Airline workers' woes are piling up as carriers seek to cut costs amid higher fuel prices and a new round of price competition.
Machinists at US Airways, the nation's seventh-largest carrier, were facing pay cuts of up to 35 percent and the loss of thousands of union jobs after a bankruptcy judge on Thursday _ for the first time in U.S. airline industry history _ unilaterally terminated a union collective bargaining agreement.
Fifth-ranked Continental Airlines also said in a regulatory filing Thursday that it needs $500-million in wage and benefit reductions by Feb. 28 or it will face a liquidity crisis. And while pilots at No. 2 United Airlines ratified a new cost-cutting contract, the carrier's push to lop $725-million off annual labor costs by mid January is heading to a court showdown today unless other unions approve new contracts.
US Airways, Continental, United and other so-called legacy carriers are struggling to cope with a combination of higher fuel costs, relentless price competition typified by Wednesday's announcement by Delta Airlines of a new lower-fare structure, and the growth of low-cost carriers like JetBlue and Southwest.
The Air Transport Association estimates, based on Department of Transportation data, that all U.S. carriers spent an additional $6-billion for jet fuel in 2004, an almost 40 percent increase.
Pressuring workers for concessions is about the only way to save large chunks of money in an industry where many of the costs, like aircraft leases, fuel and landing fees are essentially fixed, with little room to haggle. In US Airways' case, it is in the midst of seeking a third round of concessions from its unions in less than three years.
The industry also faces fundamental problems of excess capacity and too many hubs, meaning "it's not clear whether all these cuts are going to be enough" to keep ailing firms afloat, according to Bill Swelbar, president of Eclat Consulting, an aviation consulting firm in Reston, Va.
At bankrupt US Airways Group Inc., airline management had warned it would likely have to liquidate beginning next week if did not receive roughly $800-million in annual cost cuts from its labor unions. Every union but one, the International Association of Machinists, had ratified new contracts.
U.S. Bankruptcy Judge Stephen Mitchell on Thursday abrogated IAM's collective bargaining agreements with the airline, freeing US Airways to impose pay cuts ranging from 6 to 35 percent. The ruling also will likely lead to the elimination of thousands of jobs as the airline outsources heavy maintenance on certain jets and other jobs like cleaning aircraft cabins.
Mitchell said he had to decide "which is worse _ that half of the mechanics lose their jobs or all of the mechanics lose their jobs? The ultimate question is whether there are going to be any jobs left at the end of the day."
The union will still vote on management's final offer, which seeks the same dollar level of concessions but tweaks the pay cuts and work rule changes. If the union accepts the offer when voting ends Jan. 21, the judge's action canceling the contract would be nullified.
The judge also terminated three pension plans for US Airways workers and retirees that would have cost the airline nearly $1-billion through 2009 if they remained in effect. Mitchell called the pension obligations a "financial albatross" that would make it impossible for US Airways to attract the investment necessary fo it to emerge from bankruptcy.
The airline has said most retirees will receive the same level of benefits from the federal Pension Benefit Guaranty Corp., which will take over the funds. But that did little to mollify dozens of retirees who attended Thursday's hearing and shouted at CEO Bruce Lakefield as he left the courthouse.
At Continental Airlines, Thursday's announcement seemed likely to put more pressure on pilots, flight attendants and mechanics. The airline said in November that it needed the savings, but as of Dec. 16, it had obtained only $70-million of the $500-million.
"This is a little bit of a prod to the unions, but I don't think Continental is trying to embarrass them," said Anthony Sabino, an associate business professor at St. John's University and a lawyer who represented Continental aircraft lessors in the 1990s. "They're sending the message, "No kidding. We're really in trouble.' "
At United, the pilots' deal was approved by 77 percent of those who voted.
An attorney for the Air Line Pilots Association told Bankruptcy Judge Eugene Wedoff at a hearing in Chicago on Thursday that pilots are not happy about absorbing $3-billion in concessions, but believed the cuts were critical for the company's survival.
Earlier Thursday, Wedoff approved an emergency motion United filed Wednesday seeking to temporarily cut wages by 11.5 percent for baggage handlers, ramp workers and public-contact workers represented by the machinists union.