-9Capt
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- Nov 27, 2001
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Now it’s the pilots’ turn.
The remarkable turnaround of the airline industry has rewarded investors with rising share prices, and the $9.87 billion price tag that US Airways Group is offering for Delta Air Lines in a hostile takeover bid is further proof that the industry is again in favor with investors and lenders.
With most of the industry returning to profitability — in part by extracting billions of dollars of pay cuts from workers — pilots are demanding that they should recoup some of the pay and other benefits they gave up in recent years and share in the improved fortunes. The pilots’ agenda is playing an important role in the merger talks over Delta. The Delta pilots have backed management’s stand-alone plan to exit bankruptcy, and are jointly fighting the US Airways bid.
In all, the Delta pilots have $2.1 billion in claims.
The pilots are motivated to support management in part by self-interest — they believe that they would have less job security under US Airways ownership. And that support could be persuasive when the pilots next want something from Delta management.
They, in fact, accepted a slightly lower price in selling several hundred million dollars in bankruptcy claims so that they could hang onto the voting rights those claims represented to provide maximum support to management’s plan, according to people familiar with the pilots’ dealings.
Delta pilots are counting on the unusual contract they negotiated in bankruptcy to help them recoup their most recent 13 percent pay cut over the next three years by helping the airline achieve certain performance improvements. They also could win profit-sharing bonuses on top of that.
Lee Moak, who heads the Delta chapter of the Air Line Pilots Association, said, “I am confident that the performance-based pay raises are going to pay off” and restore Delta pilots’ pay.
US Airways was asked over the weekend by some Delta creditors to again raise its bid. The airline has been frustrated because the official creditors committee in Delta’s bankruptcy, the only party that can force Delta to allow due diligence by US Airways and otherwise get the merger talks started, has been silent.
So, according to a person involved in the talks, US Airways management set the following conditions: if the official creditors committee would tell Delta by Thursday to allow due diligence, to also make a filing starting antitrust review of the proposed merger, and postpone a hearing on Delta’s stand-alone plan to exit bankruptcy, then US Airways management would take to its board a proposal to increase its bid by another $1 billion. It did not officially raise its bid.
Yesterday, there were talks among creditors but no word from the official committee, this person said.
The grumbling among pilots about getting their due can be heard throughout the industry, not just at Delta.
US Airways pilots, for example, are negotiating a new contract and seek higher wages and improved work rules.
At the old US Airways, which merged in 2005 with America West Airlines, captains on planes comparable to the 737 were once paid $227 an hour, said Jack Stephan, a captain and head of the Air Line Pilots union local for the carrier. But now, after two bankruptcies, they are paid about $125 an hour.
“This is truly payback time,” Mr. Stephan said.
Southwest Airlines pilots are also in negotiations and want to improve their industry-leading pay.
Because the industry is thinly capitalized, it remains highly vulnerable to the next economic downturn. So any substantial pay raises could alarm investors.
Airlines have tended to enter into generous pay deals in good times and then regret the higher costs of those contracts during downturns. That in part led to the recent series of bankruptcies.
“These next years will be the pilots getting something back until they get too much back and then we’ll do this all over again,” said Roger King, an airline analyst at CreditSights.
At United Airlines, where the pilots’ contract runs through 2009, the Air Line Pilots Association has started a “fix it now” contract campaign that includes an early strike preparedness committee and an effort to win concessions from management on some working conditions.
And at American Airlines, where a contract that runs through May 2008 has already been opened for early negotiation, pilots are protesting a lucrative management bonus plan. They also refused to make a minor concession to help American bid for a valuable route to Beijing, and want to reverse a 23 percent wage cut agreed to in 2003.
Under federal labor law, pilots have extraordinary leverage over airlines. Their work cannot effectively be outsourced, making a strike potentially ruinous for an airline. And in some cases, by inflexibly following the letter of a contract, they can slow an airline operation enough to cause havoc, as occurred
at United in the summer of 2000.
Only in bankruptcy do managements clearly gain the upper hand on wages.
Executive compensation is a particular irritant to pilots. American pilots, represented by the Allied Pilots Association, said this month that they expected a stock bonus plan for the airline’s 1,000 or so top managers to hand out more than $200 million this April. American would not comment on the expected payouts, said Susan Gordon, a spokeswoman.
“There’s going to be a visceral, angry reaction, even though we know it’s coming,” said Denny Breslin, an American captain and union official. Pay scales were cut by 23 percent in 2003 and some pilots suffered far worse pay reductions as American shrunk its fleet and pushed captains into lesser-paying first-officer positions, or onto smaller planes, where they are paid less.
The goal now, Mr. Breslin said, “is getting our money back — recapturing our investment” in having helped save American from bankruptcy.
The remarkable turnaround of the airline industry has rewarded investors with rising share prices, and the $9.87 billion price tag that US Airways Group is offering for Delta Air Lines in a hostile takeover bid is further proof that the industry is again in favor with investors and lenders.
With most of the industry returning to profitability — in part by extracting billions of dollars of pay cuts from workers — pilots are demanding that they should recoup some of the pay and other benefits they gave up in recent years and share in the improved fortunes. The pilots’ agenda is playing an important role in the merger talks over Delta. The Delta pilots have backed management’s stand-alone plan to exit bankruptcy, and are jointly fighting the US Airways bid.
In all, the Delta pilots have $2.1 billion in claims.
The pilots are motivated to support management in part by self-interest — they believe that they would have less job security under US Airways ownership. And that support could be persuasive when the pilots next want something from Delta management.
They, in fact, accepted a slightly lower price in selling several hundred million dollars in bankruptcy claims so that they could hang onto the voting rights those claims represented to provide maximum support to management’s plan, according to people familiar with the pilots’ dealings.
Delta pilots are counting on the unusual contract they negotiated in bankruptcy to help them recoup their most recent 13 percent pay cut over the next three years by helping the airline achieve certain performance improvements. They also could win profit-sharing bonuses on top of that.
Lee Moak, who heads the Delta chapter of the Air Line Pilots Association, said, “I am confident that the performance-based pay raises are going to pay off” and restore Delta pilots’ pay.
US Airways was asked over the weekend by some Delta creditors to again raise its bid. The airline has been frustrated because the official creditors committee in Delta’s bankruptcy, the only party that can force Delta to allow due diligence by US Airways and otherwise get the merger talks started, has been silent.
So, according to a person involved in the talks, US Airways management set the following conditions: if the official creditors committee would tell Delta by Thursday to allow due diligence, to also make a filing starting antitrust review of the proposed merger, and postpone a hearing on Delta’s stand-alone plan to exit bankruptcy, then US Airways management would take to its board a proposal to increase its bid by another $1 billion. It did not officially raise its bid.
Yesterday, there were talks among creditors but no word from the official committee, this person said.
The grumbling among pilots about getting their due can be heard throughout the industry, not just at Delta.
US Airways pilots, for example, are negotiating a new contract and seek higher wages and improved work rules.
At the old US Airways, which merged in 2005 with America West Airlines, captains on planes comparable to the 737 were once paid $227 an hour, said Jack Stephan, a captain and head of the Air Line Pilots union local for the carrier. But now, after two bankruptcies, they are paid about $125 an hour.
“This is truly payback time,” Mr. Stephan said.
Southwest Airlines pilots are also in negotiations and want to improve their industry-leading pay.
Because the industry is thinly capitalized, it remains highly vulnerable to the next economic downturn. So any substantial pay raises could alarm investors.
Airlines have tended to enter into generous pay deals in good times and then regret the higher costs of those contracts during downturns. That in part led to the recent series of bankruptcies.
“These next years will be the pilots getting something back until they get too much back and then we’ll do this all over again,” said Roger King, an airline analyst at CreditSights.
At United Airlines, where the pilots’ contract runs through 2009, the Air Line Pilots Association has started a “fix it now” contract campaign that includes an early strike preparedness committee and an effort to win concessions from management on some working conditions.
And at American Airlines, where a contract that runs through May 2008 has already been opened for early negotiation, pilots are protesting a lucrative management bonus plan. They also refused to make a minor concession to help American bid for a valuable route to Beijing, and want to reverse a 23 percent wage cut agreed to in 2003.
Under federal labor law, pilots have extraordinary leverage over airlines. Their work cannot effectively be outsourced, making a strike potentially ruinous for an airline. And in some cases, by inflexibly following the letter of a contract, they can slow an airline operation enough to cause havoc, as occurred
at United in the summer of 2000.
Only in bankruptcy do managements clearly gain the upper hand on wages.
Executive compensation is a particular irritant to pilots. American pilots, represented by the Allied Pilots Association, said this month that they expected a stock bonus plan for the airline’s 1,000 or so top managers to hand out more than $200 million this April. American would not comment on the expected payouts, said Susan Gordon, a spokeswoman.
“There’s going to be a visceral, angry reaction, even though we know it’s coming,” said Denny Breslin, an American captain and union official. Pay scales were cut by 23 percent in 2003 and some pilots suffered far worse pay reductions as American shrunk its fleet and pushed captains into lesser-paying first-officer positions, or onto smaller planes, where they are paid less.
The goal now, Mr. Breslin said, “is getting our money back — recapturing our investment” in having helped save American from bankruptcy.
