"Airlines: 'Cutting Off Their Nose'"

Wednesday, January 12, 2005

Interview
Airlines: "Cutting Off Their Nose" 
Robert Roach of the International Association of Machinists blasts carriers'
attempts to squeeze labor while ignoring basic issues 
BusinessWeek


These are dark days for the International Association of Machinists. On Jan.
6, a bankruptcy court judge tossed out the union's contract with US Airways,
enabling the airline to dump its pension plan for 4,450 mechanics and
outsource almost half their jobs. In addition to the mechanics, the IAM has
some 4,000 other members in so-called fleet services at US Airways. The
judge's ruling came after the airline had slashed wages once again, dropping
starting pay for baggage handlers to $7.17 an hour. That's down from $9.08
last fall and less than the hourly wage at many fast-food restaurants, a
union official points out. 

Meantime, at United Airlines, where the IAM represents nearly 20,000 airport
personnel, another bankruptcy court judge imposed an immediate 11.5% pay cut
on union members. And while United retirees still are collecting pensions,
the airline has said it must shuck all of its pension obligations to emerge
from bankruptcy. The IAM and other unions have until mid-April to come to
terms. If no agreement is reached by then, the judge could cancel their
pensions. 

All of this is playing out amid a fare war that began on Jan. 5, when Delta
Air Lines reduced prices on unrestricted tickets, which are often bought by
business travelers. Since then, Delta's competitors have all matched the
lower prices. The cuts will cost the industry upwards of $2 billion in
revenue in 2005, analysts estimate, putting even more pressure on US
Airways, United, and other money-losing carriers to squeeze labor for more
concessions. 

What can the IAM do? On its own, it can only negotiate a graceful retreat.
Robert Roach Jr., the IAM's general vice-president, recently talked about
the union's straits with BusinessWeek Senior Correspondent Michael Arndt.
Edited excerpts of their conversation follow: 

Q: What are you doing at United Airlines today?

A: We're working to preserve our pensions. We've told the company, very
publicly, that we will never agree to terminate our pension plan. To that
end, we have hired an actuary company to review all the numbers. We've been
in contact with the Pension Benefit Guaranty Corp. and are attempting to
find various ways to protect our members. 

A company like United with cash and assets talking about dumping its
liabilities on the government -- it's unreal. It's unbelievable. We think
that to terminate the pension plans involuntarily would be very detrimental
to the carrier. I think that people would be so demoralized that the carrier
couldn't survive. 

Q: Is there anything else you can do? How about working with an equity
investor to take control of United?

A: We're pushing United Airlines to look at equity investors, people with
different ideas and experience who would put money on the table. We've
talked to a number of people. Certainly, Texas Pacific Group should be
looked at, along with a number of other people. Ripplewood Holdings, Madison
Dearborn Partners, Carlyle Group, Landmark Partners -- these are four other
groups that should be looked at. 

Q: What's the latest at US Airways?

A: People are very demoralized over there, too. It's a situation between bad
and worse. 

The airline is at the point now where they can't even hire people at the
wages they're offering. Entry-level wages are now down to $7.17 an hour. You
work in the elements. You work weekends. You work in the evening. You can
get a job at McDonald's for $8 or $9 an hour -- and it's warm and you get
free cheeseburgers. You can only cut so far until you get to the point where
you can't operate. 

Q: Do you see the airline industry shrinking? Will the pressure from Delta
on fares force weaker carriers like US Airways to go out of business?

A: I've been in this industry 30 years. Since then, they've always said,
"We'll kill off the weak sister, and the rest of us will be profitable."
That has never happened. Eastern is gone. Braniff is gone. TWA is gone.
Pan-Am is gone. It doesn't work. What's got to happen is some sense that
they're running a business to be profitable, and they've got to charge fares
that are commensurate with doing that. They've never done that. 

Look at Delta. You're losing billions of dollars, so why would you cut
fares? It seems like a desperate move by a carrier that's on the verge of
bankruptcy and is trying to generate cash. 

That has been the history of our industry: When carriers are in trouble, the
first sign is they have one of these great fare sales to generate some cash.
You cannot cut your way to profitability. You still have all the same bills.
You still have to buy jet fuel. You still have to have buildings. You still
have to pay landing fees. You still have to pay employees. You have to
increase your revenue. They're cutting off their nose to spite their face. 

Q: Let's turn back to United. Do you have faith in management at United?

A: We try to work with them. It isn't a war. But I think that the next month
or so will determine things. You can't stay in bankruptcy forever. At some
point they have to put together a realistic business plan. If they can't get
that done very quickly, then it's time to bring somebody else in.


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