The NewStandard ceased publishing on April 27, 2007.

Corporate Report for March 22-28

by Simone Baribeau

Airlines slash worker pay, spoil execs; Insurance co's snub patients; Power co's add mercury to H2O; Grocery chain and pharm. co. consolidation

The Corporate Digest is a weekly publication of The NewStandard. It monitors news about corporate laws, regulations, and practices and explains their effects consumers, workers, the environment and small businesses.

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In this issue:

Airlines Ask For Union Salary Cuts While Executive Salaries Remain High

In separate incidents, US Airways and Hawaiian Airlines have made moves which may allow management salaries to remain high at the expense of the employees’ wages.

Southwest Airways’ move into the Philadelphia market prompted David Siegel, US Airways CEO, to tell employees to expect wage cuts in their labor contracts by this summer, reports the Wall Street Journal. Workers unable to stomach additional givebacks should look for new jobs, he said.

However, at least one of the unions is reluctant about renegotiating the contract. Robert Roach, a national official from the International Association of Machinists, the group that represents US Airways mechanics, told USA Today, “We opened the contract twice last year, and the company got 100% of what it asked for…[Current management] is incapable of running the airline.�

According to USA Today, Mechanics at US Airways already conceded $250 million a year in pay and benefits during negotiations in 2003 and US Airways employees combined give up $1 billion.

At the same time, Siegel negotiated an option for a $4.5 million severance package for himself when the company was in bankruptcy negotiations last year. Should he leave the company for any reason between April 1 and April 30, he will be eligible for the package. He has said he will not exercise this option, according the Wall Street Journal.

Such payouts are not unusual for US Airways. The Pittsburgh Post-Gazette reports that in 2001, when US Airways was in a financially precarious position, it paid out $35 million in lump-sum retirement benefits to its former top three executives.

Separately, John Adams, chairman of Hawaiian Holdings, the parent company of Hawaiian Airlines, has recruited Donald Carty to invest in and be the non-executive chairman of Hawaiian Airlines when it emerges from bankruptcy court protection.

Currently, the Boeing Company, long time Hawaiian airline pilot Robert Konop, and Charmain Adams are in a three-way contest for control of the company when it comes out of bankruptcy, according to the Honolulu Star-Bulletin.

Last year, Carty was pressured to resign from American Airlines after demanding the airline’s unions vote on $1.8 billion worth of salary cuts while failing to disclose that the airline had set up $41 million pension fund for the airline’s management to protect it in the event of bankruptcy and bonus packages for management worth twice their salaries, according to the BBC and CBS News. The company eventually reversed the bonuses, but left the pension fund in place.

Unions at Hawaiian Airlines have already lost $15.3 million in wage concessions. While earlier this year the airline decided against using bankruptcy protection to force through further union concessions, negotiations are on hold until the company comes out of Chapter 11 protection. Some worry that a Carty team may demand more concessions. Jim Giddings, Hawaiian Airlines pilots union chairman, told the Star Bulletin, “Mr. Carty does not have a good recent history when it comes to another important asset for any successful business: positive employee relations…[He] needs to understand that Hawaiian's employees have already done their part and Hawaiian is now one of the most successful turnaround stories in the airline industry."
Article References:
Carey, Susan. “US Air Presses for Staff Givebacks.� Wall Street Journal. March 25, 2004.

Carey, Susan. “Carty Joins Hawaiian’s Parent in Plan to Reorganize Airline.� Wall Street Journal. March 25, 2004.

Adams, Marilyn. “US Airways buys more time but loses union’s support.� USA Today. March 16, 2004.

Reeves, Frank. “US Airways gave $35 million in pension payments to top 3 former executives.� Pittsburgh Post-Gazette. February 26, 2003.

“American Airlines’ chief quits.� BBC News, World Edition. April 23, 2003.

“CEO Woes At American Airlines.� CBS News. April 24, 2003.

Natarajan, Prabha. “Hawaiian tends to business under Chapter 11.� Pacific Business News. March 28, 2003.

Banstetter, Trebor. “Carty seeks job at Hawaiian Airlines.� Star-Telegram. March 24, 2004.

Segal, David. “Carty Eyed for Hawaiian.� Honolulu Star Bulletin. March 24, 2004.

Aetna and Cigna May Gain Legal Right to Prevent Patient Suits

Patients risk losing their right to sue HMOs when their failure to pay for “ordinary care� leads to injury or death, as US Supreme Court justices signal they may side with Aetna Inc. and Cigna Corp. in overturning a Texas law which protects patients against HMO negligence, reports Bloomberg.

Should this legislation pass, HMOs will bear no legal responsibility for patients who become ill, miscarry or die due to the HMO’s refusal to adequately pay for medicine, hospital stays, or medical tests.

At issue, according to Bloomberg, is whether the HMO’s refusal to pay for treatment is tantamount to making a medical judgment. Only if they are making a medical judgment, the Supreme Court justices argue, would they be open to a suit.

"They're not managing care. They’re giving out money,� Justice Antonin Scalia said during arguments in Washington, reports Bloomberg. He argued that patients could receive care by paying out of pocket.

In 2001, President Bush opposed a bill which would have given patients a broad right to sue their health insurers, arguing that it would drive up health care costs, according to Bloomberg.

Several studies have suggested, however, that the rising cost of health care is not driven by malpractice suits.

A 2003 study by Weiss Ratings, an independent financial ratings organization, demonstrated that states that put legal caps on non-economic malpractice damages had a higher increase in malpractice premiums than states that did not cap damages.

Instead, according to consumer advocacy groups, increasing administrative costs are largely to blame for rising insurance premiums. A 2003 report by Public Citizen, a non-partisan consumer advocacy organization, cites figures from the New England Journal of Medicine, which show that in 1999, 31.0 percent of US health spending was on administrative costs, while, by comparison, administrative costs in Canada amounted to 16.7 percent of health spending. The report argues that the difference is due to inefficiencies in US’s “current fragmented and duplicative payment structure� which are not present in Canada’s single payer system.
According to the Center for Responsive Politics, Aetna donated $299,000 to Republican campaigns in 2000, and Cigna donated $263,374.

Article References:
Stohr, Greg. “Aetna, Cigna Get High Court Support on Patient Suits.� Bloomberg. March 23, 2004.

“Medical Malpractice Caps Fail to Prevent Premium Increases, According to Weiss Ratings Study.� Weiss Ratings, Inc. June 2, 2003.

Himmelstein et al. “Administrative Waste in the US HealthCare System in 2003.� Health Research Group, Public Citizen. August 20, 2003.

Power Companies Continue Delivering Mercury to Water Supplies

Mercury producing power plants gained another victory when Environmental Protection Agency (EPA) spokeswoman Cynthia Bergman said the agency will likely stretch out its plans to reduce mercury pollution in power plants from 2008 until 2018, reports the AP.

According to the National Institute for Health (NIH), which is part of the US Department of Health and Human Services, recent studies show that approximately 10 percent of women have mercury levels within one tenth of potentially hazardous levels, and as many as 60,000 newborns a year in the US are at risk for adverse neuro-developmental effects from dietary mercury. Mercury can injure or destroy the kidneys and brain. Children and fetuses are especially at risk for neurological injuries, with exposure leading to an increased risk of memory, attention, and language development problems, according to NIH studies.

The National Environmental Trust, a non-partisan organization which seeks to inform citizens about environmental problems, reported in December 2001 that the EPA told the Edison Electric Institute it was possible to reduce mercury emissions by 90 percent, from 48 annual tons, to 5 annual tons by 2008. President Clinton’s EPA administrator, Carol Browner confirmed that emissions could be reduced to this level by 2008, reports the AP. “We had evidence that you could get there... It is possible. It is doable,'' she said at a recent news conference.

However, because of a December Bush administration decision not to require maximum pollution controls regulating mercury, these standards need not be kept.

Instead, reports the AP, EPA officials contend there is no existing technology to remove mercury from different types of coal, citing a study partially funded by the utility industry.  Therefore, say officials, the most efficient way to reduce pollution is to set a ceiling for mercury pollution across all plants and allow plants that reduce their pollution below the ceiling to sell pollution credits to plants that don’t. The goal would be to reduce the current 48 annual tons of mercury to 15 annual tons by 2018.

According to the National Environmental Trust, more than 284 additional tons of mercury will be emitted between 2008 and 2020 under the new plan than under the Clinton plan. Also, it contends, the mercury trading system under the current plan could lead to “toxic hotspots� where mercury contamination increases. Other legislative proposals have barred trading in mercury emissions for this reason.

At over $19 million, electrical utilities were the twenty-first largest donor in the 2000 election cycle, with 68 percent of their donations going to Republicans, according to the Center for Responsive Politics.

Article References:
Heilprin, John. “EPA might stretch out plan to cut mercury emissions.� Associated Press. March 23, 2004.

“Mercury Health Hazards.� National Institute of Health.

“The Bush Administration Air Pollution Plan: More Mercury Pollution, Higher Health Risks.�National Environmental Trust.

Pharmaceutical Industry May Further Consolidate

The prospect that pharmaceutical company Aventis could be acquired by either Novartis or Sonofi may exacerbate the rise in prescription drug prices in the US and mean lost jobs in France.

According to the Wall Street Journal, the Swiss drug maker Novartis has publicly announced its interest in buying Aventis, which is fellow French drug company Sonofi is also currently trying to acquire. Should Novartis and Aventis combine, they would become the world’s second largest pharmaceutical company in terms of market share, and in the US would rank third in sales.

When asked to comment on the proposed acquisition, Dean Baker, Co-Director of the Center for Economic and Policy Research, a non-partisan economic think tank, said, “The history of drug company mergers has been that when two companies merge, the combined company does less research than the two companies did separately. Furthermore, it leads to greater concentration in an already heavily concentrated sector. This is likely to mean even higher drug prices in the future, unless the government weakens the industry's patent monopolies.�

Studies have also shown that pharmaceutical mergers lead to higher drug prices in the US. According to a 2001 study by the Institute for Health and Socio-Economic Policy, a non-profit research institute which works with the California Nurses Association the 1995-2000 wave of pharmaceutical mergers has allowed drug companies the ability to raise prices on their products. The study, commissioned for Congressman Dennis Kucinich, states that such price increases lead HMOs to drop more Medicare patients, to reduce the number of available drugs in their existing formularies, and to pass costs on to hospitals, sometimes by withholding payments. Hospitals, the study says, may then respond by raising the price of drugs and trimming labor costs by laying off already short staff.

While drug companies argue that the economies of scale allowed by these mergers will enable them to keep costs down, the average retail price of prescription drugs rose on 53 percent between 1995 and 2000 compared to 36 percent from 1990 to 1995, according to numbers from the Kaiser Family Foundation.

The Wall Street Journal reports that the prospect of job cuts in France is seen as a big obstacle to a deal between Aventis and either Novartis or Sanofi. In order to reduce the fear of layoffs, reports the Journal, Novartis proposed combining the two companies’ older and less innovative drugs, bundling them together and spinning off those businesses as a separate entity.

Article References:
Naik, Gautam and Raghavan, Anita. “Novartis’s CEO Preassures France with Public Pitch on Aventis Deal.�Wall Street Journal. March 24, 2004

DeMoro, Don. “Big Pharma:� Mergers, Drug Costs and Health Caregiver Staffing Ratios�Institute for Health and Socio-Economic Policy. May 2, 2001.

Interview with Dean Baker, Co-Director of the Center for Economic and Policy Research

Albertsons Buys US Sainsbury Among Labor, Consumer Concerns

Grocery store consolidation continues as giant chain Albertsons buys Star Market and Shaw’s, leaving questions about labor practices, food prices and consumer choice.

Albertson’s $2.11 billion acquisition of the chains from Sainsbury, is the latest in a string of grocery store consolidations. According to Agricultural Outlook, in 1992, the share of sales of the US’s four largest retailers was 15.9 percent. In 1998, it rose to 28.8 percent. From 1997 to 1999, large grocery chains acquired over $67 billion dollars of their counter-parts.

While proponents of grocery store consolidation argue that ultimately the economies of scale achieved by larger chains will reduce prices for consumers, critics worry that lack of competition may lead to higher food prices and less choice. According to numbers from the Economic Research Service of the US Department of Agriculture, the amount spent per person for food at home, which had been on a downward trend since 1988, rose almost 10 percent between 2000 and 2002, the most recent years for which data is available.

In recent years, both Shaw’s and Albertsons’ have been entangled in labor disputes. Shaw’s was accused of anti-union activities, including its refusal to recognize the UFCW as the workers’ union and unlawfully implementing a health insurance plan, reports the Worcester Telegram & Gazette. In July 2002, a federal labor official dismissed these charges.

Albertson’s and Safeway were recently embroiled in a four and a half month strike in Southern California over health benefits and wages. Jobs with Justice Organizer Jennifer Doe, commenting on Albertson’s buy out of Shaw’s said, “It’ll be a continuation of the bad worker’s rights practices. Neither store has respect for workers’ rights to health care or their rights to collectively bargain.�

Article References:
“Sainsbury to Sell US Unit to Albertson’s for $2.11 Billion.� Wall Street Journal. March 26, 2004.

Eckelbeker, Lisa. “NLRB decision favors Shaw’s; Charges vs. chain dismissed.� Worcester Telegram & Gazette. July 2, 2002.

Kaufman, Phil. “Consolidation in Food Retailing: Prospects for Consumers & Grocery Suppliers.� Agricultural Outlook. Economic Research Service, USDA. August 2000.

Interview with Jennifer Doe, Organizer for Jobs with Justice

The NewStandard ceased publishing on April 27, 2007.

Simone Baribeau is a contributing journalist.

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