Senator McCain slams Delta

[flaps30]

Sen. McCain hits Delta CEO pay as air aid mulled
Thursday March 27, 6:43 pm ET
By Susan Cornwell


WASHINGTON, March 27 (Reuters) - The chairman of the Senate Commerce Committee blasted a top airline chief on Thursday for collecting a multi-million dollar pay package -- even as the airline was laying off thousands of workers -- and then pleading for government help.



Sen. John McCain, who with other lawmakers is wrestling with whether and how to aid the struggling aviation industry, is outraged that Delta Air Lines Inc's (NYSEAL - News) Chairman and Chief Executive Leo Mullin received a package in 2002 worth about $13 million, more than doubling his previous pay, at a time of widespread industry layoffs.

"I'm sure every American is angry, because they (Delta) laid off thousands of employees," McCain, an Arizona Republican, told reporters in a Capitol Hill hallway.

McCain is among key lawmakers in the Senate and the House of Representatives trying to craft proposals to help the airlines, whose financial troubles are being exacerbated by the war in Iraq.

The industry's leading trade group projects $4 billion in war-related losses if the conflict lasts 90 days. Lawmakers are looking at proposals worth up to $3 billion.

But McCain said that if he saw Mullin, head of the No. 3 U.S. air carrier, among other airline representatives visiting lawmakers' offices this week to plead industry poverty, he would tell him: "You ought to be ashamed of yourself."

The senator said he'd like to include a provision in an airline relief bill to "prohibit that sort of thing (pay package) happening again," but did not know if this was possible. Much of Mullin's package was in the form of stock options worth $8.21 million at the time of the grant dates.

Mullin's pay was detailed this week in a filing with the U.S. Securities and Exchange Commission (News - Websites). The filing also said that Mullin reduced his salary by 10 percent effective March 1 "to demonstrate his commitment to share the burden of Delta's cost reduction goals."

A spokesman for Atlanta-based Delta, which last year posted a $1.27 billion loss, said the airline would have no comment on McCain's remarks. But Mullin is not the only airline executive with generous remuneration during hard times.

Earlier this week Continental Airlines (NYSE:CAL - News), which posted a $451 million net loss in 2002, said it awarded its Chairman and Chief Executive Gordon Behune a pay package worth about $7.63 million, excluding options. Including options, it was worth about $11.9 million.

The industry's woes continue to mount. American Airlines, the world's largest airline, is lining up financing ahead of a bankruptcy filing that could come next week, according to sources familiar with the situation.

ANNOYANCE IN THE HOUSE

Senators and their staff are working on an airline relief package of up to $3 billion, intending to add it to the $75 billion White House plan for war-related spending next week.

In the House of Representatives, lawmakers are drafting an airline aid proposal worth around $2.5 billion, but they do not yet know whether it will be added to the wartime spending bill, said Rep. John Mica, aviation subcommittee chairman.

Several key House lawmakers, such as Republican Leader Tom DeLay, have been telling reporters they do not like the idea of slowing down the wartime funding package with amendments.

Both chambers are discussing picking up some security costs mandated by the government since the hijack attacks of Sept 11, 2001, as well as helping airlines meet insurance premiums.

Lawmakers in the House also displayed some annoyance with airline executives on Wednesday, saying they kept changing their tune on what the industry needed.

Last year, airline industry representatives had told lawmakers they were paying $700 million a year in security fees, said Rep. James Oberstar, the ranking Democrat on the aviation subcommittee and a strong advocate of airline relief.

"All of a sudden that $700 million has vanished and they are down to $300 million," he said. "What happened?"

 

[sleepy]

I don't care for Sen McCain and his baseball arbitration idea, but he got this one right.

 

[General Lee]

It was a good shot. I wonder if Leo will be going to testify to Congress for the ATA anytime soon? Maybe he'll stay in ATL.
He really is a good CEO though, but he needs to give back some of the money if everyone is going to chip in.

Bye Bye--General Lee

 

[Gulfstream 200]

good CEO's dont trash the company name with thier greed, especially in times such as now

I hope not one penny of my tax dollars go to DAL.

 

[Heavy Set]

Not only was Leo's bonus bad for employee morale as more get furloughed, but it turned out to be horrible PR! Good job Leo!

Would Herb Kelleher do this? Nope.

 

[Singlecoil]

I hope not one penny of my tax dollars go to DAL.

Just for the record, the airlines aren't asking for your money. All they want is to pay less of their money to the government. The airline ticket is the highest taxed commodity in the country, higher than gasoline, alcohol, or cigarettes.

 

[Flying Freddie]

We should send troops to Atlanta to spearhead operation Delta Freedom.

 

[FlyBoeingJets]

Forget about what the Senator "Says". These guys flap their mouths all day long. What is he going to do about it?

I'll reserve my support for Sen McCain's leadership until he proposes or supports something substantial. Didn't he denounce airline pilots several times in recent years?

Please remember these guys and reward them appropriately. If we act like we have ADHD then politicians have no incentive to treat their constituents like intelligent people.

 

[flaps30]

excuse me,

Just for the record, the airlines aren't asking for your money. All they want is to pay less of their money to the government. The airline ticket is the highest taxed commodity in the country, higher than gasoline, alcohol, or cigarettes.

The "governments money" is our money. And like most other Americans I don't want one penny spent on Delta's CEO 13 million pay. If Joe passenger flys from pt A to pt B, then the consumer who buys the ticket should pay the price and all the taxes.
Security and taxes are in all airline tickets, so how can JetBlue, Airtran, and Southwest continue to be successful with the same cost for security ?

 

[Midnight Mike]

Good for McCain, the airlines deserve a good tongue lashing, at least some of the major airlines. This is quite shamefull of the Delta CEO to even think about accepting this money, and then he has the nerve to approach the Federal Gov with his hands out asking for tax payer money!

With all of the internal chaos going on at the some of the major airlines, why should the Federal Government step in to provide financial support will all of these problems going on?

As far as being a heavily taxed industry? Start looking at your ticket, some of fees that are included in the cost of a ticket, are collected as they are passed on to the passenger.

Too bad the media will not talk about the airlines that are making money and hiring:

Southwest, making a profit & hiring, as seen on this website
Jetblue, making a profit & hiring
Alaska, lost 43.1M last year& hiring
Airtran, making a profit & hiring, just barely
Aloha is hiring, not sure if they making a profit

 

[80drvr]

Alaska lost 43.1M last year. The carriers making money are low cost point to point airlines with single fleet types. Network carriers will have higher unit cost because of complexity...even it the labor costs are leveled. I'm not apologizing for management....they've have been grossly incompetent accross the board at the legacy carriers. But there is a need for network carriers and the majority of them will stay in business. Which ones is the big question.

SWA ain't gonna take you from MDW to NRT.

 

[Midnight Mike]

80drvr

Thanks for correcting me about Alaska Air, I let that slip through.
http://www.economist.com/displaystory.cfm?story_id=1648210

Flying the unfriendly skies

Mar 26th 2003
From The Economist Global Agenda

American airlines' hopes of another government bailout, this time to cover their losses from the war in Iraq, are rising. But they should not count on it

COULD President George Bush be forced to order the nationalisation of America’s airline network to save it from total collapse? A report on the dire state of the airlines’ finances, published earlier this month by the Air Transport Association (ATA), which represents them, insists that such a dramatic scenario is “not unrealistic”. Since the terrorist attacks on September 11th 2001, America's airlines have lost a combined $18 billion, in spite of the big aid package that Mr Bush granted them shortly afterwards. Now, with a war being waged in Iraq, passenger bookings plunging and airlines making heavy cuts in their schedules, America’s main carriers predict that their losses this year, given a fairly short war, will be almost $11 billion. If the war drags on or there are more terrorist attacks in America, the losses could reach $13 billion.

Thus, in recent days, airline executives have been busy on Capitol Hill, lobbying hard for another bailout. On March 25th, their hopes rose, and their companies' share prices too, when Bill Frist, the majority leader in the Senate, predicted that “some sort of relief” would be forthcoming for the airlines. One possibility is that the aid might form part of the $75 billion supplementary war budget that Mr Bush is asking Congress to approve. However, when Mr Bush made his formal request, just a few hours after Mr Frist's comments, there was no mention of this.

Analysts say that rather than granting them further aid, the government is more likely to consider helping the airlines by cutting some of the various taxes on air travel. The ATA claims that these have risen by 180% since 1991, about six times inflation. However, even this concession may be hard to get past those White House officials who are sceptical about the airlines' pleas for help.

Two of America's biggest carriers—United and US Airways—are already in bankruptcy proceedings, and a third—American Airlines—is struggling to avoid the same fate. United had said last week that there was a “distinct possibility” that it might have to close altogether unless it could persuade staff to accept further big cuts in wage costs. Though the unions have agreed to temporary pay cuts worth $840m annually, United is seeking long-term savings on labour costs of around $2.6 billion a year. The first Gulf war, in 1991, led to four big airlines shutting down: Pan Am, Eastern, Midway and Markair. But another one—Continental—emerged from bankruptcy proceedings as a much stronger player than before.

New forecasts this month from the Federal Aviation Administration (FAA) are rather less doom-laden than the industry's own predictions. Even so, they suggest that the big carriers' passenger traffic will not return to 2001's levels until perhaps 2006 (see chart). And the FAA admits that its forecast of a gradual recovery in air traffic is at risk from the war and from any further terrorist attacks.

The big carriers argue that they have already taken significant “self-help” measures to cut their costs and rationalise their schedules. Around 100,000 airline jobs have been cut since September 2001. A further 70,000-100,000 are forecast to go. On March 21st, Northwest Airlines, the world's fourth-largest carrier, added 4,900 to the redundancy count and said it was cutting 12% of its flights. Delta said on March 24th that it was cutting domestic and international capacity by the same amount until at least the end of April.

This is partly due to the downturn in bookings caused by the expectations of a war in Iraq, and the rise in the cost of fuel, which has doubled in the past six months. But the airlines have also been suffering from a fall in business travel due to the collapse of the dotcom boom. In all, the crisis in the industry goes beyond what might be expected from “normal” market forces, they argue, so there is a strong case for the government to come to the rescue. Besides tax cuts, the airlines also want reimbursement for the $4 billion of extra costs they claim to have suffered due to the extra security measures imposed on them by the government after the September 11th attacks.

The 1991 Gulf war caused years of losses for America’s airlines. After operating profits of $1.8 billion in 1989, they suffered more than $6 billion of losses in the following three years. Now, despite enjoying a period of prosperity in 1995-2000, the industry enters the second Gulf war in an even worse state: the combined debt of America’s big “network” airlines is $100 billion, compared with their combined stockmarket valuation of just $3.2 billion in February.

Latin American airlines are also struggling. On March 21st, Colombia's Avianca filed for bankruptcy protection in the American courts, as it sought to renegotiate debts of $130m. And Brazil's heavily indebted flag-carrier, Varig, is seeking an operational merger with its local arch-rival, TAM.

British Airways announced cuts in transatlantic flights for the duration of the war, and the speeding-up of its job-cutting programme, on March 26th. Other European airlines, including Lufthansa and KLM, have also suspended some flights. But in general the finances of Europe's and Asia's airlines are stronger than those of America's carriers, so they should be better able to withstand the slump in bookings caused by the war.

Back in America, the FAA forecasts that, while the big network carriers will have a slow recovery, short-haul flights (dominated by leaner cut-price airlines) and air cargo will enjoy strong growth. United’s problems are partly the fault of its own staff, who got a stake in the airline in lieu of pay as part of a restructuring in 1994, and have used it to block painful but necessary cost cuts. The management’s threat to close the airline permanently is as much aimed at twisting its unions’ arms to make concessions as at pleading with the government for handouts.

The big airlines that are in bankruptcy proceedings are able to hold off their creditors and can thus try to grab market share by undercutting their rivals, forcing the whole industry to continue offering uneconomically low fares. Unless the government and the airline unions give in to the carriers’ demands, the industry’s crisis could well drag on until one or more of America’s main carriers is forced to close for good. In the meantime, hardy passengers who are prepared to brave the risks of air travel can enjoy fantastically cheap fares. The ATA reckons that tickets, before taxes, are cheaper in nominal terms than in the late 1980s, and therefore much cheaper in real terms. Enjoy it while it lasts.





Copyright © 2003 The Economist Newspaper and The Economist Group. All rights reserved.

 

[rice]

my sympathy goes out to our bretheren in the airline world but unfortunately I believe that their leadership is about to see the second coming of "Shock and Awe". As these CEO's go to the government well and come empty it will be an even gloomier future for the industry.

 

[duckman]

Economics 101

"Analysts say that rather than granting them further aid, the government is more likely to consider helping the airlines by cutting some of the various taxes on air travel. The ATA claims that these have risen by 180% since 1991, about six times inflation. However, even this concession may be hard to get past those White House officials who are sceptical about the airlines' pleas for help. "

I'm not a "rocket" economist here..but if these taxes are reduced/dropped...what will stop the LCCs from dropping their ticket prices accordingly and once again squeezing the margins of the Big 4?? Will the cost savings on international ticket prices and tickets to locations that the LCCs do not serve make enough of a difference??


"The first Gulf war, in 1991, led to four big airlines shutting down: Pan Am, Eastern, Midway and Markair. But another one—Continental—emerged from bankruptcy proceedings as a much stronger player than before."

Seems like the US airline industry as a whole emerged from this event just fine..maybe it's time for a repeat??? One of the risks of a free market??


As Yoda would say in his Yoda voice...."TOUGH TO PREDICT TO THE FUTURE...NEVER CLEAR...ALWAYS QUESTIONS"

 

[pilotyip]

How about NWA

On almost the same day they annouce two Exec's get a bonus and 4900 people to be laid off, but then again they earned their pay by making those "hard" decisions NOT!

 

[rightrudder]

Mullin isn't the only CEO making out like a bandit:

United CEO Gets $9.65 Million Pay Package
Friday March 28, 8:27 pm ET


NEW YORK (Reuters) - Glenn Tilton (News), who is trying to lead United Airlines Inc. out of bankruptcy, last year received a pay package worth as much as $9.65 million, a securities filing shows.
The chairman and chief executive of the No. 2 U.S. carrier, who was named to those positions last September, received a $312,314 salary and a $3 million bonus for 2002, according to the annual report filed Friday with the U.S. Securities and Exchange Commission (News - Websites) by UAL Corp. (NYSE:UAL - News), United's parent.

The report also shows that Tilton, 54, received $287,000 of restricted stock, $88,683 of other compensation, and 1.15 million stock options with a $1,460,500 hypothetical present value as of the grant date. In addition, UAL paid $4.5 million to three trusts on Tilton's behalf, the filing shows.

The full trust payments will be made only if Tilton stays for at least three years, a spokesman said. Additionally, Tilton will forfeit his bonus if he leaves the company in less than two years.

Tilton's pay package is larger than the $1.45 million that David Siegel, CEO of U.S. Airways Group Inc. (OTC BB:UAWGQ.OB - News), which is also in bankruptcy protection made last year, according to that carrier's annual report. Siegel's restricted stock and stock options are now worthless, U.S. Airways said.

The package is structured to compensate for the retirement benefits Tilton gave up to work for United, a spokesman said.

United, which is based in Elk Grove Village, Illinois, filed for Chapter 11 bankruptcy protection from creditors on Dec. 9. On Thursday it said it reached a tentative six-year pact with pilots to save $1.1 billion a year, nearly half of the $2.56 billion of annual labor costs that United said it needs to eliminate.

The New York Stock Exchange on Friday said it will delist UAL shares on April 3 because the stock has traded under $1 per share over a 30-day period. The shares closed Friday at 85 cents, up 1 cent.

In its annual report, UAL also said it expects to post a $900 million operating loss for the first three months of 2003. It lost $307 million in February and $331 million in January

 

[Cardinal]

Firstly, 'ole Leo deserves all the bad PR he'll get from this. It is shameful to be playing it both ways like that with his company in such rough shape.

But.

Who the heck is John McCain to dictate what Mullin or any other American can make? This is capitalism, and this is a democracy. If Leo can make more money by turning his aircraft into beer cans and selling lemonade, let him. If he can profit in the midst of failure, well, thats how the system works sometimes. Yes, Delta et al got a chunk of Government money. What exactly did we think they were going to do with that money other than A) Spend it, or B) Spend it? A billion here and a billion there will not guarantee free air travel for all eternity, and neither it will not change the structure of the industry, the same old crap will go on. The fact that the airlines took a scrap from the Government table did not automatically nationalize the industry. Delta is not a bloody state-run entity, not Aeroflot circa 1980! McCain seems to be suffering from his excessive exposure to communist rule. The political powers, and presumably the people that back them, was willing to give handouts, for whatever reason. Cool, the airlines needed the money. Yet it was the gov't that took the risk, they didn't know where the money would go, they didn't know if this cash would even save the carriers. If more money might be on the way, well, more power to the congressional boys. But it doesn't change anything. The Board is free to pay Leo whatever it want's to pay him.

And while I'm torqued, what is McCain's hangup, anyway? The only time he ever pipes up is when an exec is getting too much money, a politician is accepting too much money, or a pilot is earning too much money. Did his squadron mates give him wedgies, then leave to fly for the airlines? Did Pan Am say he was too short? Anyway, allow me to reitterate, this is a very poor time to bump one's salary by a few mil.

 

[pilotyip]

Leadership

It is about leadership, who would follow a boss, commander, Captain whatever, who takes for himself while the people in his care are suffering, it may be captialism, it may be the american way, but it is not leadership. Read about Sen John and you may understand more about leadership. We have alot of "managemnt " in this country, but I think we are a bid short on leadership. Those are people you want to follow.

 

[FlyBoeingJets]

Who the heck is John McCain to dictate what Mullin or any other American can make? This is capitalism, and this is a democracy...Blah, Blah, Blah....The Board is free to pay Leo whatever it want's to pay him.

Management's job is to manipulate us and market to us. Your naive attitude is just what they want. If you doubt the veiled attempt to break labor for the sake of breaking labor and to enhance profits when the economy turns around, you are mistaken.

The reality is executives make big bucks whether or not their company is.

Power is the name of the game. Some call it capitalism and some confuse it with the concept of Democracy.

 

[Cardinal]

WTF? It is not naive to assert that a corporation can dictate it's employees (in the case CEO's) earnings. Where did I say that management was or was not trying to break labor? Of course they are! They always are, and particularly now during this industry weakness. But begrudging a CEOs ill-gotten salary does not one wit of good, and is hardly relevant. In fact it is the very height of hypocrisy, if we should ask the shareholders to pay us what we think "we are worth."

Setting a trend of "salary caps" in this industry will only screw us down the road. What prevents McCain from also stipulating that no labor group may be granted a raise after the acceptance of subsidy/reduction of taxes? Nothing prevents it! It might not affect you right now, while you're taking concessions, but it would sure affect the regional guys who might have a chance at bettering their contract. And it would surely screw you and us all once times improve. Putting freezes on market forces is a slippery slope that would eventually destroy the economy and nation. It is naivety to ask or let a power hungy and economically ignorant politician to dictate terms to you and your company.