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The Honolulu Advertiser
Posted on: Friday, October 18, 2002

Aloha Airlines seeks pay cuts from workers

By Kelly Yamanouchi
Advertiser Staff Writer

Continuing turmoil in the airline industry is putting growing pressure on Hawai'i's two major interisland airlines as they seek to pare costs and find ways to survive amid the prolonged slump in travel demand.

The latest indication came yesterday as Aloha Airlines said it is asking all of its roughly 3,000 employees to take pay cuts to save $37 million during the next three years in an effort to get a federal loan guarantee it applied for earlier this year.

Hawaiian Airlines, which employees about 3,200 workers and faces similar market pressures, said yesterday it also may make cuts in its payroll.

The moves come as the airline industry grapples with continued sluggish demand in the wake of the Sept. 11 attacks. Major airlines this week have begun reporting dismal quarterly earnings, closures of offices and plans to cut thousands of jobs. Delta is one of the latest, saying yesterday it will cut as many as 8,000 more workers to try to cope with falling revenue.

Aloha, which initially applied for a $45 million federal loan guarantee with the federal Air Transportation Stabilization Board on June 27, said the employee pay concessions are key to its loan application.

Other carriers — including the nation's largest, United Airlines — also are seeking federal loan guarantees. With United also in talks with its unions on pay concessions, it says it needs to get approval for the loan. So far the board has conditionally approved loan guarantee requests for three airlines and denied four.

"We looked at those applications that have been successful and those that have not been successful and came to the conclusion that it would be appropriate for us to enhance our financial plan by including concessions prior to the consideration of the application by the board," Aloha's president and chief executive Glenn Zander said. "We are not planning any layoffs."

Zander said he has looked at how the board dealt with US Airways, which received conditional approval July 10. The airline had tentative agreements with some of its unions for concessions, he said, and the board voted to conditionally approve the loan guarantee subject to the completion and ratification of agreements with all groups.

Aloha has been meeting with leadership of the International Association of Machinists and Aerospace Workers, the Association of Flight Attendants, the Air Line Pilots Association and the Transport Workers Union since Sept. 25 and the sides are in continuing negotiations, Zander said.

Zander declined to detail the extent of the pay cuts the company is seeking, but said he has told union representatives that he is seeking an equal percentage of pay cuts for every group, which would apply to every employee, including nonunion employees.

Zander said yesterday that even if the federal loan guarantee is rejected, the pay cuts — if ratified by all of the unions — could remain in place.

He said union membership generally must approve concessions before they take effect. The unions have not finalized any pay cuts, he said.

The discussions do not include 213 unionized employees of Island Air, Aloha's sister company.

"Their pay scales are so different, so they're not included," Aloha spokeswoman Stephanie Ackerman said.

The pay cuts, if approved, would affect only those Island Air employees who are nonunion.

Dave Durkin, president of Transport Workers Union Local 540, said he has agreed with Aloha to "talk about what we could do to help get this loan approved."

He said he has not yet heard details of pay cut proposals from Aloha Airlines, but said, "We don't like to have just pay cuts. We like to see a change in the business plan, because pay cuts to just save the company for another six months or so doesn't really help much."

Steve Brenessel, an Aloha Airlines captain and chairman of the Air Line Pilots Association Council 80, said negotiations are in early stages and it is unclear whether the pilots will agree to any concessions. ALPA represents nearly 300 Aloha Airlines pilots.

Brenessel said the national union's economic experts are studying the airline's financial situation. "We're committed to the success of the company... We're still talking to them trying to figure out exactly how important this loan is. That it's important we would probably say yes, it's important. But to what degree and how much they need our participation in this process — these are the things that we're still discussing," he said.

Aloha's application for the loan also includes concessions from its security holders and lessors, Zander said. Aloha early this month updated its financial plan to include $37 million in employee concessions with the Air Transportation Stabilization Board.

Yesterday, Hawaiian Airlines spokesman Keoni Wagner said Hawaiian also is studying cost-cutting options.

"Given the severe financial crisis that the whole airline industry is facing right now, this shouldn't come as much of a surprise that all airlines, including Hawaiian, have been very carefully evaluating all of their operations to make sure that they're as efficient as they can be," Wagner said. "While we have nothing to announce at this point in time, we may well make some adjustments in (payroll) as well."

Wagner declined to comment further yesterday, but Hawaiian Airlines employees have said chairman and chief executive John Adams told them the airline may furlough employees later this year if the travel market does not improve. The airline is also stepping up efforts to evaluate employees' performance.

"We need to and we have been pursuing fundamental changes in the way we run business," Adams said at the company's annual meeting in August. "We're going to very carefully look at the productivity of our employees from top to bottom and while we are committed to maintaining our commitment to our employees with respect to wages and wage increases we need to nonetheless address productivity so that we can reduce our costs related to labor."

As each carrier studies individual options to boost profitability, they also have begun working, under a federal antitrust exemption granted Sept. 30, to coordinate capacity on several interisland routes, which the carriers said was necessary to ensure their survival.

The airlines said this week that they have been in talks on combining some routes under the exemption but do not have any progress to announce.

"We were applying for the right to talk, so that's kind of where we're at," Wagner said. "We've begun talking," and the airlines are developing a system of determining aggregate capacity numbers and other details.

Still, the longer the travel slump goes on, the pressure grows on both carriers.

"It's just a really tough industry right now," said Brian Smith, an airline analyst for RedChip Companies who follows Hawaiian Airlines. He said Hawaiian may have an advantage over other airlines because of its focus on leisure travel while business travel has slumped even more. But the company has further to go to sustain its business.

"Hawaiian's going to have to bring their cost structure down," Smith said.