UPS Pilots Hit the Jackpot
By Ted Reed
TheStreet.com Staff Reporter
8/31/2006 2:02 PM EDT
FedEx (FDX) and UPS (UPS) may rush to deliver packages quickly, but they obviously felt no urgency to negotiate contracts with their pilots.
That is, until one of the companies made a deal. Once UPS reached a tentative contract agreement in June, after nearly four years of talks, FedEx quickly concluded its negotiations last week, after 29 months.
UPS pilots ratified their contract Thursday, with 56.5% voting in favor. Senior pilots get an immediate 17.7% boost to $258,000 annually, the Independent Pilots Association union said. First officers get immediate increases as high as 26%, bringing average pay for a seven-year first officer to $147,000. Pilots also get annual 3% raises starting in 2008 and a 4% raise in 2012.
Union president Tom Nicholson said UPS will spend $1.5 billion for improved pay and retirement benefits over the life of the contract. However, UPS spokesman Ken Sternad said the company's "own cost models do not show the number to be that high." In any case, Nicholson said the union's top priority was to assure adequate rest in pilot schedules.
"Fundamentally, we looked at shift work," Nicholson said at a news conference. "It does not matter what we get for our pilots if they are completely debilitated in their health."
Pilots also won strong contract language that assures they will fly the company's expanding network of international routes, including routes that do not originate in the U.S., wherever host-country laws permit, Nicholson said
"We are thrilled to have a ratified contract," said Bob Lekites, vice president of airline and international operations at UPS, in a prepared statement. "We are excited about standing shoulder-to-shoulder with our people and moving forward to serve our customers and grow our business."
Final numbers in the UPS and FedEx contracts will likely be similar once full details of the FedEx contract are known, said Brian Gaudet, spokesman for the UPS pilots. UPS had to make up ground to catch up with FedEx rates.
Once a FedEx agreement is ratified, the two companies will be able to again turn their full attention to connecting the global economy, a pursuit that has enabled them to rack up combined profits of $22 billion during the past five years.
The timing involved in the final stages of contract talks indicates just how closely related the two companies are, experts say. Once UPS made a deal, FedEx and its pilots knew exactly where they were headed.
"Neither company can afford to get far from the other," said George Hamlin, of aviation consultants Morton Beyer & Agnew in Arlington, Va.
The contract similarities are part of an arrangement that, although it creates an oligopoly in global package shipping, also benefits consumers, said David Field, Americas editor of Airline Business magazine.
"If one or the other company has too big a cost advantage, then you wouldn't be quite as able to have the cutthroat competition you have now," Field said. "The cost of business communication is low, not just because of the Internet, but also because FedEx and UPS are so competitive that overnight shipping costs have stayed low."
He also noted that high volume, rapid growth and improving technology enable both companies to remain profitable despite the competition.
The UPS deal not only set a standard for a FedEx pact, but also demanded that one be made quickly because "peak season is coming and shippers might have deserted FedEx if they were concerned about potential labor disputes during the busiest season of the year," Hamlin said.
The four-year FedEx deal includes a 9% initial raise and 3% annual raises, say industry sources. Leaders of the FedEx chapter of the Air Line Pilots Association will review the deal next week, with a ratification vote expected afterward.
The two agreements firmly establish the overnight carriers' cockpits as the place to be for pilots. While legacy passenger carriers once represented the height of pilot aspirations, massive expansion by low-fare carriers reduced ticket prices throughout the industry and forced bankruptcies by four of the six legacy carriers.
"Our new contract, along with the tentative agreement announced last Sunday between Federal Express and [ALPA] , not only sets the pattern for the cargo business, but also sets the standard for the aviation industry at large," Nicholson said.