=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2003/02/18/f= inancial0917EST0018.DTL ---------------------------------------------------------------------- Tuesday, February 18, 2003 (AP) Airlines turn to workers for big savings SUSAN CAREY, and (02-18) 06:17 PST (AP) -- SCOTT MCCARTNEY The Wall Street Journal As two of the nation's biggest airlines push for worker concessions from under the umbrella of bankruptcy-court protection, rival carriers have begun taking aim at their own labor costs to avoid being left at a competitive disadvantage. The moves come as the U.S. airline industry suffers its worst recession ever. Major carriers, which just a few years ago were posting record profits, are now pressing their workers for labor-cost savings of as much as 35 percent. Labor costs are the airlines' single biggest expense, and UAL Corp.'s United Airlines and US Airways Group Inc. are seeking to use their Chapter 11 bankruptcy proceedings to reduce salaries and benefits. In recent days, AMR Corp.'s American Airlines, Delta Air Lines and Northwest Airlines have told their employees they must cut expenses as well. Without this, American, the nation's No. 1 airline, has said it too may be forced to file for bankruptcy protection. Last year, revenue for the nation's nine major airlines was $79.6 billio= n, a drop of 17 percent from two years earlier. Net losses last year for the nine airlines totaled $11.2 billion, and the red ink is expected to flow throughout this year -- even without a war in Iraq. The major hub-and-spoke airlines began suffering months before the terrorist attacks in 2001. As the economy softened, business travelers rebelled against sky-high unrestricted fares. The combination of the Internet, which opened new, easy access to low fares, and the steady growth of discounters such as Southwest Airlines sparked steep reductions in corporate spending on travel. After Sept. 11, financial problems became a financial crisis due to terrorism jitters and higher security and insurance expenses. The current anticipation of a war with Iraq is further denting air travel, while driving up the cost of jet fuel. The big airlines already have cut many expenses, from eliminating meals = to having their workers shoulder more of the burden of health-care insurance. They have furloughed tens of thousands of workers; retired planes; cut capacity; closed reservations centers; city ticket offices and other facilities; and slashed capital expenditures. Now the nation's major airlines are taking a far more difficult step: trying to ratchet down their single biggest expenditure, wages and benefits, through a combination of cost cuts and changes in work rules that would produce more efficiencies and probably lower head counts. The process could be perilous because airline unions can ground or disrupt operations. But with US Airways and United using the bankruptcy process to chop their labor expenses, American and others say they have no choice. "Labor costs, especially pilot-labor costs, are on the point of the spear again," Capt. John Prater, chairman of the pilot union at Continental Airlines, recently wrote to his members. "Airline managements, Wall Street, the (Bush) administration and Congress are once again looking for a scapegoat to blame for the industry's ailments; so-called `high-priced, under-worked' pilots have once again become their primary target." A senior pilot in the industry typically earns about $250,000 a year, while a senior mechanic would make about $70,000 and a senior flight attendant about $40,000. American moved first, asking its unions this month for $1.8 billion in annual savings, or a 22.4 percent reduction from 2001 labor costs of $8 billion. The airline, which has borrowed heavily just to buy jet fuel and make payroll, said it is in danger of depleting its remaining cash and would have to seek bankruptcy-court protection without the savings. "American's future cannot be assured until ways are found to significantly lower our labor and other costs," said Don Carty, AMR chairman and CEO. Last week, the carrier's three big unions agreed to negotiate. "Still, t= he talks are likely to be difficult, particularly on the question of whether any labor concessions will be temporary or permanent, and could take months," Philip Baggaley, Standard & Poor's Corp.'s airline bond analyst, wrote recently. He figured American has only until June, when it otherwise is likely to breach a bank-loan covenant. In the event of a war with Iraq, the airline may have even less time, he said. Northwest, the nation's No. 4 airline, made its move a week later, warni= ng its workers that it needs to cut another $1 billion or more a year from its overall expenses, including labor and other costs. "This will necessitate going back into our labor contracts and taking a look at provisions that were negotiated over many years of regulation and during times of industry prosperity," said Doug Steenland, Northwest's president. Delta's chief financial officer, Michele Burns, said the nation's No. 3 carrier sent a letter to its pilots union asking for talks on possibly modifying the contract in light of industry conditions. Delta's pilots, the only large unionized group at the airline, earn the highest wages in the industry now that United pilots have made interim wage concessions. The Delta pilots union said it couldn't go along "at this time" because it would want to see a detailed proposal first. High costs are a particular problem for the big airlines. Compared with low-fare king Southwest, United's unit costs are 53 percent higher, American's 45 percent higher, Delta's 39 percent higher and Northwest's 28 percent higher. Unit costs are defined as an airline's total expenses spread over the number of seats flown. US Airways, the No. 7 carrier, began the push toward lowering labor costs last summer when it won sizable voluntary concessions from its workers in an effort to qualify for a federal-loan guarantee and avoid a bankruptcy-court filing. The savings weren't enough to keep the airline from filing for protection from creditors last August, however, and employees coughed up more concessions, with the total sacrifices exceeding $1 billion a year, or a 27 percent reduction from US Airways' labor costs in 2001. Last month, the airline filed notice that it intends to terminate its pilot pension plan to resolve a big funding liability. The pilot union has strenuously objected and intends to fight the move in bankruptcy court. United, the nation's No. 2 carrier, filed for bankruptcy-court protection in December. The carrier quickly told its workers it needed to cut $2.4 billion from its annual labor costs, or about 34 percent from 2001 levels. More recently, the company has raised that target to $2.56 billion and told employees it intends to start a low-fare airline subsidiary that would employ United workers but at lower salaries. =20 ---------------------------------------------------------------------- Copyright 2003 AP