Flying Horses
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US Airways Gets OK to Cut Workers' Pay
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Oct 15, 2:49 PM (ET)
By MATTHEW BARAKAT
ALEXANDRIA, Va. (AP) - A bankruptcy judge granted US Airways authority Friday to immediately cut the pay of its union workers by 21 percent through mid-February, saying the airline's situation is so dire that urgent action must be taken.
The 21 percent pay cut is nearly all of the 23 percent reduction the air carrier had sought.
"Basically what we have here is a ticking fiscal time bomb," U.S. Bankruptcy Judge Stephen Mitchell said in issuing the ruling.
The temporary pay cuts are in place until Feb. 15, 2005, one month short of what the airline had sought. Mitchell also granted the airline authority to reduce the size of its jet fleet.
Under the 21 percent cut, the average US Airways salary would drop from $59,509 to $47,012. That would put US Airways below the other five major traditional carriers as well as Southwest Airlines, but higher than JetBlue and America West, two carriers US Airways now seeks to emulate.
US Airways, the nation's seventh largest airline and a unit of US Airways Group Inc., employs 34,000 workers, of which 84 percent are represented by unions.
Brian Leitch, an attorney for the airline, said the pay cuts were necessary to keep the cash-strapped company from liquidating.
"We're twisting in the wind, we're airing our financial distress to the world," he said during closing statements before Mitchell on Friday. "We need to get some stability for a few months."
Still, Leitch acknowledged that the pay cuts alone won't prevent a liquidation, but simply give the airline a fighting chance for survival.
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[/font]US Airways, he said, will need permanent cost-savings from its unions twice as large as though achieved by the temporary cuts.
Those savings, however, can be achieved without deeper salary cuts.
US Airways pilots, for instance, reached a tentative agreement on a deal that provides the airline the long-term savings it needs while only imposing an 18 percent pay cut, with additional savings through benefit reductions and work rule changes.
A ratification vote on the pilots deal will conclude Oct. 21. The 21 percent pay cut will only apply to the pilots if they reject the tentative agreement.
Management and labor agreed that the pilots' vote could be influenced by Mitchell's decision.
Mitchell, in fact, expressed apprehension before issuing his ruling that he would be handicapping all the unions by imposing such severe temporary cuts while the parties are negotiating permanent contract changes.
"The problem is, if I grant the relief, I put the employees in a severe condition of economic distress, and I'm basically tilting the field of negotiations" in management's favor.
Unions argued that cuts of such a severe magnitude were unnecessary and the bankruptcy code only permits a judge to impose such cuts in the face of unforeseen and extraordinary circumstances such as natural disasters and terrorist attacks.
"What we have here is a trend dating back since before 9/11" of financial difficulties for traditional carriers like US Airways, said Sharon Levine, a lawyer for the International Association of Machinists. "We have a malaise in the airline industry. These are not surprises."
Unions also complained that the airline was unfairly singling them out. Most of US Airways' 3,700 management employees are receiving only a 5 percent pay cut even though they received a 4 percent pay raise earlier this year.
Leitch acknowledged the disparity but said it is made necessary by market forces. US Airways' attrition rate for nonunion workers - who make $52,000 annually on average - is dangerously high because other airlines are hiring them away at higher salaries.
But union wages in the airline industry are dependent on seniority, he said. So a flight attendant, for instance, might see his or her wages drop from $41 to $31 an hour as a result of the pay cut. But if they left US Airways to join another airline they'd have to start at the bottom of the ladder at $19 or $20 an hour.
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Oct 15, 2:49 PM (ET)
By MATTHEW BARAKAT
ALEXANDRIA, Va. (AP) - A bankruptcy judge granted US Airways authority Friday to immediately cut the pay of its union workers by 21 percent through mid-February, saying the airline's situation is so dire that urgent action must be taken.
The 21 percent pay cut is nearly all of the 23 percent reduction the air carrier had sought.
"Basically what we have here is a ticking fiscal time bomb," U.S. Bankruptcy Judge Stephen Mitchell said in issuing the ruling.
The temporary pay cuts are in place until Feb. 15, 2005, one month short of what the airline had sought. Mitchell also granted the airline authority to reduce the size of its jet fleet.
Under the 21 percent cut, the average US Airways salary would drop from $59,509 to $47,012. That would put US Airways below the other five major traditional carriers as well as Southwest Airlines, but higher than JetBlue and America West, two carriers US Airways now seeks to emulate.
US Airways, the nation's seventh largest airline and a unit of US Airways Group Inc., employs 34,000 workers, of which 84 percent are represented by unions.
Brian Leitch, an attorney for the airline, said the pay cuts were necessary to keep the cash-strapped company from liquidating.
"We're twisting in the wind, we're airing our financial distress to the world," he said during closing statements before Mitchell on Friday. "We need to get some stability for a few months."
Still, Leitch acknowledged that the pay cuts alone won't prevent a liquidation, but simply give the airline a fighting chance for survival.
[font=Verdana,Sans-serif]
[/font]US Airways, he said, will need permanent cost-savings from its unions twice as large as though achieved by the temporary cuts.
Those savings, however, can be achieved without deeper salary cuts.
US Airways pilots, for instance, reached a tentative agreement on a deal that provides the airline the long-term savings it needs while only imposing an 18 percent pay cut, with additional savings through benefit reductions and work rule changes.
A ratification vote on the pilots deal will conclude Oct. 21. The 21 percent pay cut will only apply to the pilots if they reject the tentative agreement.
Management and labor agreed that the pilots' vote could be influenced by Mitchell's decision.
Mitchell, in fact, expressed apprehension before issuing his ruling that he would be handicapping all the unions by imposing such severe temporary cuts while the parties are negotiating permanent contract changes.
"The problem is, if I grant the relief, I put the employees in a severe condition of economic distress, and I'm basically tilting the field of negotiations" in management's favor.
Unions argued that cuts of such a severe magnitude were unnecessary and the bankruptcy code only permits a judge to impose such cuts in the face of unforeseen and extraordinary circumstances such as natural disasters and terrorist attacks.
"What we have here is a trend dating back since before 9/11" of financial difficulties for traditional carriers like US Airways, said Sharon Levine, a lawyer for the International Association of Machinists. "We have a malaise in the airline industry. These are not surprises."
Unions also complained that the airline was unfairly singling them out. Most of US Airways' 3,700 management employees are receiving only a 5 percent pay cut even though they received a 4 percent pay raise earlier this year.
Leitch acknowledged the disparity but said it is made necessary by market forces. US Airways' attrition rate for nonunion workers - who make $52,000 annually on average - is dangerously high because other airlines are hiring them away at higher salaries.
But union wages in the airline industry are dependent on seniority, he said. So a flight attendant, for instance, might see his or her wages drop from $41 to $31 an hour as a result of the pay cut. But if they left US Airways to join another airline they'd have to start at the bottom of the ladder at $19 or $20 an hour.
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