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- Aug 27, 2002
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Thought we could use a fresh article to blab on about 
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US Air Seeks Labor Savings,
Raising Concerns About UAL
By SUSAN CAREY
Staff Reporter of THE WALL STREET JOURNAL
How much is enough?
US Airways Group Inc., pressured by the gloomy revenue outlook to find new cost savings on top of the $1.3 billion in annual expenses it has lopped from its operations, is turning again to its unions. This move is raising concerns about the adequacy of labor savings proposed by another carrier seeking federal loan guarantees, UAL Corp.''s United Airlines.
Meanwhile, Delta Air Lines Wednesday conceded that pay cuts aren''t out of the question. But Delta, which isn''t seeking the federal loan assistance, said that step isn''t in the current cost-cutting plans at the mostly nonunion carrier.
Operating under bankruptcy-court protection since August, US Airways said it must tighten its belt some more if it hopes to win a $900 million federal loan guarantee and tap the remainder of its debtor-in-possession financing. Without those sources of capital, it might not be able to emerge from Chapter 11 next year as a smaller, regional airline.
Instead of revisiting pay cuts, US Airways is hoping to gain work-rule changes that would boost productivity and allow it to do more with fewer workers. A spokesman for the nation''s seventh-largest airline declined to comment on discussions, except to say the company reserves the right to sit down again with our unions to try to seek relief on a voluntary basis. A spokesman for the Air Line Pilots Association said US Airways is hinting at productivity changes that could help it shave an extra $300 million or more from its annual costs.
Flying in the same anemic fare environment, United, the nation''s No. 2 carrier and one that is 55% owned by its workers, is seeking a federal loan guarantee to help it raise fresh cash and avoid filing for bankruptcy later this year. United wants the loan so it can stabilize its finances and start rebuilding its world-wide franchise, still regarded as one of the industry''s best.
To support its case for the aid, UAL is moving to boost revenue and cut expenses to the tune of $2.5 billion a year, far more than earlier advertised savings that the government rebuffed as inadequate. UAL''s latest targeted labor savings of $5.8 billion over 5½ years is roughly equal to labor cuts US Airways, a company one-fourth United''s size, has achieved.
There''s a tremendous amount of generalization in this business about margins, said Glenn Tilton, UAL''s chairman and chief executive. But margins are very carrier-specific. Mr. Tilton asserted that United has more upside value in its margin and business model than a company a quarter our size.
Jake Brace, UAL''s chief financial officer, said the company is more focused on overall profit improvement than on how much labor costs are reduced: We''re trying to get our revenues and costs in line. He said it is comparing apples and oranges to contrast labor cuts at United and US Airways.
But analysts are finding fault with the size and validity of United''s desired labor cuts, leading some to speculate that the Air Transportation Stabilization Board will deny the carrier''s request for aid. They say United''s planned sacrifices aren''t persuasive in light of more aggressive pruning at US Airways. If US Airways truly needs more savings, United isn''t even close, said Sam Buttrick of UBS Warburg.
At this point, all that matters to the two carriers is convincing the board their business plans are viable and that they will be able to repay the loans they would arrange with federal backing. Cost containment is central to the board''s analysis. Through a spokeswoman, the board declined to comment.
United executives met last week and earlier this week with the board''s staff to press their case for a $1.8 billion loan guarantee. Mr. Tilton, the CEO, said he cannot complain that we haven''t gotten ample time and attention from the board, but he also said he wouldn''t handicap the carrier''s chances. Mr. Brace, the finance chief, said United has demonstrated to the board an extraordinary level of self-help and a strong business plan. He said the board is aware of UAL''s cash drain and a $375 million debt payment due Dec. 2.
A look at the two airlines'' approaches to labor savings reveals differences, however. US Airways'' initial labor-cost concessions amounted to $840 million a year for 6½ years. Pilots agreed to $465 million in annual savings through 2008, or 56% of the total for labor.
US Airways pilots'' wages fell by 26% to 40% on July 1. They are slated to receive 8% in raises between next year and 2008, but their wages in 2008 will be as much as 30% below what they were when the concessions began. Meanwhile, the ranks of US Airways pilots have been decimated by furloughs. The group will shrink to 3,900 in April from 5,700 before last year''s terrorist attacks.
By contrast, United''s 8,800 active pilots tentatively agreed to $400 million in annual cuts over 5½ years, or about 38% of the total labor savings the company is seeking. (UAL hasn''t yet reached agreement with its largest union, the International Association of Machinists, on its portion of the desired savings.) The pilots initially would take an 18% pay cut Dec. 1. But they would receive 22% in cumulative future pay raises between 2004 and 2007, restoring their wages to existing scales by 2007. Currently 844 pilots are furloughed, but United could lay off an additional 600 under the new pact.
Cost reductions at these airlines are putting other big carriers in a bind. Delta is expected to announce later this week plans to cut an additional $2.5 billion from its expenses by 2005, on top of $1 billion in savings already achieved. Last month, the nation''s No. 3 airline said it will cut as many as 8,000 jobs, which would bring the number of job cuts to about 18,000 since the terrorist attacks.
-- Martha Brannigan contributed to this article.
.US Air Seeks Labor Savings,
Raising Concerns About UAL
By SUSAN CAREY
Staff Reporter of THE WALL STREET JOURNAL
How much is enough?
US Airways Group Inc., pressured by the gloomy revenue outlook to find new cost savings on top of the $1.3 billion in annual expenses it has lopped from its operations, is turning again to its unions. This move is raising concerns about the adequacy of labor savings proposed by another carrier seeking federal loan guarantees, UAL Corp.''s United Airlines.
Meanwhile, Delta Air Lines Wednesday conceded that pay cuts aren''t out of the question. But Delta, which isn''t seeking the federal loan assistance, said that step isn''t in the current cost-cutting plans at the mostly nonunion carrier.
Operating under bankruptcy-court protection since August, US Airways said it must tighten its belt some more if it hopes to win a $900 million federal loan guarantee and tap the remainder of its debtor-in-possession financing. Without those sources of capital, it might not be able to emerge from Chapter 11 next year as a smaller, regional airline.
Instead of revisiting pay cuts, US Airways is hoping to gain work-rule changes that would boost productivity and allow it to do more with fewer workers. A spokesman for the nation''s seventh-largest airline declined to comment on discussions, except to say the company reserves the right to sit down again with our unions to try to seek relief on a voluntary basis. A spokesman for the Air Line Pilots Association said US Airways is hinting at productivity changes that could help it shave an extra $300 million or more from its annual costs.
Flying in the same anemic fare environment, United, the nation''s No. 2 carrier and one that is 55% owned by its workers, is seeking a federal loan guarantee to help it raise fresh cash and avoid filing for bankruptcy later this year. United wants the loan so it can stabilize its finances and start rebuilding its world-wide franchise, still regarded as one of the industry''s best.
To support its case for the aid, UAL is moving to boost revenue and cut expenses to the tune of $2.5 billion a year, far more than earlier advertised savings that the government rebuffed as inadequate. UAL''s latest targeted labor savings of $5.8 billion over 5½ years is roughly equal to labor cuts US Airways, a company one-fourth United''s size, has achieved.
There''s a tremendous amount of generalization in this business about margins, said Glenn Tilton, UAL''s chairman and chief executive. But margins are very carrier-specific. Mr. Tilton asserted that United has more upside value in its margin and business model than a company a quarter our size.
Jake Brace, UAL''s chief financial officer, said the company is more focused on overall profit improvement than on how much labor costs are reduced: We''re trying to get our revenues and costs in line. He said it is comparing apples and oranges to contrast labor cuts at United and US Airways.
But analysts are finding fault with the size and validity of United''s desired labor cuts, leading some to speculate that the Air Transportation Stabilization Board will deny the carrier''s request for aid. They say United''s planned sacrifices aren''t persuasive in light of more aggressive pruning at US Airways. If US Airways truly needs more savings, United isn''t even close, said Sam Buttrick of UBS Warburg.
At this point, all that matters to the two carriers is convincing the board their business plans are viable and that they will be able to repay the loans they would arrange with federal backing. Cost containment is central to the board''s analysis. Through a spokeswoman, the board declined to comment.
United executives met last week and earlier this week with the board''s staff to press their case for a $1.8 billion loan guarantee. Mr. Tilton, the CEO, said he cannot complain that we haven''t gotten ample time and attention from the board, but he also said he wouldn''t handicap the carrier''s chances. Mr. Brace, the finance chief, said United has demonstrated to the board an extraordinary level of self-help and a strong business plan. He said the board is aware of UAL''s cash drain and a $375 million debt payment due Dec. 2.
A look at the two airlines'' approaches to labor savings reveals differences, however. US Airways'' initial labor-cost concessions amounted to $840 million a year for 6½ years. Pilots agreed to $465 million in annual savings through 2008, or 56% of the total for labor.
US Airways pilots'' wages fell by 26% to 40% on July 1. They are slated to receive 8% in raises between next year and 2008, but their wages in 2008 will be as much as 30% below what they were when the concessions began. Meanwhile, the ranks of US Airways pilots have been decimated by furloughs. The group will shrink to 3,900 in April from 5,700 before last year''s terrorist attacks.
By contrast, United''s 8,800 active pilots tentatively agreed to $400 million in annual cuts over 5½ years, or about 38% of the total labor savings the company is seeking. (UAL hasn''t yet reached agreement with its largest union, the International Association of Machinists, on its portion of the desired savings.) The pilots initially would take an 18% pay cut Dec. 1. But they would receive 22% in cumulative future pay raises between 2004 and 2007, restoring their wages to existing scales by 2007. Currently 844 pilots are furloughed, but United could lay off an additional 600 under the new pact.
Cost reductions at these airlines are putting other big carriers in a bind. Delta is expected to announce later this week plans to cut an additional $2.5 billion from its expenses by 2005, on top of $1 billion in savings already achieved. Last month, the nation''s No. 3 airline said it will cut as many as 8,000 jobs, which would bring the number of job cuts to about 18,000 since the terrorist attacks.
-- Martha Brannigan contributed to this article.
42 AM UAL777flyer wrote: 
