Airlines in Turmoil
UAL's Machinists Back Pact; Delta Seeks Pay Cuts for Pilots
By NICOLE HARRIS and SUSAN CAREY; Staff Reporters of THE WALL STREET
JOURNAL
As airlines suffer steep losses amid a sharp downturn in passenger traffic, UAL Corp.'s United Airlines won approval from the last of its five unions to sharply reduce its labor costs, and Delta Air Lines proposed a 22% pay cut for its pilots.
Ratification of concessions by United ground workers represented by the International Association of Machinists union means the country's second-largest airline now has agreements with all its unions for a total $2.5 billion in annual labor-cost savings. The move clears a big hurdle as UAL seeks to negotiate a successful Chapter 11 reorganization with its creditors. The bankruptcy-court judge Wednesday approved the new labor pacts.
Meanwhile, Atlanta-based Delta sought savings from its pilots to remain competitive with big rivals. Last week, AMR Corp.'s American Airlines, the No. 1 carrier, agreed with its unions to cut $1.8 billion in annual costs in order to head off a bankruptcy-court filing.
In addition to the pay cut for pilots, Delta is proposing, among other things, to rescind two 4.5% wage increases that take place today and in May 2004.
The Air Line Pilots Association, which represents more than 9,000 pilots, said it will consider the proposal, but cautioned that, if it negotiates concessions, it wants to share in any additional profits the airline might generate.
With the highest-paid pilots in the industry, Delta has been under increasing pressure to reduce its labor expenses. Like the other airlines, Delta faces huge financial losses stemming from reduced traffic due to terrorism fears, the slow economy and high costs relative to discount
carriers.
Delta recently reported a $466 million first-quarter loss on revenue of $3.16 billion. The company's first-quarter salary and related costs of $1.63 billion amounted to nearly 52% of revenue.
<font color="red"> "We are rapidly eroding our financial base, and have just about exhausted our ability to generate additional liquidity," Joe Kolshak, Delta's senior vice president of flight operations, said in a message to Delta pilots. He added that the nation's No. 3 carrier is financing operations with "debt that will be a drag on the business for years to come."</font>
<font color="blue"> hmmm.. why would that be? maybe.... uhhh... bonus is the correct phrase.. or pension security... or how bout pay increase??? Don't make your employees pay for your mistakes - put the money back into the pot....and you might keep "some" of your employees loyal </font>
Mr. Kolshak said that even with the lower pay rates requested, Delta's pilots would still be paid as much as 28% more than those at American and as much as 13% more than United's pilots.
Jamie Baker, an airline analyst at J.P. Morgan, estimated the proposed 22% pay reduction would save Delta about $375 million in the first year, a far cry from the bigger savings at rival carriers. He called the proposal "uniquely unambitious."
Airline-pilot pay rates vary widely depending on type of aircraft and a pilot's years of experience. Delta pays a 12-year Boeing 757 captain $244.97 an hour; Northwest Airlines pays the same pilot $208.49 an hour, while Continental Airlines pays $178.66. After the recent concessions, the
same pilot is paid $169.79 an hour at United and $149.68 at American.
Delta's pilots aren't contractually bound to open their contract until May 2005. The union has been conducting its own analysis of the airline's finances, and the findings are to be presented to the union's governing body May 5.
While Delta has reported a weakening financial position, it is seen as stronger than either American or United, and that could make it more difficult to wring stiff concessions out of Delta's pilots.
Analysts expect Delta also to reduce expenses from other work groups. Delta has more flexibility than other airlines in this regard; because pilots are Delta's only major unionized workers group, the airline can unilaterally cut pay and benefits of other workers without lengthy negotiations with unions.
Delta is also proposing a second phase of pilot negotiations that essentially asks the union to open up the contract to address a broad range of issues, including work rules and benefits.
UAL, based in Chicago, said it also is on track to cut $1 billion in nonlabor expenses from its operations and gain another $500 million in annual savings through renegotiating aircraft lease and mortgage rates. UAL has sketched out a restructuring plan to its unions and creditors'
committee. It hopes to win approval from creditors and the bankruptcy judge later this year. UAL also must focus on the challenge of recapitalizing the company, possibly through attracting private-equity investors and raising new debt financing with or without the help of a government loan guarantee.
The Machinists concessions will help United "avoid liquidation," said Scotty Ford, president of the mechanics group. "The problems and solutions of the airline's latest crisis go far beyond labor costs, but immediate action was needed to ensure the survival of this airline."
United's pilots, dispatchers and meteorologists earlier agreed to savings, and cost reductions were imposed on salaried workers.
Write to Nicole Harris at nicole.harris@wsj.com and Susan Carey at
susan.carey@wsj.com
<font color="red"> </font>
UAL's Machinists Back Pact; Delta Seeks Pay Cuts for Pilots
By NICOLE HARRIS and SUSAN CAREY; Staff Reporters of THE WALL STREET
JOURNAL
As airlines suffer steep losses amid a sharp downturn in passenger traffic, UAL Corp.'s United Airlines won approval from the last of its five unions to sharply reduce its labor costs, and Delta Air Lines proposed a 22% pay cut for its pilots.
Ratification of concessions by United ground workers represented by the International Association of Machinists union means the country's second-largest airline now has agreements with all its unions for a total $2.5 billion in annual labor-cost savings. The move clears a big hurdle as UAL seeks to negotiate a successful Chapter 11 reorganization with its creditors. The bankruptcy-court judge Wednesday approved the new labor pacts.
Meanwhile, Atlanta-based Delta sought savings from its pilots to remain competitive with big rivals. Last week, AMR Corp.'s American Airlines, the No. 1 carrier, agreed with its unions to cut $1.8 billion in annual costs in order to head off a bankruptcy-court filing.
In addition to the pay cut for pilots, Delta is proposing, among other things, to rescind two 4.5% wage increases that take place today and in May 2004.
The Air Line Pilots Association, which represents more than 9,000 pilots, said it will consider the proposal, but cautioned that, if it negotiates concessions, it wants to share in any additional profits the airline might generate.
With the highest-paid pilots in the industry, Delta has been under increasing pressure to reduce its labor expenses. Like the other airlines, Delta faces huge financial losses stemming from reduced traffic due to terrorism fears, the slow economy and high costs relative to discount
carriers.
Delta recently reported a $466 million first-quarter loss on revenue of $3.16 billion. The company's first-quarter salary and related costs of $1.63 billion amounted to nearly 52% of revenue.
<font color="red"> "We are rapidly eroding our financial base, and have just about exhausted our ability to generate additional liquidity," Joe Kolshak, Delta's senior vice president of flight operations, said in a message to Delta pilots. He added that the nation's No. 3 carrier is financing operations with "debt that will be a drag on the business for years to come."</font>
<font color="blue"> hmmm.. why would that be? maybe.... uhhh... bonus is the correct phrase.. or pension security... or how bout pay increase??? Don't make your employees pay for your mistakes - put the money back into the pot....and you might keep "some" of your employees loyal </font>
Mr. Kolshak said that even with the lower pay rates requested, Delta's pilots would still be paid as much as 28% more than those at American and as much as 13% more than United's pilots.
Jamie Baker, an airline analyst at J.P. Morgan, estimated the proposed 22% pay reduction would save Delta about $375 million in the first year, a far cry from the bigger savings at rival carriers. He called the proposal "uniquely unambitious."
Airline-pilot pay rates vary widely depending on type of aircraft and a pilot's years of experience. Delta pays a 12-year Boeing 757 captain $244.97 an hour; Northwest Airlines pays the same pilot $208.49 an hour, while Continental Airlines pays $178.66. After the recent concessions, the
same pilot is paid $169.79 an hour at United and $149.68 at American.
Delta's pilots aren't contractually bound to open their contract until May 2005. The union has been conducting its own analysis of the airline's finances, and the findings are to be presented to the union's governing body May 5.
While Delta has reported a weakening financial position, it is seen as stronger than either American or United, and that could make it more difficult to wring stiff concessions out of Delta's pilots.
Analysts expect Delta also to reduce expenses from other work groups. Delta has more flexibility than other airlines in this regard; because pilots are Delta's only major unionized workers group, the airline can unilaterally cut pay and benefits of other workers without lengthy negotiations with unions.
Delta is also proposing a second phase of pilot negotiations that essentially asks the union to open up the contract to address a broad range of issues, including work rules and benefits.
UAL, based in Chicago, said it also is on track to cut $1 billion in nonlabor expenses from its operations and gain another $500 million in annual savings through renegotiating aircraft lease and mortgage rates. UAL has sketched out a restructuring plan to its unions and creditors'
committee. It hopes to win approval from creditors and the bankruptcy judge later this year. UAL also must focus on the challenge of recapitalizing the company, possibly through attracting private-equity investors and raising new debt financing with or without the help of a government loan guarantee.
The Machinists concessions will help United "avoid liquidation," said Scotty Ford, president of the mechanics group. "The problems and solutions of the airline's latest crisis go far beyond labor costs, but immediate action was needed to ensure the survival of this airline."
United's pilots, dispatchers and meteorologists earlier agreed to savings, and cost reductions were imposed on salaried workers.
Write to Nicole Harris at nicole.harris@wsj.com and Susan Carey at
susan.carey@wsj.com
<font color="red"> </font>