Money Talk, UAL Bankruptcy discussion

[enigma]

EDIT: The point to this post was to denounce Mr. Rinkers anti-worker attitude, not defend the pay scales at UAL. I'll let the UAL guys do that. It just ticked me that Mr. Rinker is willing to give management a pass when it comes to assessing blame for the situation. (11:00EDT)

Did anyone else hear the Bob Rinker "Money Talk" program today?

As I drove around FLL looking for a decent neighborhood this evening, I was listening to "Money Talk" ( The most popular national financial advice show if I heard correctly).

The hot subject was UAL, and our industry in general. Mr. Rinker flat stated that UAL would be bankrupt within the month.

Then he ticked me off. His view, is that UAL can only survive by negotiating dramatic concessions from its unions. Even after a UAL pilot called and informed him that pilot/labor costs are not near the large percentage of costs per seat mile that he was implying and that the pilots WERE giving concessions, Mr. Rinker repeated his position that the only way to save UAL would be for the unions to accept major concessions. He admitted that the management was bad, and the business plan was bad even before 9/11, and then STILL blamed UAL's downfall on the unions.

I'm not that big a fan of my union, but I have no doubt that the ALPA is not the reason for UAL's hard times. UAL's problem was having a disengenuous management team that demanded concessions in bad times, and then failed to reciprocate when times were good.

Can anyone say BOHICA

8N

 

[DrvA320]

Enigma,

I couldn't agree with you more. There is much more to the story than any idiot on the radio could ever comprehend.
While he may be right - United might be in BK within a month; it won't be for any of the reasons to which this A-Hole spoke.

Interesting times at UAL.....interesting times indeed!

DrvA320

 

[Timebuilder]

I thought that we had already reached Bob's conclusion right here on the forum.

Haven't we decided that the reason that the RJ is proliferating (Comair) is that the labor costs, particularly the crew pay and benefits, are far less costly than for other (for example) planes that Delta owns? Also, the large carriers' mechanics have much higher pay that other A&P types, and all of the large carriers have work rules that keep more bodies on the property, and on the union roster.

Labor may not be UAL's largest cost, but it has be be a large cost. Bob may be technically incorrrect, but he is comparing the cost structure of UAL to Southwest, and it's easy to see a very obvious difference in costs between the two.

Other factors may not be as easy to change as the cost of labor, and when facing bankruptcy labor cost will be the number one target.

 

[VaB]

I thought it was the stews and the mechanics that weren't giving any concessions. Perhaps that was what he was talking about.

 

[SDF2BUF2MCO]

Sunday's Orlando paper

Yesterday's Orlando paper had several articles (via the front page, not the business page) regarding USAir(ways), et.al. It was all gloom and doom reports.
My skeptical side says it is the PR department of the airlines trying to get the message out their costs are too high.
You guys are closer to the airline business than I am so I don't know if it smoke and mirrors in attempts to get labor concessions or if they're truly hurting. "Film at eleven...."

 

[Chas]

My opinion

the flight attendants are locked in a 10 year contract. The mechanics strike threat a month ago was way over the top . As a holder of Ual stock I am sitting pat. Theres a lot of blame to go around didnt Wolf get 5 million even when the US air deal fell through??? Chas

 

[publisher]

Loans

First of all, without substantial labor concessions, the loans will not be approved from the stabilization board/ Therefore it makes no difference what the argument for or against is .

There are other benefits of bankruptcy that will have the effect of reducing cost. They can abandon aircraft leases for instance/

UAL needs to get the labor in line to even get their DIP finaincing to go chapeter 11

 

[enigma]

Timebuilder,

My post wasn't intended to debate the RJ issue, but you do bring up a good point. I'm thinking it over and will post later.

What I was reacting to, was Mr. Rinkers anti-worker approach to the issue. He did acknowledge that UAL's business plan was bad, and that they suffered from poor management when the pilot was on the phone; but as soon as the pilot was off the line, Mr. Rinker went right back to absolving the managers of any blame. He talked for a couple of minutes about why the unions were crippling the industry. (if that is so, how does SWA make any money?)

Maybe the UAL union members are making too much money, but why should management be given a pass?

Why is it that managers get to go home with millions, can you say ", Goodwin, Icahn, etc", and the workers get to take a paycut? BTW, it's crap like this that allows my pro-business mind to be a union member. I would be afraid of GOD's judgement if I treated my workers the way some business's do today.

more later on the RJ issue, regards
8N

 

[Tim47SIP]

High labor costs

Publisher is correct. The following is a clip from a Forbes article written by Robert McCoppinand Mike Comerford, Daily Herald Staff Writers, but there are many others out there you can look up, and they all say the same thing. The only people denying these statements are the labor groupes themselves.

"More importantly, he said, the Air Transportation Stabilization Board, which decides whether to give federal backing to loans for United, should crack down on United's labor costs."

"Specifically, Gellman said, as a condition of the loan guarantee, the board should require United to get pilot salaries back where they were before they got raises of up to 32 percent in 2000."

"Those salary increases raised the bar for the entire industry, Gellman said, when other unions demanded comparable raises."

"Industry analyst Mike Boyd, of The Boyd Group, said the airlines may have to defer some spending."

The article also states that Uniteds labor cost structure is roughly 40% of their total costs. The next highest cost is fuel, which is 15%. The IAM just received up to a 37% raise and 20% ownership in the company. The IAM and the AFA will not budge at this time, but with the threat of Chp 11, they are now going back to the table. The pilots have given back 10% but the article says that this way to little since they are the bulk of the labor cost.

My thinking is that United will most definitely go into Cpt 11, completely restructure, throw out most of the contracts, downsize, park older aircraft, defer deliveries, and lay off quite a few more people. I certainly hope for the best, but if the Unions don't follow the pilots lead on this, I am affraid that they are in for a rude awakening.

 

[Timebuilder]

I'm the last guy to absolve management of their part in this. If it was up to me, they'd have their "golden parachutes" downgraded to "copper parachutes" for their poor workmanship.

 

[enigma]

I thought that we had already reached Bob's conclusion right here on the forum.

Haven't we decided that the reason that the RJ is proliferating (Comair) is that the labor costs, particularly the crew pay and benefits, are far less costly than for other (for example) planes that Delta owns? Also, the large carriers' mechanics have much higher pay that other A&P types, and all of the large carriers have work rules that keep more bodies on the property, and on the union roster.

Labor may not be UAL's largest cost, but it has be be a large cost. Bob may be technically incorrrect, but he is comparing the cost structure of UAL to Southwest, and it's easy to see a very obvious difference in costs between the two.

Other factors may not be as easy to change as the cost of labor, and when facing bankruptcy labor cost will be the number one target.

As I stated earlier, the point of this string was to expose the blatant anti-worker sentiment of people like Bob Rinker. But, I will attempt to address your statements.

I don't think that there is much comparison between an argument about what's wrong with UAL, and whether or not RJ's are truely cost effective.

For one thing, you can't compare the economics of one aircraft type with the economics of an entire company. The falacy of comparing airplanes to airlines is why I aurgued with Skydiverdriver about the name of the RJDC. It's not the airplane.

UAL is a global carrier, and as such must support the costs of a global structure. Given a comparable structure, an RJ carrier would cost as much or more to operate (considering comparable seat miles) than UAL.

Now, how do we resolve the apparent contradiction between the concept that high labor costs are not UAL's problem and the concept that low labor costs are indeed the RJ's advantage?

By realizing that there is no correlation between the economics of an airpane vs the economics of an airline. The RJ's do fit at the bottom. They are currently displacing narrowbody mainline aircraft because of low wages and reduced demand for travel. I imagine that saying so will disturbe the Comair guys, but the regionals are subsidized by the majors and don't pay the full cost of competing in the marketplace. When regionals attempt to compete without being under the wing of a major partner, they lose. Think of Mesa in Texas during the mid nineties. When the regionals start to pay their share of promotions/marketing/etc, their overall advantage will go away. The way I see it, the RJ's/regional's are like spanish moss. They die without a host tree.


As an aside, UAL's wage structures are the result of the profits of the late ninetys and the labor concessions from earlier in the decade. Inept and greedy management took money from the pilots when time were bad, then refused to reciprocate when times got better, leading to really piss poor labor relations. Consequently, when the latest contract was signed, labor was in no mood for accepting the status quo; and since profits were high(remember the profit levels of the late 90's?), management agreed to a contract that couldn't be sustained when times got worse. At the same time management was mis-managing labor relations and agreeing to high-priced contracts, they were squandering the profits on ventures like the AAA merge, Allegis (?),etc. If you roll back UAL wages to pre-raise levels, they would still be asking for concessions, and they would still have an inefficient structure.
I will stand by the idea that pilot labor rates are not the cause of UAL's troubles. Ask UAL78.
On the other hand, regional wages are the result of too many years of pilots who didn't care about regional wages as long as they could use the regional to gain experience and move up to a major. How times change.

 

[SFOA320]

I'm the last guy to absolve management of their part in this. If it was up to me, they'd have their "golden parachutes" downgraded to "copper parachutes" for their poor workmanship.

Even better : how 'bout a "lead balloon"?

 

[skykid]

UAL has defintely suffered from bad management, but as I have said in other posts, employees must take part in the bad times. Alot of pilots want to keep rehashing how bad management is, over and over like a broken record. Its true, but that wont fix anything. Think labor costs are at a level UAL can have a chance to compete with the discount carriers? A 10 year UAL 737 captain makes $204.45 an hour, 75 hour minimum. Plus 11% of that in the "B" fund, and there is still the "A" fund retirement. Compare that to Southwest, Frontier, Jet Blue, or Airtrain. Guess what, the only airlines around in a few years are going to pay alot closer to those four. I don't like that, its not my rules - I'd like to make triple what I make now and have 180 days off. I'd rather have a job though!

Frontier pilots correct me if I'm wrong, but didn't you guys take a 10% pay cut only weeks after Sep 11 01 and come away as a result with no forloughs? Meanwhile at UAL, the ALPA leadership has the pilots haggling over a concessions package nearly a YEAR later that is only about 40% of what should be given up, in my opinion. Embarrassing.

I think the Flight Attendents (AFA) and mechanics (IAM) are a lost cause as far as meaningful concessions. Their pay will be set in bankruptcy court. I am hopeful the pilots will cut a deal before CH11 that will cut down on forloughs, but there are going to be some no matter what.

Here's the good news - UAL has already gotten rid of its old airplanes - over 20 737-200s and 50 727s. Over 200 60+ engineers, many of whom were surprisingly sick much of the time are gone (an 8 year 727 engineer was making $110 an hour when he got permenantly forloughed). Almost 400 pilots have retired since last fall. With the government backed loans UAL wont have to scale back that much... of course they could if they want.

 

[Timebuilder]

I think that most of UAL's pilot labor cost comes from a big-iron pilot pay scale, one that is not currently paid to ANY smaller jet crew. That's why I mentioned the RJ, and the main reason that it is a profitable machine. With Delta work rules and pay/benefits, the RJ is no longer the profit center it has become.

Right now, Delta is preparing to initiate a low cost spread to better compete with Southwest, Spirt, and Jetblue, not to mention AirTran. Some of the planes may be the same type, but the pilot wage scale will be much lower than the cuurent Delta captain, and perhaps lower than a Delta FO, for that matter.

As Crandall mentioned on Sunday's Meet the Press, it's costs that must be cut in order to allow UAL and American, along with other large carriers, to compete in this consumer-driven, low-fare environment.

The question I have is this: will the discount carrriers drop their fares even lower if the traditional carriers attempt to take back their customers?

 

[enigma]

SKYKID,

You sound like a possible insider, I'm not. I do however read the history, and unless I read wrong, labor has given back in the past and all that happened is that management took the give-back gains and wasted them on other things. Yes, I do believe that UAL pilots do make more than the current market will bear, but I don't think that they should bear the majority of the burden of the restructure.

regards
8N

Timebuilder,

I'm not exactly sure what you mean by "big iron", but I imagine that you reference the 747/777. If so, can only say that it is my understanding that pay scales reflect the amount of seats that follow the cockpit around. IE, the whale scales are not out of line with the narrowbodies.

regards.
8N

 

[Timebuilder]

Big Iron= larger than an RJ.
MD-80's, DC -10's, 75 and 767's. Planes that have traditionally paid a top level pilot salary.

While those 747 wages may not be out of line with the number of seats, the domestic aircraft, those not almost dedicated to trans-oceanic work like the 747 and 777, will be under tremendous downward pressure at the majors. Fortunately for some pilots, the reductions in capacity have kept companies in business, but can they allow themselves to bleed red ink for the next five years? What bank will agree to that?

Let's say that one wave of bankruptcies sweeps through the majors, and some give-backs are achieved. What happens after that, when low cost carriers continue to gobble up market share using 737's and 717's, filled to capacity? The winning game plan is to remain competitive. It turns my stomach when I think about what that may mean over the long term.

 

[bigr]

Ive been listening to Bob Brinker (yes its Brinker) for 13 years and he's made me a ton of money and saved me a ton of money.

He was the first and only financial guru that sent out his "sell 90% of your stock now" order in January 2000.

He was piloried by his listeners and other gurus for this. At first it seemed brinker was wrong. if you remember the stock market tanked for a few weeks at the beginning of 2000, but then it rallied and hit its all time high in March of 2000. that's when i dumped my stock. thank god i listened to Brinker, he saved me at least 50 grand.

as for his anti labor attitude about united. i don't think he is anti labor, just a pragmatist. check out his web site for advice.

Bobbrinker.com

my .02

 

[skykid]

8N, you are right, I am an insider. I'm sure my posts sound anti-union - I'm not. I am also in the Guard and run a private business, so I try to think from a manager-owner point of view as well as an employee. I especially try to think like an owner since I have so much ESOP stock. I believe the ESOP bought us two things - the right to exist without Steven Wolf selling the operation off in parts, and getting an ALPA pilot on the board (which is a bad idea in my opinion). The ESOP "sacrifice", as so many like to call it, didn't buy the right to have a contract the company can't afford.
Even as lousy as our management has been, I am loyal to United. They gave me a job and pay handsomely for the time being. I know there are those thinking, no way, everything we got was fought for by your ALPA brothers and sisters. I am grateful for much, but again, its time to share in the hard times. Before I turned into one of the talk-the-company-down disgruntled types, I'd quit. And I do make my voice heard in ALPA.
Great insights on this thread 8N - thanks

 

[publisher]

tradition

There seems to be a constant theme here that things are going along as they traditionally have and no recognition of systemic changes in the industry.

If you do not think that there is such a change, I would suggest you go to your nearest remaining travel agency and ask them how it is going and if they have seen any changes.

United is broke and everyone is pointing out that the ship is sinking. Perhaps a plan would be more appropriate, especially as it would appear that the entire business world is in agreement that labor is part of the problem not the solution.

 

[JimNtexas]

Bob Brinker is the best market timer out there, he's very accurate.

He summerizes his shows on his website, bobbrinker.com. Here is a little of what he said about UA:

United Airlines is considering bankruptcy; its labor unions, which account for 40% of its expenses, have a strangle hold on United’s business plan. Fuel expenses account for only 10-15%. Bankruptcy seems virtually inevitable for United, but it’s not necessarily a bad thing. Bankruptcy will enable it to continue to fly, and relieve it from union control. It may also comprimise the Frequent-Flyer Mile liabilities, which are very costly for the company.

The pilot’s union has agreed to a 10% pay cut in return for equity and some other provisions, but the union leaders for the mechanics and flight attendants have refused a similar deal. United’s contentious labor force can bring the company into insolvency...

Jim