US Airways Signals It May Ask
Its Workers to Accept Pay Cuts
By SUSAN CAREY
Staff Reporter of THE WALL STREET JOURNAL
A second major U.S. airline signaled it may seek pay cuts from its employees to help restore financial health.
David Siegel, chief executive of US Airways Group Inc., warned Monday that rich labor contracts agreed to by the carrier and its unions during better times "do not make a lot of sense in today's airline industry environment."
That follows UAL Corp.'s United Airlines broaching the idea with its workers.
Both airlines have been hurt disproportionately by the fallout from the terrorist attacks and like much of the rest of the industry have high labor costs. But so far they are the only two of the biggest airlines to hint at pay cuts.
The new US Airways CEO, who joined the Arlington, Va., company earlier during the month, stressed that US Airways "must reach a level of labor costs in a way that is fair to the company and all employee groups, makes sense for us in our unique situation and competitive environment, and is not tied to the fortunes of companies that are more than twice our size." The nation's sixth-largest airline posted a loss of nearly $2 billion for 2001.
"I have already told you we are all in this together, and I will not start asking one group to make sacrifices at the expense of any other work group," Mr. Siegel said in a telephone message to workers. A US Airways spokesman declined to elaborate on whether Mr. Siegel is suggesting that contracts be reopened, with pay cuts negotiated and restrictive work practices liberalized. He also wouldn't say whether the CEO might be seeking temporarily pay concessions.
United, which posted a $2.1 billion loss last year and also has a new CEO, explicitly is on a campaign to persuade its workers to voluntarily agree to pay cuts to help return the company to profitability.
But the effort has been on the back burner while United tries to settle the second of two contracts with its Machinists-represented workers. Last month, its mechanics won industry-leading wages and its ground workers are seeking the same. Both groups insisted on being brought up to industry standards before they will even consider temporary pay cuts.
"Asking for concessions is easy," said Sam Buttrick, an airline analyst for UBS Warburg. "Getting them is difficult." Airline employees "in general are hoping industry conditions recover sufficiently quickly" to squelch such discussions before they begin, he said.
Most US Airways workers' compensation is based on the average of the four largest airlines, plus 1%. Because other airlines' unions raise the bar when they win new contracts or receive scheduled raises, US Airways each year must revisit its employees' pay based on what their peers are receiving at AMR Corp.'s American Airlines, United, Delta Air Lines and Northwest Airlines.
In his message, Mr. Siegel said that "until a new business plan is in place and we have determined how to return our company to profitability, any increases that may be required under the parity agreements will go ahead as scheduled." But he said this creates a "challenge" for the airline, which has the highest operating costs in the industry due its short-haul route network.
A spokesman for the Air Line Pilots Association at US Airways said the union doesn't "buy the argument that the size of the airline has anything to do with the revenue premium it can produce." He said US Airways "needs to demonstrate it has a viable business plan." Last year, the pilots' parity adjustment resulted in a 17% raise, and the group expects another raise when this year's parity review is complete in May, he said.
The Machinists union, which represents mechanics and ramp workers, said it wanted guaranteed wage increases rather than the company's parity plan. But now that the latter is in place, "we will abide by our end of the bargain and we fully expect US Airways to live up to its end of the bargain," said Robert Roach Jr., the union's general vice president for transportation.
Profitable in 1998, US Airways that year signed a five-year contract with its pilots union that launched the parity-plus-one model. In 1999, when a three-year run of profits dissolved into red ink during the second half, US Airways agreed to five-year contracts with its mechanics, ramp workers and customer-service agents that followed the formula. Only the flight attendants rejected the concept because they already were at the top of the industry. Even so, they settled in early 2000 on a five-year pact that gives them four raises totaling 11%.
For all of 2000, US Airways' labor costs rose more than 8%. Last year, labor costs rose an additional 2.8%, a figure that probably would have been higher if US Airways hadn't laid off 11,000 workers late last year after travel demand dried up.
Mr. Siegel, a former executive with Continental Airlines and Northwest Airlines, came to US Airways from Avis Rent A Car System Inc.
He filled a vacancy created in November when then-CEO Rakesh Gangwal abruptly resigned.
Chairman Stephen Wolf served as interim CEO until Mr. Siegel arrived. The contracts Mr. Siegel is scrutinizing were negotiated under the watch of Messrs. Wolf and Gangwal.
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