richard r. kasher - air line pilots association, international · richard r. kasher expert report...

Richard R. Kasher Expert Report Brady et al. v. Air Line Pilots Association Page 1

I. Overview of Assignment

I have been retained by counsel for defendant Air Line Pilots Association, International (“ALPA”) to evaluate the reports of plaintiffs’ proposed experts, Rikk Salamat and Henry Farber, in Brady et al. v. Air Line Pilots Association, International, Civil Action No. 02-2917 (JEI) (the “Case”). Specifically, I have been asked to set forth my opinions on Mr. Salamat and Dr. Farber’s use of arbitration decisions in other airline seniority integrations to assess the pilot seniority integration list that the TWA MEC and the Allied Pilots’ Association (“APA”) supposedly would have agreed upon in the absence of any breach of the duty of fair representation by ALPA. To prepare this report, I have reviewed and considered a variety of materials, set forth in Appendix A. I am being compensated for my work in this matter at my usual interest arbitration rate of $3,000 per day. My compensation is not in any way contingent on the opinions I express or on the outcome of this litigation. II. Qualifications

I have been a labor arbitrator since 1978, and a member of the National Academy of Arbitrators since 1983. After graduating from New York University School of Law with an LLM in labor law, I began my employment with the National Mediation Board, a United States government agency in the executive branch. The NMB administers the Railway Labor Act, which governs labor relations in the railroad and airline industries. In 1974 I was appointed the NMB’s first general counsel and was responsible for drafting all agency decisions and regulations, including those applicable to the arbitration of disputes between labor and management. In 1975 I served as Labor Counsel for the United States Railway Association, a federally funded planning entity established to effectuate the transfer of the bankrupt northeastern and mid-western railroads to a new rail entity known as “Conrail.” In my capacity as Labor Counsel I participated directly in drafting legislation which resulted in certain amendments to the Regional Rail Reorganization Act of 1973 concerning pensions and employee benefits and rights. Between 1976 and 1978 I served as Director of Labor Relations for Conrail, where I was responsible for the implementation of a $250 million federally-funded employee-protection program. In this capacity I was required to understand labor relations, personnel, systems development and payroll applications for approximately 100,000 employees working under 287 collective bargaining agreements. I was also responsible for administering the provisions of the Regional Rail Reorganization Act covering employee benefits, including the legacy seniority arrangements that applied to approximately 15 groups of employees from a variety of bankrupt entities. In 1978 I left Conrail and began my career as a full-time labor arbitrator. Since then, I have served as Chairman and Neutral Member on a number of System Boards of Adjustment. Over the years, I have served in this capacity for a number of airlines and their employees, including: Pan American World Airways, both for its pilots and flight attendants; Trans World Airlines for its pilots, its flight attendants, and its mechanics and related employees; American Airlines for its pilots; Northwest Airlines for its pilots and flight attendants; Delta Airlines for its pilots; Mesaba Airlines for its pilots; and US Airways for its pilots, flight attendants, and mechanics and related employees. Since 1982 I have been appointed on ten occasions pursuant to Section 10 of the Railway Labor Act to serve as a member or chair on Presidential Emergency Boards to make recommendations on how disputes that threatened to substantially interrupt interstate commerce in the rail or airline industries should be amicably and equitably resolved.


I have also served as an interest arbitrator in the airline, rail, and trucking industries as well as in the public sector on more than 50 occasions over the past 35 years. As an interest arbitrator it is my responsibility to develop a comprehensive factual record and to render awards that, to the best of my ability and based upon my perceptions of fairness and equity, balance the parties’ respective interests. Of particular relevance for this case, I have served as the Chairman of a number of interest arbitrations involving disputes between competing airline employee groups over seniority integration issues, including an arbitration involving the seniority rights of the mechanics and related employees, fleet service employees, stock clerks, and flight simulator technicians in connection with the American Airlines acquisition of TWA that underlies the dispute here. I was the Chairman of American Airlines, Transport Workers Union of America and International Association of Machinists and Aerospace Workers, Seniority Integration of the Mechanics and Related Employees, Fleet Service Employees, Stock Clerks and Flight Simulator Technicians, April 29, 2002 (the “TWA/TWU Arbitration”), which involved the seniority integration of approximately 42,000 TWA and American Airlines employees in four separate crafts and classes. (Copy attached as Exhibit A). I also presided over Pan American World Airways and National Airlines Flight Attendant Seniority Integration, Civil Aeronautics Board Docket No. 33283, Order 79-12-164 (the “Pan Am/National Arbitration”), an arbitration arising out of one of the first major post-deregulation airline industry mergers, in which I issued an opinion and award that integrated the seniority list of the 5,216 Pan Am Flight Attendants with that of the 1,532 National Flight Attendants. (Copy attached as Exhibit B). My arbitration work in the airline industry has also given me familiarity with pilot-specific seniority integration concerns and issues. On multiple occasions, I have been tasked with constructing the integrated seniority list for two competing groups of pilots, such as in Chautauqua Airlines Pilots and Shuttle America Pilots, Wholly Owned Subsidiaries of Republic Airways Holdings, Inc. Seniority Integration, October 19, 2005 and Bar Harbor Airways, Inc. and Provincetown-Boston Airline, Inc., Seniority Integration of the Pilots, April 11, 1988 (copies attached as Exhibits C & D), which I will discuss later in more detail. In addition, I have presided over arbitrations to assess or implement the integrated seniority lists put together by other arbitrators or the respective pilot groups’ representatives, which are commonly referred to as interpretive awards. These interpretive awards often involve considerations that are similar to the seniority integrations themselves. For instance, Arbitrator Thomas T. Roberts chaired an ALPA arbitration panel that combined the pilot seniority lists in connection with the 1986 Republic-Northwest merger; the parties selected me to resolve several subsequent disputes concerning the proper interpretation of the conditions and restrictions accompanying the Roberts Award. I have also arbitrated cases involving the same airline whose former pilots comprise the plaintiff class in the present litigation. In an arbitration I decided in 1991, the representatives of the TWA and Ozark pilot groups had reached an agreement on how to combine their seniority lists when their carriers merged in 1986. I was called upon to determine how to apply the conditions and restrictions that the parties had previously agreed to when an interpretive dispute arose in 1990 concerning the award of B-767 training slots to former Ozark pilots. Similarly, the representatives of the American and TWA mechanics raised a number of interpretive disputes concerning my own 2002 decision in the TWA/TWU Arbitration that integrated their seniority lists, as referenced above. I arbitrated similar disputes at the parties’ request in later years. All of these proceedings have informed me about the variety of considerations that apply in connection with pilot seniority integrations arising from airline mergers. My analysis and opinions expressed below are the product of what I have learned from these cases as well as my general experience as a government official, a labor lawyer, a Conrail official, and an arbitrator working under the Railway Labor Act.


Given my professional background and expertise, I believe that I am well qualified to render expert opinions on matters concerning seniority list integration arbitrations that arise out of the combination of two or more airlines. III. Summary of Opinions

Based on my experience arbitrating seniority integration issues in the airline industry, as well as my review of Dr. Farber and Mr. Salamat’s reports and deposition testimony in this case, it is my opinion that Dr. Farber and Mr. Salamat’s reliance on arbitration decisions and arbitrated seniority list integrations to form their opinions is improper for a number of reasons:

A. A hypothetical negotiated agreement between representatives of two pilot groups cannot be approximated on the basis of past arbitration decisions because of fundamental differences between arbitrated outcomes and negotiated agreements, including, among others, that in evaluating the equities underlying a dispute, an arbitrator would not typically consider the various forms of bargaining pressure that the parties brought to bear in negotiations

B. Each seniority integration is unique. Arbitrated seniority integrations involve extensive fact-specific inquiries that do not lend themselves to replication in subsequent, unrelated seniority rights disputes, and the outcome of such disputes thus cannot be predicted accurately using quantitative models.

C. Plaintiffs’ experts’ reliance on arbitration opinions reveals a fundamental lack of understanding of the purpose of such opinions, the intent of the arbitrators in drafting these opinions, and the rationale for what is or is not included in such opinions.

D. While there is no universal formula for determining a “fair and equitable” seniority integration, Dr. Farber and Mr. Salamat do not consider and/or do not give proper weight to several of the considerations that arbitrators typically find significant or compelling, including the relative financial condition of the acquiring and acquired carriers and the reasonable pre-transaction career expectations of all of the pilots involved in the transaction.

IV. Overview of Plaintiffs’ Experts’ Use of Arbitrated Seniority List Integrations

Dr. Farber’s report includes an analysis of prior seniority arbitrations, which he uses to create his “best estimate” of the “but-for” seniority list that he concludes the TWA MEC and the APA would have agreed to in the absence of any breach of the duty of fair representation by ALPA. Dr. Farber’s “best estimate” includes a bottom staple of 350 former TWA pilots with the remaining 1,887 former TWA pilots merged with the American pilots using a ratio of 5.81:1. (Farber Report 4-5, 19-22.) He bases this estimate upon an average of a metric derived from seven other airline transactions that Dr. Farber subjectively considered comparable to the American Airlines/TWA transaction. According to Dr. Farber, each of these seven transactions was similar to American’s acquisition of TWA because the acquired airline (i) was having financial difficulties, but was not expected to stop flying imminently, and (ii) brought valuable assets to the combined company. To determine which transactions met these criteria, Dr. Farber “relied primarily on statements in the arbitrators’ reports” as “an independent, objective source for these data.” (Farber Report 20.) Dr. Farber’s seven “comparable” transactions are (i) Flying Tiger and Seaboard, (ii) FedEx and Flying Tiger, (iii) Delta and Pan Am, (iv) Delta and Western, (v) Air Canada and Canadian, (vi) Texas International and Continental and (vii) Alaska and Jet America. (Farber Report 4-5.) Dr. Farber purports to measure how merging the seniority lists affected the two groups of pilots in each transaction by calculating the “proportional difference between the mean seniority rank of pilots from the acquiring airline on the merged seniority list and the mean seniority rank of pilots from the acquired airline on the merged seniority list.” (Farber Report 14.) He then “averaged the proportional difference in


mean ranks” for these seven transactions to estimate the proportional difference in mean ranks to use on his “but-for” list for the American Airlines/TWA transaction. In doing this, Dr. Farber assumed that the “list would have featured a bottom staple of 350 former TWA pilots,” and merged the remaining TWA pilots using the 5.81:1 ratio “result[ing] in the required proportional difference in mean ranks” for the metric Dr. Farber created. (Farber Report 21 & n. 44.) Dr. Farber also calculated two alternative “but-for” lists using the proportional difference in mean ranks for the transactions with the second most favorable and second least favorable outcomes from the seven “comparable” mergers “as upper and lower bounds.” (Farber Report 22.) Mr. Salamat, as one of four “but-for” seniority lists, has created an “Arbitrated List” which represents his “best guess as to what an arbitrator would have awarded given the facts of the case.” (Salamat Report 14; Salamat 1/30/13 Tr. 186-87.) Mr. Salamat views his “Arbitrated List” as “an upper limit” on the range of possible outcomes that the TWA pilots could have expected in negotiations with the APA. (Salamat Report 2.) Mr. Salamat has never served as an arbitrator or mediator, but nonetheless based his “Arbitrated List” on “going back and looking at how arbitrators have merged lists in the recent past to the extent that they are similar to the current situation.” (Salamat 1/29/13 Tr. 110; 1/30/13 Tr. 187.) To implement this methodology, Mr. Salamat reviewed the portions of various arbitrations he considered relevant, although where an arbitration included “quite extensive” background material, he “didn’t review [that material] in any great detail.” (Salamat 1/31/13 Tr. 6.) Mr. Salamat’s analysis incorporates a number of arbitrations that Dr. Farber did not view as comparable (just as Dr. Farber included arbitrations that Mr. Salamat did not consider), including US Airways/America West. (Salamat Report 24.) Mr. Salamat also uses the outcome and decisions in arbitrations (and negotiations) of other seniority list integrations to determine what “would have been the most likely outcome in the absence of ALPA’s violation of its duty,” relying on these as precedents for what “could be considered reasonable or fair when viewed through the lens of other mergers.” (Salamat Report 9.) V. Opinions

A. Arbitrated Decisions Do Not Mimic Negotiated Agreements

The first methodological aspect of the reports of Dr. Farber and Mr. Salamat with which I disagree is that both attempt to use the results of arbitrated seniority integration decisions to predict the result of a hypothetical negotiated agreement between the APA and the TWA MEC. According to Mr. Salamat, in a seniority integration “the fact that it is an arbitrator who determines the final lists . . . doesn’t mean that . . . you can’t look at it in some way as a negotiated outcome” (Salamat 1/30/13 Tr. 143), while Dr. Farber testified that seniority arbitrations are predictive of the results of negotiated seniority integrations. (Farber 1/22/13 Tr. 159-62.) Based on my professional experience, however, there are significant differences between seniority arbitrations and negotiated agreements that make it impossible to use the outcome of one to approximate or attempt to predict the outcome of the other. Mr. Salamat asserts that had ALPA taken certain actions “they would have brought pressure on the Allied Pilots Association while they negotiated seniority with the TWA pilots.” (Salamat Report 2.) In my experience, however, an arbitrator would not consider the kinds of pressure that were (or could have been) exerted by and brought to bear on the parties during negotiations preceding an arbitration, nor would such pressure be given any weight by an arbitrator in reaching a fair and equitable resolution. This is particularly so because of the disparate views the parties have of the bargaining history. I have heard numerous cases in which both parties refer to “bargaining history” in support of their respective positions and the two sides often describe negotiations in ways that differ as much as day and night. The task would be even more conjectural if one were to attempt to predict what negotiations would have been like, under some set of hypothetical circumstances, when no agreement between those parties was actually reached. But that appears to be precisely what Dr. Farber and Mr. Salamat have sought to do.


As detailed below, there is a broad range of what could be considered “fair and equitable” in any given arbitrator’s discretion. Mr. Salamat’s claim that “the best list the APA could have hoped to obtain from an arbitrator [the “Arbitrated List”] must be considered the limit of what the APA would have agreed to” (Salamat Report 15) assumes a correlation between arbitrated outcomes and negotiated outcomes that, in my experience, does not exist. Indeed, it is not a given that an arbitrated result would have been better for the TWA pilots, and worse for the American pilots, than Supplement CC. Therefore, it is inaccurate for Mr. Salamat to presume as a “fact that an arbitrated list would be thought safer than a bad negotiated one.” One cannot ignore the possibility that an arbitrator, with the benefit of the evidentiary record present in an actual seniority arbitration, might decide that it would be “fair and equitable” to impose something less favorable to the TWA pilots than what actually occurred in Supplement CC. B. The Fact-Intensive Nature of Seniority List Arbitrations The second methodological aspect of the reports of Dr. Farber and Mr. Salamat with which I take issue is that neither expert accounts for the highly fact-specific nature of seniority list arbitrations. Although Mr. Salamat and Dr. Farber both concede that arbitrations are highly fact-specific, their reports disregard entirely the individualized nature of this inquiry. (Salamat 1/30/13 Tr. 235; Farber 1/23/13 Tr. 95.) For example, Dr. Farber claims that he has “defined a metric for measuring how well pilots fare when seniority lists are merged,” which he calculates “for those seniority list mergers for which he was able to get the relevant information from arbitration awards or agreements.” (Farber Report 14.) He then uses that metric to calculate a “but-for” list for the TWA/American seniority integration based on an average of the transactions he subjectively considers “comparable.” However, Dr. Farber’s view of what is “comparable” is based on only two factors – his subjective views of whether the financial condition of the acquired airline would permit it to continue operating and whether there is substantial value in the assets brought by the acquired airline to the combined company. Similarly, Mr. Salamat relies on arbitrations from unrelated transactions—many of which took place after 2001—to “estimate what an arbitrator would decide given the facts of the American/TWA merger and the arguments and proposals put forward by the respective pilot groups” and to inform his conclusions of what “could be considered reasonable or fair when viewed through the lens of other mergers.” (Salamat Report 9, 22). Like Dr. Farber, Mr. Salamat focuses almost exclusively on his impressions of whether the financial condition of the acquired carrier would permit it to continue in operation as his reference point. For the reasons discussed below, I do not believe an experienced arbitrator would limit his inquiry in this way. Any given transaction presents its own unique and specific factors that bear on an arbitrator’s subjective view of what would be fair and equitable. Therefore, every seniority list integration is different and arbitrators must approach each case anew. The end result of an unrelated arbitration is largely irrelevant because the unique facts and circumstances of each arbitration merit a thoughtful, case-specific inquiry and analysis by the arbitrator in order to reach what he deems an appropriate outcome. This principle is well-accepted by interest arbitrators. As Arbitrator George Nicolau noted in one of the arbitration opinions on which Dr. Farber relies, Federal Express-Flying Tiger, at 27-28 (1990) (Nicolau, Arb.), each case is different and thus turns on its own facts. See also Delta-Northwest, at 14 n.7 (2008) (Bloch, Eischen and Horowitz, Arbs.) (citing Arbitrator Nicolau in Federal Express-Flying Tiger). Similarly, in Air Wisconsin-Mississippi Valley, at 4-5 (1985) (Valtin, Arb.), Arbitrator Rolf Valtin recognized:

[T]hough there are before us a series of list-integration determinations by other boards and though we have read this literature with interest and respect, it is clearly to be kept in mind that list-integration determinations cannot help but be geared to the particular facts and circumstances of each case. For, by proper application of the “fair and equitable” standard, overriding effect must be given to what is presented in the situation at hand and due regard must be had for the inevitability of the uniqueness of each situation. To do otherwise would amount to abdication of responsibility.


Indeed, nearly every seniority list integration arbitration board has recognized the basic principle that seniority integration arbitrations are fact-intensive endeavors. See, e.g., Northwest-Republic, at 3 (1989) (Roberts, Arb.) (“It must be recognized, however, that what is fair and equitable in any given case can only be determined in response to the particular facts of that case.”); US Air-Piedmont, at 6 (1988) (Kagel, Arb.) (“Each case must be decided on its own set of facts and circumstances.”). I too have emphasized the case-specific nature of interest arbitration outcomes in opinions that I have authored. For example, in the seniority integration of the pilots of Bar Harbor Airways, Inc. and Provincetown-Boston Airline, Inc. (April 11, 1988), copy attached as Exhibit D, I explained that there is no universally accepted standard for a “fair and equitable” seniority integration, and the determination of what is “fair and equitable” is contingent on the facts of the case as specifically viewed by the person making the determination:

[Administrative agencies], as well as the courts that have frequently reviewed the propriety of seniority integration arrangements, whether those integrations were achieved through collective bargaining negotiations or third party intervention (mediation or arbitration), have generally concluded that there is no “one” fair and equitable arrangement for resolving seniority standing among a particular craft or class on a particular carrier. While a particular method of integrating seniority may only appear to be fair and equitable in the eyes of certain beholders, it is well-established that there may be several permutations and combinations of integrating seniority lists on the same property involving the same employees that will meet an objective test and be considered “fair and equitable.“

Id. at 14-15 (emphases added). In light of the fact-intensive nature of seniority integrations, in my professional judgment it is impossible to use prior arbitrations to create a quantitative model or precedential framework that would accurately predict an arbitrated result, let alone the results of a negotiation. Plaintiffs’ experts rely on limited factors as the basis for their contention that the TWA/AA transaction should be deemed analogous to other airline transactions. However, this analysis requires plaintiffs’ experts to shoehorn the TWA/AA transaction into a false construct that does not reflect how an arbitrator would have actually examined the factors unique to the TWA/AA case, and to assume or find similarities to past arbitrations based on incomplete and insufficient information, which arbitrators would not do. C. Perspective on The Relevant Context of Written Arbitration Opinions

The third methodological aspect of the reports of Dr. Farber and Mr. Salamat with which I disagree is that both experts assume that the information in an arbitration opinion represents the universe of information considered or relied upon by the arbitrator. Dr. Farber identifies arbitration awards as “an important source of information as to how disputes over merging seniority lists are resolved,” although he concedes that awards “vary in the detail” associated with the “reasoning that is presented.” (Farber Report 9.) Similarly, Mr. Salamat suggests that arbitrators rely on past awards as “precedents.” (Salamat Report 22.) In my experience, however, arbitration opinions generally are not written for precedential purposes and it would be a mistake to rely on them for such purposes. The parties to an interest arbitration, including over seniority integration issues, retain an arbitrator to secure his or her best judgment concerning the appropriate resolution of the particular dispute presented, not as part of a framework that develops a consistent body of law for other parties in different situations. Consistent with this role, the main goal of the arbitrator in crafting an opinion is to try to provide practical guidance about the specific dispute to help the parties implement a solution going forward. In the context of a seniority integration arbitration, a detailed, judicial-style opinion frequently will not meet the parties’ needs. Further, it is not my practice in this type of arbitration to list each factor considered or relied upon in reaching my ultimate decision.


Therefore, a third party who later reviews a seniority integration arbitration opinion—as plaintiffs’ experts have done here—will not receive a complete picture of the factors relevant to the opinion. Viewed in the proper context, Dr. Farber and Mr. Salamat’s reliance on arbitration awards as comprehensive factual records is misplaced. For example, Mr. Salamat testified that he determined whether an airline was in financial distress at the time of a transaction based on “[w]hether the arbitrator mentioned that one carrier was in financial distress of some sort,” but he performed no independent analysis of the financial condition of these carriers. (Salamat 1/31/13 Tr. 9.) Although an airline’s financial condition is an important consideration, in my experience an arbitrator does not list every detail about every relevant factor in his or her opinion. Similarly, Dr. Farber testified that he used arbitration opinions to identify comparable transactions because “arbitrators tend to be fairly verbose and give a lot of discussion of what’s going on” (Farber 1/22/13 Tr. 69), and that he “relied on the arbitrator’s statements” with no independent analysis to evaluate an airline’s financial condition. (Farber 1/23/13 Tr. 10.) While arbitration opinions include some discussion of the facts of a transaction, in my view these opinions cannot substitute for independent analysis of the facts and circumstances underlying each seniority integration. Neither Mr. Salamat nor Dr. Farber stated that he had performed that type of analysis. In short, while other decisions involving the integration of similarly situated groups might be considered for general reference, interest arbitrators do not give such decisions precedential effect when determining what a fair and equitable result would be in an unrelated matter. No two carriers are economically or operationally identical and no two competing groups of employees have identical demographic profiles. To the extent an arbitrator would look at prior cases for some marginal guidance, it would be better to focus on cases involving the same transaction (such as the TWA/TWU Arbitration discussed below) that would actually have largely the same factual background. D. The Considerations Underlying Arbitrators’ Seniority Integration Decisions The fourth methodological aspect of the reports of Dr. Farber and Mr. Salamat with which I do not agree is that neither adequately accounts for the standard criteria arbitrators typically consider in seniority integrations. While every seniority integration presents a unique set of factors that must be analyzed to achieve a “fair and equitable” result, certain considerations are consistently used by arbitrators to construct the framework within which to assess these case-by-case factors. These considerations include the pre-transaction career expectations of the pilots in both groups involved in the seniority integration. Protecting pilots’ pre-transaction job security and career expectations is a bedrock principle that dates back to the earliest integration arbitrations. For example, Arbitrator Benjamin Aaron’s decision in Flying Tiger-Slick, at 14 (1954) (Aaron, Arb.) made clear that “primary attention must be directed to the preservation of the jobs brought by each pilot group to the new enterprise.” And in Mackey-Eastern, at 6 (1967) (Cole, Arb.), Arbitrator David Cole stated that “[t]he essential object of our exercise is to prevent impairment so far as possible of the job security and the earning and promotional opportunities which each of the pilot groups had on its own air line prior to the merger.” Likewise, in Alaska-Jet America, at 7 (1989) (Bloch, Arb.), Arbitrator Bloch wrote: “[A]s in the case of every known bona fide seniority integration arbitration that has occurred in the last 30 years, this Panel has carefully considered, among other things, the career expectations of the respective groups and their contribution to the mix.” Since both Mr. Salamat and Dr. Farber purport to premise their analyses on how arbitrators would decide this seniority integration—and on how arbitrators in unrelated matters have decided seniority integrations—it was a significant omission for them to ignore this overarching consideration on which arbitrators almost invariably rely. Neither Mr. Salamat nor Dr. Farber addressed how an arbitrator would have factored in the benefits of the transaction to the TWA pilots in terms of improving their pre-transaction career expectations, or how the transaction and integration would potentially impact the American pilots’ career expectations adversely. Mr. Salamat testified that “in this case, we weren’t looking at what people’s premerger expectations were” because


“[t]he only thing we looked at . . . was . . . the number of jobs” each airline contributed to the transaction and “the most significant . . . [variable was] the number of jobs and the type of equipment that each premerger group was operating.” (Salamat 1/29/13 Tr. 73-74, 141.) Although Mr. Salamat “didn’t see how [pre-transaction career expectations] would be particularly relevant” (Salamat 1/29/13 Tr. 74), in my experience an arbitrator would consider them among the most relevant of the case-by-case factors analyzed in an arbitration. Dr. Farber’s analysis suffers from a similar flaw: in constructing his “but-for” merged seniority lists, he admittedly did not account for the pre-transaction career expectations of the American Airlines pilots. (Farber 1/22/13 Tr. 130.) An arbitrator’s assessment of the pilots’ pre-transaction career expectations requires an understanding of the financial condition of both airlines since that bears on, among other things, the equities and assets brought to the merger by the parties. My decision in the TWA/TWU Arbitration (copy attached as Exhibit A) demonstrates the need to carefully consider the pre-transaction job security and career expectations of the parties in the context of the carriers’ relative financial conditions. The TWA/TWU Arbitration—which arose out of the same transaction at issue in the present litigation—involved the seniority list integrations for approximately 42,000 TWA and American Airlines employees. The agreement to arbitrate provided that American’s employees could not suffer any adverse effect as a result of the seniority integration:

The TWU submits that, based upon these considerations [which included TWA employees receiving substantial benefits as a result of becoming American employees], the TWU has proposed that incoming TWA employees be provided an April 10, 2001 seniority date, “a position mirroring the final settlements made by other unions on the property.” The TWU submits that, while the contract does not dictate such a result, the TWU is “open” to any resolution which protects the interests of the lAM workforce, provided that the contractual “hold harmless” guarantee to TWU workers is respected. (Emphasis by the TWU).

TWA/TWU at 40. This restriction in the agreement to arbitrate was unusual, and in my professional judgment, part of the rationale for the restriction was the precarious financial condition of Trans World Airlines and the possibility that TWA would liquidate if not for its merger with American Airlines. While I was not prepared “to adopt American’s characterization of itself as a ‘white knight,”‘ the disparity between the carriers’ respective financial conditions was notable to me. Based on the evidence presented in the arbitration, I found that “[b]y December, 2000 TWA was no longer a viable carrier and bankruptcy was not far off,” while American was a “financially secure carrier.” Id. at 14-15. I further found that despite its attempts to restructure, TWA ultimately “determined that it had no viable alternative to a sale of certain of its assets to American through bankruptcy.” Id. at 15. As a result, I concluded that American’s offer to purchase TWA’s assets saved the careers of TWA’s employees. Id. at 45. I observed that “American made a broad offer of employment to virtually all TWA’s employees, and most of those employees who were able to retain employment reaped significant advantages in terms of increased rates of pay and benefits.” Id. I also observed, based upon the record before me, that TWA’s lAM-represented employees were “granted new life” because their careers were saved by the transaction. Id. I cannot speculate about whether, if there was an agreement to arbitrate the seniority list integration of American and TWA’s pilots, an arbitrator would have assigned the same weight to the relative financial conditions of the two carriers, in light of other case-by-case factors and the arbitrator’s subjective assessment of the overall equities of the dispute. However, it would be reasonable to assume that there would have been little difference in the evidence concerning the relative financial condition of the two carriers. As a result, there is no support for Mr. Salamat’s decision to ignore “the economics of each contributing carrier” or his assertion that financial condition is “at the margin rather than at the heart” of seniority arbitration


decisions. (Salamat 1/29/13 Tr. 142; 1/31/13 Tr. 66.) I also do not agree with Mr. Salamat’s position that if TWA was on the “verge of liquidation” it “wouldn’t affect [his] analysis.” (Salamat 1/30/13 Tr. 226.) For similar reasons, I do not agree with Dr. Farber’s decision to assume that TWA would continue flying without doing any significant analysis of TWA’s financial condition. (Farber 1/22/13 Tr. 79-84.) This is particularly problematic given that Dr. Farber conceded that if TWA would have liquidated without the American Airlines transaction, it would have affected his analysis because he “would have had to select [his] comparable[] [arbitrations] differently.” (Farber 1/22/13 Tr. 139.) As discussed above, in my experience, an arbitrator would consider the pre-transaction career expectations of both pilot groups and would analyze the carriers’ financial condition in detail. An arbitrator would also look to the total benefits each party would gain from the transaction, such as improved pay or working conditions, in attempting to balance the equities to reach a fair outcome. For example, I considered this issue as part of my decision in Chautauqua Airlines Pilots and Shuttle America Pilots, Wholly Owned Subsidiaries of Republic Airways Holdings, Inc. Seniority Integration (October 19, 2005), which involved the seniority integration of two subsidiaries of Republic Airways Holdings, Inc. At the time of the arbitration, Chautauqua Airlines employed approximately 1,200 pilots domiciled at eleven bases and Shuttle America employed 90 pilots domiciled at one base. There were substantial differences in favor of Chautauqua in terms of economic stability, higher pay rates, fleet size and route structure among other factors. As the starting point for my analysis, I held that “the ‘reasonable’ career expectations of the two pilot groups [were] the benchmark for determining what [was] fair and equitable in this case.” Id. at 13. Specifically, I took into consideration the financial situation at Shuttle America, as compared to Chautauqua:

There can be no question that Shuttle America Pilots had to harbor a reasonable sense of anxiety concerning their future in view of Shuttle America’s tenuous financial situation, while Chautauqua Pilots, on the other hand, could only be encouraged by the continued financial success and expansion of Chautauqua Airlines.

Id. at 16. I also recognized that:

[T]he rates of pay, rules and working conditions in the Chautauqua Pilots’ collective bargaining agreement . . . are far superior to those found in the Shuttle America Pilots’ collective bargaining agreement . . . . As a result of the acquisition Shuttle America Pilots will be the beneficiaries of the superior rates of pay, rules and working conditions found in the Chautauqua Pilots collective bargaining agreement.

Id. at 17. My analysis in Chautauqua is similar to the approach experienced arbitrators have followed in other seniority integrations. In Federal Express-Flying Tiger at 4, for instance, Arbitrator George Nicolau integrated 1,001 FedEx pilots with 873 Flying Tiger pilots via a series of four ratios. Although Arbitrator Nicolau based his decision on all relevant factors, he explained that he relied most heavily on two considerations, one of which was that the FedEx jobs were worth substantially more than the Tiger jobs due to the higher FedEx pay rates. Id. at 46-49 (noting that the other consideration was the disparate financial condition of the carriers). For these reasons, Nicolau determined that the Tiger pilots “by far, gained the most from this merger.” Id. at 38. While Dr. Farber includes the Federal Express-Flying Tiger arbitration in his report, he does not attempt to address how the same factors Arbitrator Nicolau considered in that arbitration would apply to the American Airlines/TWA seniority integration. (Farber Report Table 1.) Similarly, in Delta-Northwest at 22 n.20, the Arbitration Board (consisting of three experienced arbitrators) took into account the fact that the Delta pilots were paid more than the Northwest pilots under the terms of their pre-merger collective bargaining agreements, in the process of constructing a combined seniority list. The


Board explained that it had considered a variety of factors, including the Northwest pilots’ improved salaries resulting from the merger:

It is also appropriate to consider gains that flow from the merger. While it is true that both pilot forces are compensated relatively well, by comparison with the average U.S. airline, it is also the case that, on a stand-alone basis, Northwest Pilots were paid less than their counterparts at Delta. Due to the success of the parties in bargaining a new Joint Collective Bargaining Agreement . . . Northwest Pilots enjoyed immediate benefits averaging 9.51% across the group.

Id. The Board thus relied on the disparate pre-merger pay rates of the two pilot groups—a factor also present here—in building a combined seniority list that fairly reflected pilots’ career expectations. As a result of the American Airlines transaction, the TWA pilots received substantial gains in terms of pay, benefits, and work rules. For example, contemporaneous documentation reflects that as a consequence of the transaction and American’s higher pay scale, the most senior TWA small widebody and narrowbody captains received a more than 30% increase in hourly pay. (See Trial Exs. J-323(D) at 19; J-324 at Sup. A-11.)1 Based on my experience, I would expect an interest arbitrator to consider these significant benefits and subjectively determine the extent to which they would impact the placement of TWA pilots on a combined seniority list to achieve a fair and equitable merged list. I do not find any reasonable explanation in Dr. Farber’s report of how these increased benefits would or should be weighted, or any support for his contention that differences in pay and benefits served only to “shad[e] . . . the integration one way or the other” in prior arbitrations. (Farber 1/22/13 Tr. 141.) Similarly, I do not agree with Mr. Salamat’s methodology, which appears to simply ignore differences in pay, benefits, and work rules. Mr. Salamat’s assertions that “income is in no way determinative of the value arbitrators put on pilots [sic] seniority relative to pilots of a different airline” and that “differences in . . . pre-transaction earnings play[] absolutely no role in how . . . pilots were merged” are inconsistent with my experience as an arbitrator. (Salamat Report 16; 1/30/13 Tr. 230.) Mr. Salamat points to Arbitrator George Nicolau’s opinion in the 2007 seniority merger of the pilots of US Airways and America West as an endorsement of the position that differences in pay between the pilot groups have no real effect on the composition of a merged seniority list. (Salamat Report 16; 1/30/13 Tr. 231-32.) However, a review of that opinion makes clear that Mr. Nicolau took no such position, as the language on which Mr. Salamat relies is part of a description of the position of the US Airways pilots’ merger committee, not that of Mr. Nicolau. To the contrary, Mr. Nicolau specifically said that career expectations are of considerable importance in seniority integration, and he explained that he had taken into account the financial condition of both carriers in assessing such career expectations. Notably, he found and took into consideration that the pilots of the weaker airline had more to gain from the merger than their new colleagues, including a more favorable collective bargaining agreement and better pay for comparable aircraft. (US Airways/America West, 24.) In previous arbitrations, I have considered such improved work conditions, pay and benefits, all of which must be carefully assessed based on the unique facts of a given arbitration. In my experience an arbitrator would also consider a variety of other factors, including evidence related to routes, airline balance sheets, and profitability analyses, to name just a few. These considerations vary considerably from case to case, as does the weight and attention that each consideration receives from the arbitrator as he constructs what he deems a fair and equitable list.

1 Per the respective CBAs, under the pay rates that were (or would have been) effective as of 9/01/01: TWA 15th Year (and higher) Captains of small widebody aircraft would have made $148.39 per hour, and American 12th Year (and higher) Captains of comparable 767-300 aircraft made $201.88 per hour, indicating an hourly pay increase of $53.49; TWA 15th Year (and higher) Captains of narrowbody aircraft would have made $135.02, and American 12th Year (and higher) Captains of comparable MD-80 aircraft made $181.57, indicating an hourly pay increase of $46.55.


Arbitrators also employ conditions and restrictions to balance the equities and to preserve the pre-transaction career expectations of both pilot groups where these considerations cannot be met purely by the merged seniority rankings. Those conditions and restrictions might establish preferences for a group of pilots in terms of flying certain aircraft types, and would impact the “seats” those pilots would be able to hold in the context of existing and/or changed operational circumstances. By way of example, the Roberts Award (discussed above) imposed conditions and restrictions that allocated jobs as between the Republic and Northwest pilots for a period that extended nearly twenty years after the merger. It is therefore critical in understanding that ruling to consider the conditions and restrictions along with the merged list itself. However, in using the Roberts’ Award and others, Dr. Farber does not appear to even consider the extent to which “conditions and restrictions” that an arbitrator might include in his or her opinion and award could affect the operation of the merged pilot seniority list. Specific to the present matter, I understand that the “St. Louis Fence” instituted by Supplement CC was in place to protect, in part, the career expectations of the TWA pilots prior to the transaction by imposing conditions and restrictions to guarantee their access to positions on TWA’s pre-transaction equipment types, positions in the St. Louis domicile, schedule and vacation bidding preferences for St. Louis-based pilots and fleet size. I have seen arbitrators construct similar arrangements in addition to a merged seniority list to balance the equities where appropriate and fair. And yet, Mr. Salamat and Dr. Farber disregard the St. Louis Fence in their analyses. (See Farber 1/22/13 Tr. 103-06; Salamat 1/30/13 Tr. 163-65.) In my opinion, that is not appropriate if what they aim to do is to extrapolate from other arbitration outcomes because these conditions and restrictions constitute an important and integral part of the arbitral determinations. VI. Conclusion

For the reasons detailed above, it is my opinion that the methodologies proposed by Dr. Farber and Mr. Salamat cannot be used to predict the results of a hypothetical integrated seniority list in the present case.

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APPENDIX A – DOCUMENTS CONSIDERED

Arbitrations 1. Air Wisconsin-Mississippi Valley, Integration of Seniority Lists (1985) 2. Alaska-Jet America (1989) 3. American Airlines, Transport Workers Union of America and International Association of Machinists and

Aerospace Workers, Seniority Integration of the Mechanics and Related Employees, Fleet Service Employees, Stock Clerks and Flight Simulator Technicians (2002)

4. Bar Harbor Airways, Inc. and Provincetown-Boston Airline, Inc., Seniority Integration of the Pilots (1988) 5. Chautauqua Airlines Pilots and Shuttle America Pilots, Wholly Owned Subsidiaries of Republic Airways

Holdings, Inc., Seniority Integration (2005) 6. Delta-Northwest (2008) 7. Federal Express-Flying Tiger (1990) 8. Flying Tiger Line, Inc./ Slick Airways, Inc. (1954) 9. Mackey Airlines/Eastern Airlines, Merger of Seniority Lists (1967) 10. Northwest-Republic Pilot Seniority Integration (1989) 11. Pan American World Airways and National Airlines Flight Attendant Seniority Integration (1981) 12. US Air-Piedmont, Seniority Integration Arbitration (1988) 13. US Airways/America West (2007) Deposition Transcripts 1. Deposition of Henry Farber, January 22-23, 2013 2. Deposition of Rikk Salamat, January 29-31, 2013 Documents in Record 1. AA 0071-72 2. AA 0247-48 3. AA 0269-72 4. ALPA 001159-61 5. ALPA 001573 6. ALPA 004745-46 7. ALPA 005326 8. ALPA 007587-90 9. ALPA 007673-75 10. ALPA 008746-81 11. ALPA 008899-901 12. ALPA 008905 13. ALPA 009418-19 14. ALPA 009490-91 15. ALPA 009494 16. ALPA 009504 17. ALPA 009512-13 18. ALPA 009526-27 19. ALPA 009536-37 20. ALPA 009538-39 21. ALPA 009540-41 22. ALPA 009542-43 23. ALPA 009544-46

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24. ALPA 009549 25. ALPA 009550 26. ALPA 009553 27. ALPA 009557 28. ALPA 009558 29. ALPA 009574 30. ALPA 020152-79 31. ALPA 021021-22 32. ALPA 027957 33. ALPA 028088 34. ALPA 028154 35. ALPA 028482 36. ALPA 029494-96 37. ALPA 029632-35 38. ALPA 029680-84 39. ALPA 029993-99 40. ALPA 029940-41 41. ALPA 030054-56 42. APA 00230 43. D-011 44. D-119 45. D-139 46. D-140 47. D-141 48. D-142 49. D-143 50. D-182 51. D-183 52. D-184 53. D-288 54. D-307 55. D-309 56. D-311 57. D-312 58. D-313 59. J-010 60. J-208 61. J-209 62. J-279 63. J-280 64. J-283 65. J-284 66. J-285 67. J-291 68. J-296 69. J-302 70. J-309 71. J-310 72. J-317 73. J-323(D) 74. J-323(P)

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75. J-324 76. J-327 77. J-329 78. J-352 79. P-013 80. P-326 81. P-343 82. P-344 83. P-345 84. P-351 85. P 01556-57 86. P 01726-33 87. P 03523 88. P 03580 89. P 06392-93 90. P 06402 91. P 06456-57 92. P 06464-66 93. P 06485-86 94. P 06503-04 95. P 06543 96. P 06549-51 97. P 06569-70 98. P 06651-52 99. P 06659-60 100. P 06668-69 101. P 06690-91 102. P 06670-71 Expert Reports 1. Expert Report of Henry Farber, October 12, 2002 2. Expert Report of Rikk Salamat, October 12, 2012 Legal Documents 1. Brady v. Air Lines Pilots Association, Int’l Complaint 2. Brady v. Air Line Pilots Association, Int’l Jury Verdict 3. Brady v. Air Lines Pilots Association, Int’l Trial Transcript Other Documents 1. Bensel v. Allied Pilots Ass’n, 387 F.3d 298 (3d Cir. 2004) 2. Written Testimony of Capt. Edwin C. White, Jr., before the United States Senate Committee on Health,

Education, Labor and Pensions, for a hearing on the TWA/American Workforce Integration, dated June 12, 2003

Exhibit A

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Exhibit B

Exhibit C

Exhibit D