Posted on: Saturday, October 16, 2004
Airline permitted to slash pay by 21%
By Matthew Barakat
Associated Press
ALEXANDRIA, Va. — A bankruptcy judge granted US Airways authority yesterday to temporarily cut the pay of its union workers by 21 percent, comparing the airline's financial outlook to "a ticking fiscal time bomb."
The 21 percent pay cut is nearly all of the 23 percent reduction the air carrier had sought.
"I have absolutely no doubt that wage cuts of this magnitude would and will result in severe financial hardships," U.S. Bankruptcy Judge Stephen Mitchell said. But US Airways' financial situation is so unstable that "basically what we have here is a ticking fiscal time bomb."
The pay cuts are in place until Feb. 15, 2005, six weeks short of what the airline had sought. Mitchell also granted the airline authority to reduce the size of its jet fleet.
That wasn't the only bad news for the industry yesterday. Delta Air Lines Inc., the nation's third-largest carrier, said it was only weeks away from being forced to file for bankruptcy because of widening losses — ranging from labor and pension costs to fuel expenses. United Airlines, a unit of UAL Corp., said it would need even more labor cuts than anticipated to get out of bankruptcy, and that it would seek the court's help if it is unable to reach an agreement with its unions.
Yesterday's ruling means the average US Airways salary would drop from $59,509 to $47,012, putting the airline below the other five major traditional carriers as well as Southwest Airlines, but higher than JetBlue and America West — two carriers US Airways now seeks to emulate.
US Airways had projected that a 23 percent pay cut would save $165 million between now and March 4, when it feared it would essentially run out of cash.
After yesterday's ruling, the airline's chief executive, Bruce Lakefield, said the company was still calculating the financial effect of the decision, but he was very pleased.
"Our mission here is to save as many jobs as possible. We are being attacked on every front" by low-cost competitors, he said when asked about the ruling's effect on workers.
The judge gave the airline authority to impose the cuts immediately, but Lakefield told employees in a recorded message that a time line will be announced in the next few days.
Mollie McCarthy, leader of the Association of Flight Attendants, said the pay cuts are devastating and particularly galling given that management is not taking a similar hit.
"That's what's going to make my people really angry," she said.
US Airways, the nation's seventh-largest airline and a unit of US Airways Group Inc., employs 34,000 workers, of which 84 percent are represented by unions.
In closing statements before Mitchell yesterday, the airline said the pay cuts were crucial to its survival.
"We're twisting in the wind," said Brian Leitch, an attorney for the airline.
Still, Leitch acknowledged US Airways would need to do more to prevent a collapse, including obtaining permanent cost-savings from its unions twice as large as those achieved by the temporary cuts.
Those savings, however, can be achieved without deeper salary cuts.
US Airways pilots reached a tentative agreement on a deal that provides the airline the long-term savings it needs while only imposing an 18 percent pay cut, with additional savings through benefit reductions and work rule changes.
A ratification vote on the pilots agreement will conclude Oct. 21. The 21 percent pay cut will only apply to the pilots if they reject the tentative agreement.
"Our pilots have now what we wanted them to have all along — a choice," said Jack Stephan, spokesman for the Air Line Pilots Association.
US Airways, however, has yet to reach agreements with the majority of its union workforce.
