The Bankruptcy Bomb: Companies Use Bankruptcy Threats and Courts to Force Bigger Givebacks, Break Unions

Employers in heavily unionized U.S. industries are turning to bankruptcy courts as a strategy for gutting union contracts and imposing layoffs and givebacks even deeper than those workers made in the concessions of the early 1980s.

Bankruptcy-as-a-strategy first became prominent during the restructuring of the steel industry in the late 1990s, then spread to the airlines after 9/11, leading to a virtual freefall in the bargaining power of unions there.

With the October 8 Chapter 11 filing by Delphi, the world’s largest auto parts manufacturer, bankruptcy could become the strategy of choice for executives in other heavily-unionized core industries.


The affected industries have much in common. The business press describes them as “ailing legacy industries,” which is code for densely organized workplaces where U.S. workers made significant gains in decades past. Forced to accept these gains, companies sought to prevent strikes, shop floor fights, and other militant activity by tying unions close to them, in part with large pattern agreements.

These industries have had defined-benefit pensions, good retiree health care, good low- or no-cost health care, relatively high wages, and other benefits. But many firms in these industries are no longer interested in keeping these “high towers” around.

After the long boom of the 90s, many U.S. companies found themselves with problems created by rapid economic expansion. Competition with newer or foreign companies; high debt loads from mergers and expanding business efforts; general overcapacity (over-production of goods or too many planes or plants); and the 2001-2002 recession put affected employers more in the mood to use bankruptcy as their battering ram.

But the similarities among industries go beyond broad trends; they even include the same cast of characters. Delphi’s CEO Steve Miller, formerly of Bethlehem Steel, was brought in by Delphi’s board in July to repeat the act he did in steel. Miller said in a recent press conference, “[Delphi’s restructuring] is what happened in steel and airlines and what is happening now before your eyes in the automotive industry.”


Another part of this strategy is to shift pension costs to taxpayers by defaulting and leaving the bill to the Pension Benefit Guarantee Corporation, a federal government agency created in 1974 to protect workers’ pensions from companies going under. Pensions picked up by the PBGC pay out at significantly lower rates, many topping out at 60 percent of the original.

Many companies started underpaying into their pension funds in the late 90s. As the 2001 recession hit, these companies were underfunding to the tune of hundreds of billions of dollars: $305 billion in 2002, $278 billion in 2003, and $354 billion in 2004, according to the PBGC. To restore investor confidence, managers sought a way out of paying up on their obligations. Chapter 11 fit the bill.

A number of bankrupt companies have been able to renege completely on pension payments by either using the threat of a court-ordered abrogation of their labor contracts (U.S. Steel, LTV, US Airways, and Northwest Airlines) or, in the case of United Airlines in 2005 — where militant mechanics voted down a tentative agreement — using the court to unilaterally impose the default.

To add insult to injury, retiree health care benefits have been also under the restructuring axe. Many retired steelworkers had to face cost jumps of hundreds of dollars a month after smaller, “leaner” firms emerged from bankruptcy.


This trend presents enormous challenges for unions. If leaders continue with the strategy of appeasement through concessions, the situation will grow even grimmer. Concessions don’t save companies, and appeasement only breeds more boldness on the employers’ part.

On the other hand, a militant piecemeal strategy is unlikely to work either. The courage — and foresight in identifying the severity of this new round of corporate restructuring — shown by the Aircraft Mechanics Fraternal Association at Northwest has unfortunately run up against a wall, as the airline continues to operate with outsourcing and labor from other unions.

Non-striking gate/ramp agents, flight attendants, and pilots — all in separate unions — are facing the fallout from Northwest’s September 14 bankruptcy filing and its subsequent filing of a motion to open their contracts October 12.

Workers represented by the UAW, IUE-CWA, and the Steelworkers are all separately facing the same at Delphi. Teamster car haulers are struggling with a similar move at Allied Holdings, which declared Chapter 11 at the end of July.

A cross-union response is clearly needed.

This response needs to unify union efforts first in affected industries and then around the movement as a whole in a counter-strategy. Marches, rallies, inside strategies, intermittent strikes, and industry-wide sympathy strikes need to be advocated for at the local level and enacted on the national.

The potential power exists. To protest outsourcing and speedup, the UAW struck two auto parts plant in Flint, Michigan in 1998 (one of these plants later became a Delphi plant). Because the “just-in-time” auto production chain depended on that plant’s parts, the union was able to shut down nearly all of GM’s lines throughout North America for two months.

“People fought and died to win the benefits and wages that we’ve gotten over the years,’‘ Al Benchich, president of UAW Local 909, told a Bloomberg reporter. “It wasn’t just handed to us. So now we’ll probably have to take to the streets again to keep what we’ve won or get it back.”

Labor Notes
Chris Kutalik is currently co-editor of Labor Notes in Detroit. He comes to labor activism through his experiences as a local officer in Amalgamated Transit Union local 1549 in Austin, Texas and has served as an editor and writer for several alternative and mainstream publications. He can be reached at <>.