Posted on: Friday, January 7, 2005
Cutbacks again hit airline workers
By Matthew Barakat
Associated Press
ALEXANDRIA, Va. — Airline workers' woes are piling up as carriers seek to cut costs amid higher fuel prices and a new round of price competition.
Machinists at US Airways, the nation's seventh-largest carrier, were facing pay cuts of up to 35 percent and the loss of thousands of union jobs after a bankruptcy judge yesterday — for the first time in U.S. airline industry history — unilaterally terminated a union collective bargaining agreement.
Fifth-ranked Continental Airlines also said in a regulatory filing yesterday that it needs $500 million in wage and benefit reductions by Feb. 28 or it will face a liquidity crisis. And while pilots at No. 2 United Airlines ratified a new cost-cutting contract, the carrier's push to lop $725 million off annual labor costs by mid-January is heading to a court showdown today unless other unions approve new contracts.
US Airways, Continental, United and other so-called legacy carriers are struggling to cope with a combination of higher fuel costs, relentless price competition typified by Wednesday's announcement by Delta Air Lines Inc. of a new lower-fare structure, and the growth of low-cost carriers like JetBlue and Southwest.
The Air Transport Association estimates, from Department of Transportation data, that all U.S. carriers spent an additional $6 billion for jet fuel in 2004, an almost 40 percent increase.
Pressuring workers for concessions is about the only way to save large chunks of money in an industry where many of the costs, like aircraft leases, fuel and landing fees are essentially fixed, with little room to haggle. In US Airways' case, it is in the midst of seeking a third round of concessions from its unions in less than three years.
The industry also faces fundamental problems of excess capacity and too many hubs, meaning "it's not clear whether all these cuts are going to be enough" to keep ailing firms afloat, according to Bill Swelbar, president of Eclat Consulting, an aviation consulting firm in Reston, Va.
At bankrupt US Airways Group Inc., based in Arlington, Va., airline management had warned that it likely would have to liquidate beginning next week if did not receive approximately $800 million in annual cost cuts from its labor unions. Every union but one, the International Association of Machinists, had ratified new contracts.
U.S. Bankruptcy Judge Stephen Mitchell yesterday abrogated IAM's collective bargaining agreements with the airline, freeing US Airways to impose pay cuts ranging from 6 to 35 percent. The ruling also will likely lead to the elimination of thousands of jobs as the airline outsources heavy maintenance on certain jets and other jobs like the cleaning of aircraft cabins.
Mitchell said he had to decide "which is worse — that half of the mechanics lose their jobs or all of the mechanics lose their jobs? ... The ultimate question is whether there are going to be any jobs left at the end of the day."
The union will still vote on management's final offer, which seeks the same dollar level of concessions but tweaks the pay cuts and work rule changes. If the union accepts the offer when voting concludes Jan. 21, the judge's action canceling the contract would be nullified.
The judge also terminated three pension plans for US Airways workers and retirees that would have cost the airline nearly $1 billion through 2009 if they remained in effect. Mitchell called the pension obligations a "financial albatross" that would make it impossible for US Airways to attract the investment necessary for it to emerge from bankruptcy.
The airline has said most retirees will receive the same level of benefits from the federal Pension Benefit Guaranty Corp., which will take over the funds. But that did little to mollify dozens of retirees who attended yesterday's hearing and shouted at CEO Bruce Lakefield as he left the courthouse.
In a statement, Tommie Hutto-Blake, president of the Association of Professional Flight Attendants, said the judge's decision to void the contract "should send a chill up the spine of every working American in this country of ours."
At Houston-based Continental Airlines Inc., yesterday's announcement seemed likely to put more pressure on pilots, flight attendants and mechanics. The airline said in November that it needed the savings, but as of Dec. 16, it had obtained only $70 million of the $500 million.
"This is a little bit of a prod to the unions, but I don't think Continental is trying to embarrass them," said Anthony Sabino, an associate business professor at St. John's University and a lawyer who represented Continental aircraft lessors in the 1990s.
"They're sending the message, 'No kidding. We're really in trouble.' "
At United, a unit of Elk Grove Township, Ill.-based UAL Corp., the pilots' acceptance of a 15 percent pay cut was approved by 77 percent of those who voted.
An attorney for the Air Line Pilots Association told Bankruptcy Judge Eugene Wedoff at a hearing in Chicago yesterday that pilots are not happy about absorbing $3 billion in concessions over five years, but believed the cuts were critical for the company's survival.
