline companies, if they had cash or capital, the
capability, came in and bought you out when you failed, would
that be better? Maybe that is where I am going.
Mr. Sprayregen. That is what I am approaching it as.
I would submit we would end up with a worse system and more
damage and less jobs and less airlines if we didn't have it as
an alternative. It is an unfortunate part of the business cycle
that this occurs, but, again, I call it ``compared to what?''
At least a number of these airlines are able to reorganize and
go back out and prosper again. I am not sure we can eliminate
the cycle.
Mr. Issa. Well, I am going to take my moment and say, if
you call what the airlines are doing today prospering, you are
just not reading their balance sheets the way I read them. It
is a cyclical investment for every stockholder, there is no
question at all. Although they are merging, so we are going to
get a lot less. And we will be considering Continental, I
guess, shortly.
But let me change a little bit. I was a former member of
the International Association of Machinists and Aerospace
Workers. Nothing so lofty as aerospace; I was working for
General Motors in Cleveland a long time ago. But I was
interested in your comments on your union pushing back on an
unsustainable pension promise.
Not only do I commend you for doing that, but let me ask
you in the form of a question: As Congress looks at future
pension reform, should we, in fact, pattern after many of the
other unions, such as NECA and so on, where the pension is
external, truly external to the employer; the pension, if there
is a defined pension, is portable; and its vesting is
essentially as we go, meaning if the company goes out of
business or stays in business, it doesn't really affect the
vested amount?
Is that a reform that you would like to see on behalf of
your workers, particularly if your workers may in their career
go from American to United to, well, whatever amount of
airlines are left?
Mr. Roach. Yes, we--and the International Association of
Machinists is a national pension plan, multi-employer plan
which is 100 percent funded. And through the airline
bankruptcies, we were able to put all of our airline members--
we went through United, U.S. Airways, Northwest--into that
multi-employer plan. And that is the plan we were proposing to
United Airlines, sort of, pay as you go rather than make
promises you can't keep. And if United Airlines were to go out
of business or liquidate, whatever the case may be, where
people leave, those benefits are there. And if they went to
another airline that had that plan, if they went from United to
Northwest, they would continue to get benefits.
We think that should be looked at very closely, because the
idea of corporations or airlines managing pensions seems to be
a useless proposition, with $30 billion of the PBGC
underfunded. So I think that is something that certainly should
be looked at. We have worked very closely with the PBGC and
have moved numerous airlines into that plan, and we think that
that is a better alternative than what has happened in the
past.
Mr. Issa. Okay.
Mrs. Rook, you are in the opposite situation. I fly United
almost exclusively. And AFA, of course, represents most of the
airlines, but they represent United, and they got screwed. And
they got screwed on a contract that you negotiated where they
are still working and, retroactively, they lost promises, as
they view it. They are completely disgruntled, and they hold
the airline responsible. But the truth is, you had the
accountants and the lawyers and all the people to know exactly
what would happen on a daily basis if they defaulted.
How is it you are changing your union's approach on behalf
of the people you represent? Now, you have come to us for a
bankruptcy change that changes the residual assets, but there
won't always be residual assets. An airline could end up with
nothing more to distribute, without a reorganization or with
one, particularly if the debtor in possession of money isn't
there because we have changed the rules, which is what the
other witnesses talked about.
So assume for a moment that that 11 was a 7. What have you
done to change the outcome for United retirees and workers who
have 25, 30 years with the airline, who today are getting less
money and are looking forward to less retirement than they were
promised under a union contract?
Ms. Rook. I can definitely provide more information about
the United bankruptcy. Myself, I am the MEC president for
Northwest Airlines. However, I do know that a lot of our newer
contracts, we are negotiating contribution plans rather than
the typical----
Mr. Issa. Defined contribution rather than defined benefit.
Ms. Rook. Correct. Correct.
Mr. Issa. Which would make this whole bankruptcy argument
we are having here today somewhat less significant because you
would have every nickel, every payroll, that you are entitled
to, at least as to pension, right?
Ms. Rook. That is right. And, additionally, at least in the
Northwest contract and I imagine in the United contract, they
have negotiated profit sharing. However, unfortunately, profit
sharing has been----
Mr. Issa. In your industry?
Ms. Rook [continuing]. A bit of a--it hasn't been much
lately.
Mr. Issa. No CEO of an airline ever negotiated something
that was based on profits. They always find a way to do it on
stock price or something else that they actually can make
happen.
Ms. Rook. It does seem more and more that the pension
programs that were promises made to these employees are little
more than a piggybank, and the airlines are just using them
when times are hard. And that is why the unions have moved more
toward these contribution plans.
Mr. Issa. Well, I commend you for making that move on
behalf of the people that you represent. I think it is long
overdue.
I will mention that both the State of California and the
Federal Government and our Social Security system continue to
be mostly underfunded or unfunded promises that we hope to keep
if we don't end up like Greece. So, from this side of dais, let
me assure you I don't have high confidence in my pension plan
right now either, but, then again, I am in the minority.
Mr. Chairman, thank you for the indulgence. I yield back.
Mr. Cohen. Thank you, sir. Appreciate your joining us.
And now for our final questioner, we recognize once again
the esteemed gentlelady from California, Ms. Chu.
Mr. Issa. Is that the final final?
Mr. Cohen. Yes. It is, once again, the final final. I am a
softie.
Ms. Chu. Thank you, Mr. Chair.
Mr. Cohen. You are welcome.
Ms. Chu. Well, this question is for Mr. Sprayregen, and I
would actually be interested in what anybody else has to say on
this, too.
Mr. Sprayregen, in your testimony, you argue that this bill
would actually hurt employees in the long run by making it
difficult for companies to emerge from bankruptcy. So let me
ask you, how is cutting the wages and benefits of the people
that actually produce this service, while rewarding the very
management that was responsible for that bankruptcy through
their decision-making, be in the best interest of employee
morale and ensuring that the corporation exits bankruptcy?
Does management have any responsibility for the bankruptcy?
I mean, the assumption seems to be that these are talented
management employees. I know Mr. Bernstein said that this bill
would make it difficult to retain talented management
employees. But my question is, does the management have
responsibility for the bankruptcy?
Mr. Sprayregen. Absolutely. And management, if they have
made poor decisions, should be held responsible. And, as I
mentioned earlier, often in these bankruptcy cases there is a
change in management during the case or shortly after the case
exits the bankruptcy.
I would submit to you, though, if we just had a rule that
current management is fired on the filing of the bankruptcy,
all of these very difficult issues that we are talking about
would still exist. So, management can be the problem sometimes,
or part of the problem; they can be part of the solution
sometimes. But the focus on that doesn't necessarily address
the larger issues of, is there enough money to go around to
handle the obligations that the company has promised?
Mr. Bernstein. I would only add that no company that files
bankruptcy wants to cut wages and benefits of employees.
Companies do this as a last resort because they have no choice
if they are going to remain viable. So the alternatives are
continue to pay above market in unsustainable wages and
benefits to employees, not be able to attract new investment
capital and end up in liquidation, where the retirees that
somebody mentioned earlier and the employees lose their
benefits; or do something that is quite difficult, which is
modify the labor costs structure but, in the process, save the
company so that it can continue to employ people and continue
to do business and continue to compete and continue to provide
services and pay taxes.
Ms. Chu. Well, I would like to call on Captain Prater. But,
Mr. Sprayregen, you said we shouldn't be firing all the
management, but this bill doesn't do that. I just want to point
that out. The bill is basically saying that the needs of the
employees should be balanced against these excessive bonuses
that are being paid to the management.
Captain Prater.
Mr. Prater. I just need to respond to Mr. Bernstein's
categorization that managements don't want to file--or they
file bankruptcy not with the intention of lowering wages. I am
going to say most managements that go into bankruptcy,
especially in the airline industry, have used this as a
business tool, a business plan, in fact, to get around
collective bargaining.
It is to get rid of an employee contract and to use not
only the threat of bankruptcy, where we normally negotiate
concessions to try to prevent companies from going into
bankruptcy, but then filing and getting a second bite at the
apple. They have completely used it to destroy collective
bargaining, especially under the the Railway Labor Act, that
they then seem to trumpet the fact is we can't seem to recover
because we are under bankruptcy rates for maybe 5, 6 years and
then another 3 years under the Railway Labor Act to amend those
contracts. So we live with the era of bankruptcy over us for 8
years, up to a decade.
Ms. Chu. Thank you.
Mr. Cohen. Thank you, Mr. Chairman.
Mr. Delahunt, I appreciate all the Members who attended
today. It was obviously a hearing that had a great deal of
interest, and I thank the witnesses for their testimony. It was
very enlightening.
Without objection, Members have 5 legislative days to
produce other questions that they will submit to you and we ask
that you respond to them as quickly as possible. They will be
made a part of the record.
Without objection, the record will remain open for 5
legislative days for the submission of any other material.
I thank everybody for their time and patience, particularly
Mr. Delahunt for asking more questions, so I can continue to
learn from him and improve my own legislative style and career
once he moves on.
This hearing of the Subcommittee on Commercial and
Administrative Law is adjourned.
[Whereupon, at 12:57 p.m., the Subcommittee was adjourned.]

A P P E N D I X

----------

Material Submitted for the Hearing Record

Response to Post-Hearing Questions from Babette Ceccotti,
Cohen, Weiss and Simon LLP

__________

Response to Post-Hearing Questions from John Prater, Captain,
Air Line Pilots Association, Intl.

Response to Post-Hearing Questions from James H.M. Sprayregen,
Kirkland and Ellis LLP

Response to Post-Hearing Questions from Janette Rook,
Association of Flight Attendants-CWA

Response to Post-Hearing Questions from Thomas Conway,
United Steel Workers of America

__________

Response to Post-Hearing Questions from Michael L. Bernstein,
Arnold & Porter LLP

Post-Hearing Questions posed to Robert Roach, Jr.,
International Association of Machinists and Aerospace Workers*

------
*The Subcommittee did not receive a response to these questions.

Prepared Statement of the International Union, United Automobile
Aerospace & Agricultural Implement Workers of America (UAW)

Letter from Brian Cove, Chief Operating Officer,
Commercial Finance Association