- Banned
- #1
By MICHELINE MAYNARD
Published: June 30, 2004
The hottest seats in the airline industry this summer will be at the bargaining table, where labor leaders and company executives now face an agonizing choice: wait or leap.
Waiting means biding time to see what happens at United Airlines. United, a UAL Corporation unit, failed on Monday to win federal loan guarantees and must now try to persuade its workers to accept substantial new cuts in wages and benefits so it can attract lenders willing to finance its emergence from bankruptcy protection.
United has not yet said how much it will need. Any major cuts in labor costs at the airline, where workers have already accepted reductions worth $2.5 billion a year, will put pressure on the executives of rival carriers to get similar savings, analysts said.
But there is no knowing how quickly United will reach a deal, or even if the employees, angered by the prospect of more sacrifices, will be prepared to cooperate at all.
Those uncertainties and the brutal competition in the industry make leaping attractive, analysts said yesterday. Competitors may try to nail down cost-cutting deals quickly with their own unions without waiting for developments at United, to put themselves in better shape to absorb the high jet fuel prices that have ruined the industry's hopes for a profitable 2004.
The danger for the airlines is that deals made in haste may lock in labor costs that prove to be higher than what a desperate United can ultimately get from its workers, leaving rivals either having to swallow a competitive disadvantage or to go back to the bargaining table yet again, asking for contract amendments.
"It's all a matter of expectations," said Gary Chaison, professor of industrial relations at Clark University in Worcester, Mass. "If you believe a deal will be cut that will hurt you, you move now. But if you think that you need the pressure, you wait."
Delta, Northwest and US Airways were already in talks with their unions when the Air Transportation Stabilization Board rejected United's third and final application for $1.1 billion in federal assistance. New proposals, or the possibility of them, have been floated at all three companies in recent days. And Southwest Airlines reached a tentative agreement last Friday with its flight attendants' union after two years of negotiations.
"It is almost like the dam bursting," Professor Chaison said of the situation at United and its impact on the industry, which he said cast the various talks in a new light. "One thing the unions know for sure is that none of these negotiations will take place in isolation from the other."
Company executives see the same reality, according to Philip A. Baggaley, an airline analyst with Standard & Poor's, the financial ratings agency. United's quandary is a mixed blessing for its competitors as they wade through their own negotiations, Mr. Baggaley said.
"On the one hand, it's good news," he said, "because it helps other airlines that are seeking concessions. On the other hand, if United pulls this off, it will be a tougher competitor."
The airline industry has come to realize in recent months that given the deep damage suffered after the September 2001 attacks and the slump in travel that followed, a single round of contract concessions is generally not enough to cure the ills of a struggling airline, and that even two rounds are sometimes not enough.
US Airways and its unions are now on Round 3, after two sets of talks while the airline was operating under bankruptcy protection. It says it could be headed for Chapter 11 status again unless it can cut its costs by $1.5 billion a year over all.
David Castelveter, a US Airways spokesman, said yesterday that the carrier had no plans to alter its request to the unions for $800 million a year in new savings, including $285 million from the pilots. This week, the pilots' union offered to accept a 12.5 percent pay cut for a three-year period and to work five more hours a week.
Jack Stephan, a spokesman for the pilots' union, said that the talks were proceeding regardless of the situation at United, but "I know our company will remind us about what's going on at other companies." US Airways is still waiting to start new talks with its flight attendants and mechanics.
Officials at Northwest Airlines hope to wrap up nearly a year of discussions with its pilots' union by the end of the summer. The Air Line Pilots Association recently proposed investing $200 million in Northwest; the company responded with a request for $300 million.
A union spokesman, Will Holman, said he doubted that United's situation would affect those talks. "Our proposal is based on what our company needs," Mr. Holman said.
United, for its part, is far from exchanging specific proposals with its labor groups. "They haven't come to us yet," Joseph Tiberi, a spokesman for the International Association of Machinists and Aerospace Workers, said yesterday.
First, analysts said, United will have to estimate the total savings it needs, and then propose specific cuts to each major union. A primary target is expected to be pension plans: United is supposed to contribute about $4.1 billion to them over the next few years.
The airline's financial straits are apparent enough: it has lost $6.8 billion since the second quarter of 2000, and now does not forecast an operating profit until 2005 at the soonest. But having seen United fail three times to win federal loan guarantees, union members may question whether the proposals the airline puts to them will prove to be realistic.
"They don't have any confidence that concessions will turn this around," Professor Chaison said.
Discussing another round of concessions runs against unions' very nature, which is to strive to make gains for employees, not sacrifice them. "Unions aren't supposed to bargain backward," he said.
That point of view is endorsed by an unexpected voice: David G. Neeleman, the chief executive of JetBlue Airways, whose workers are not unionized. Speaking of a possible resurgence at United, he said, "I don't think it comes on the backs of its employees - it just doesn't work."
Mr. Neeleman, whose airline has some of the lowest costs and most consistent profits in the industry, said in an interview yesterday that it was futile for United to try to battle low-fare carriers by reducing its own fares and then turning around and demanding more cuts from employees.
"You know what? We're not leaving," he said. "They're not going to chase us out. And we're profitable."
Published: June 30, 2004
The hottest seats in the airline industry this summer will be at the bargaining table, where labor leaders and company executives now face an agonizing choice: wait or leap.
Waiting means biding time to see what happens at United Airlines. United, a UAL Corporation unit, failed on Monday to win federal loan guarantees and must now try to persuade its workers to accept substantial new cuts in wages and benefits so it can attract lenders willing to finance its emergence from bankruptcy protection.
United has not yet said how much it will need. Any major cuts in labor costs at the airline, where workers have already accepted reductions worth $2.5 billion a year, will put pressure on the executives of rival carriers to get similar savings, analysts said.
But there is no knowing how quickly United will reach a deal, or even if the employees, angered by the prospect of more sacrifices, will be prepared to cooperate at all.
Those uncertainties and the brutal competition in the industry make leaping attractive, analysts said yesterday. Competitors may try to nail down cost-cutting deals quickly with their own unions without waiting for developments at United, to put themselves in better shape to absorb the high jet fuel prices that have ruined the industry's hopes for a profitable 2004.
The danger for the airlines is that deals made in haste may lock in labor costs that prove to be higher than what a desperate United can ultimately get from its workers, leaving rivals either having to swallow a competitive disadvantage or to go back to the bargaining table yet again, asking for contract amendments.
"It's all a matter of expectations," said Gary Chaison, professor of industrial relations at Clark University in Worcester, Mass. "If you believe a deal will be cut that will hurt you, you move now. But if you think that you need the pressure, you wait."
Delta, Northwest and US Airways were already in talks with their unions when the Air Transportation Stabilization Board rejected United's third and final application for $1.1 billion in federal assistance. New proposals, or the possibility of them, have been floated at all three companies in recent days. And Southwest Airlines reached a tentative agreement last Friday with its flight attendants' union after two years of negotiations.
"It is almost like the dam bursting," Professor Chaison said of the situation at United and its impact on the industry, which he said cast the various talks in a new light. "One thing the unions know for sure is that none of these negotiations will take place in isolation from the other."
Company executives see the same reality, according to Philip A. Baggaley, an airline analyst with Standard & Poor's, the financial ratings agency. United's quandary is a mixed blessing for its competitors as they wade through their own negotiations, Mr. Baggaley said.
"On the one hand, it's good news," he said, "because it helps other airlines that are seeking concessions. On the other hand, if United pulls this off, it will be a tougher competitor."
The airline industry has come to realize in recent months that given the deep damage suffered after the September 2001 attacks and the slump in travel that followed, a single round of contract concessions is generally not enough to cure the ills of a struggling airline, and that even two rounds are sometimes not enough.
US Airways and its unions are now on Round 3, after two sets of talks while the airline was operating under bankruptcy protection. It says it could be headed for Chapter 11 status again unless it can cut its costs by $1.5 billion a year over all.
David Castelveter, a US Airways spokesman, said yesterday that the carrier had no plans to alter its request to the unions for $800 million a year in new savings, including $285 million from the pilots. This week, the pilots' union offered to accept a 12.5 percent pay cut for a three-year period and to work five more hours a week.
Jack Stephan, a spokesman for the pilots' union, said that the talks were proceeding regardless of the situation at United, but "I know our company will remind us about what's going on at other companies." US Airways is still waiting to start new talks with its flight attendants and mechanics.
Officials at Northwest Airlines hope to wrap up nearly a year of discussions with its pilots' union by the end of the summer. The Air Line Pilots Association recently proposed investing $200 million in Northwest; the company responded with a request for $300 million.
A union spokesman, Will Holman, said he doubted that United's situation would affect those talks. "Our proposal is based on what our company needs," Mr. Holman said.
United, for its part, is far from exchanging specific proposals with its labor groups. "They haven't come to us yet," Joseph Tiberi, a spokesman for the International Association of Machinists and Aerospace Workers, said yesterday.
First, analysts said, United will have to estimate the total savings it needs, and then propose specific cuts to each major union. A primary target is expected to be pension plans: United is supposed to contribute about $4.1 billion to them over the next few years.
The airline's financial straits are apparent enough: it has lost $6.8 billion since the second quarter of 2000, and now does not forecast an operating profit until 2005 at the soonest. But having seen United fail three times to win federal loan guarantees, union members may question whether the proposals the airline puts to them will prove to be realistic.
"They don't have any confidence that concessions will turn this around," Professor Chaison said.
Discussing another round of concessions runs against unions' very nature, which is to strive to make gains for employees, not sacrifice them. "Unions aren't supposed to bargain backward," he said.
That point of view is endorsed by an unexpected voice: David G. Neeleman, the chief executive of JetBlue Airways, whose workers are not unionized. Speaking of a possible resurgence at United, he said, "I don't think it comes on the backs of its employees - it just doesn't work."
Mr. Neeleman, whose airline has some of the lowest costs and most consistent profits in the industry, said in an interview yesterday that it was futile for United to try to battle low-fare carriers by reducing its own fares and then turning around and demanding more cuts from employees.
"You know what? We're not leaving," he said. "They're not going to chase us out. And we're profitable."
