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 

ON

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 

PROTECTING EMPLOYEES AND RETIREES IN BUSINESS BANKRUPTCIES ACT OF 2010 

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

56–639 PDF 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 

ON

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 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LUIS V. GUTIERREZ, Illinois 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DANIEL MAFFEI, New York 

JARED POLIS, Colorado 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

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 

MELVIN L. WATT, North Carolina 

DANIEL MAFFEI, New York 

ZOE LOFGREN, California 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

JOHN CONYERS, JR., Michigan 

JUDY CHU, California 

TRENT FRANKS, Arizona 

JIM JORDAN, Ohio 

HOWARD COBLE, North Carolina 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

MICHONE JOHNSON, Chief Counsel 

DANIEL FLORES, Minority Counsel 

(III) 

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 

Page

IV 

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

(1) 

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; Andre ́s 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 

2 

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:] 

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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.’’ 

37 

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 

38 

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:] 

39 

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


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[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


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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 


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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. 

46 

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. 

47 

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:] 

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PREPARED STATEMENT OF BABETTE CECOTTI


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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 

152 

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:] 

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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, 

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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 

184 

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:] 

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PREPARED STATEMENT OF JAMES H.M. SPRAYREGEN


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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 

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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 AFACWA’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. 

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Bankruptcy Code that began an assault on our contract. This moVerDate Aug 31 2005 15:09 Nov 10, 2010 Jkt 000000 PO 00000 Frm 00209 Fmt 6633 Sfmt 6601 H:\WORK\COMM\052510\56639.000 HJUD1 PsN: 56639
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tion 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:] 

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PREPARED STATEMENT OF JANETTE ROOK


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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. 


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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 overglobal 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 

233 

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:] 

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PREPARED STATEMENT OF THOMAS CONWAY


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Mr. COHEN. The next witness is Mr. Michael Bernstein, a partner at Arnold & Porter, representing secured and unsecured creditors, creditors committees, bondholders, investors, assets purVerDate Aug 31 2005 15:09 Nov 10, 2010 Jkt 000000 PO 00000 Frm 00246 Fmt 6633 Sfmt 6601 H:\WORK\COMM\052510\56639.000 HJUD1 PsN: 56639

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chasers, 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 

242 

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 onesize-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 

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pear 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:] 

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PREPARED STATEMENT OF MICHAEL L. BERNSTEIN


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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 


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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 61⁄2 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. 

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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:] 

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PREPARED STATEMENT OF ROBERT ROACH, JR. 


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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 

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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. 

307 

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. 

308 

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 

309 

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. 

310 

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 

311 

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? 

312 

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—— 

313 

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? 

314 

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. 

315 

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. 

316 

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. 

317 

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 

318 

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 

319 

money here, to where my friends in business don’t actually want 

to associate with me anymore. 

But over the years, watching bankruptcy, particularly cramdowns 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 aviationrelated 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. 

320 

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 

321 

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 

322 

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 

323 

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.] 

(325) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

326 

RESPONSE TO POST-HEARING QUESTIONS FROM BABETTE CECCOTTI, 

COHEN, WEISS AND SIMON LLP 


3-1.eps
327 


3-2.eps
328 


3-3.eps
329 


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330 


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331 


3-6.eps
332 


3-7.eps
333 


3-8.eps
334 


3-9.eps
335 

f 


3-10.eps
336 

RESPONSE TO POST-HEARING QUESTIONS FROM JOHN PRATER, CAPTAIN, 

AIR LINE PILOTS ASSOCIATION, INTL. 


4-1.eps
337 

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4-2.eps
338 

RESPONSE TO POST-HEARING QUESTIONS FROM JAMES H.M. SPRAYREGEN, 

KIRKLAND AND ELLIS LLP 


5-1.eps
339 


5-2.eps
340 

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5-3.eps
341 

RESPONSE TO POST-HEARING QUESTIONS FROM JANETTE ROOK, 

ASSOCIATION OF FLIGHT ATTENDANTS-CWA 


6-1.eps
342 

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6-2.eps
343 

RESPONSE TO POST-HEARING QUESTIONS FROM THOMAS CONWAY, 

UNITED STEEL WORKERS OF AMERICA


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344 


7-2.eps
345 


7-3.eps
346 

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347 

RESPONSE TO POST-HEARING QUESTIONS FROM MICHAEL L. BERNSTEIN, 

ARNOLD & PORTER LLP 


8-1.eps
348 


8-2.eps
349 

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8-3.eps
350 

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. 

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9.eps
351 

PREPARED STATEMENT OF THE INTERNATIONAL UNION, UNITED AUTOMOBILE

AEROSPACE & AGRICULTURAL IMPLEMENT WORKERS OF AMERICA (UAW) 


10-1.eps
352 


10-2.eps
353 


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10-13.eps
364 

LETTER FROM BRIAN COVE, CHIEF OPERATING OFFICER, 

COMMERCIAL FINANCE ASSOCIATION


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365 


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367 


11-4.eps
368 

Æ 


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