1995 Red Letter ... Could it Happen Again?
INTER-OFFICE MEMORANDUM
Date: November 16, 1995 To: All FedEx Employees
From: F. W. Smith
RE: Pilot Contract Negotiations
As the 30-day cooling-off period in our contract negotiations with the Air Line Pilots Association (ALPA) nears an end, I think it is important for each of you to clearly understand the position of the Board of Directors and Senior Management of Federal Express on this matter. As you may know, the National Mediation Board has requested that talks resume on Monday and we will be participating in those talks with the goal of reaching a fair and responsible agreement.
We have entrusted the responsibility for representing the company in this process to the FedEx Negotiating Committee. They have done a good job of presenting a series of proposals that meet our objective of reaching a mutually beneficial agreement. The terms and conditions we are proposing are fair and consistent with the balanced approach we have employed in our compensation practices throughout the company. At the same time, we are seeking to correct inefficient and outdated work rules that may have made sense several years ago but no longer fit the FedEx global, multi-hub system. Obviously we realize that not all of our proposals are universally popular. We are simply not in a position to ask our customers to grant any group of employees everything they want, and that is true in this case as well.
The key to our position is the belief that the best thing we can do for our pilots and for all other employees is to grow this company and continue to provide excellent job security. Our pilots are well aware of the opportunities made possible in the last several years as a result of this growth. This growth is totally dependent on two things: reliability and competitiveness. If we can no longer promise our customers reliable, cost-effective service, that growth will slow or stop altogether, with obvious implications to our future.
The Board of Directors and Senior Management will also be making some pivotal decisions as we look to the future and decide how or if we will continue our strategy of growth. If we can no longer count on all of our employees to maintain the promise of reliability to our customers, it is important that we know this now as we decide the direction in which we will take the company.
We are in a tough competitive environment. As I've stated in previous communications, our domestic profit margins have been cut in half in the past five years alone. Though we’ve seen recent improvement in international results, we face increasing competition in that sector as well. Our earnings must grow to fund the needed investment in our future. Yet some competitors are already circulating ALPA’s ads to customers in an attempt to take advantage of the uncertainty created by this situation. You can rest assured that the competition will exploit to the fullest any perceived change in our reputation for reliability and value. Some of our largest accounts have already indicated they may need to look to our competitors if we can no longer promise reliable service. While this is regrettable, we refuse to mortgage our future competitiveness by agreeing to unreasonable demands now.
ALPA's leaders have avoided the fact that our competitors are already putting enormous pressure on our domestic profit margins and are very clearly arming themselves for an all-out offensive on our business, both in the US and abroad. They have ignored the realities of pay cuts and furloughs that pilots at countless other carriers have faced in recent years when confronted with the realities of the marketplace. Yet we know that if we implemented the pilot work rules, pay and benefits of our most profitable competitor we would save almost $40 million per year. Our customers do make comparisons with our direct competitors--UPS, Airborne, DHL, TNT, Polar, Emery and Burlington--and they inevitably choose the company that can deliver reliability and value most effectively.
Had ALPA's negotiators been more realistic in recognizing the competitive pressures we face, I believe we could have progressed more quickly towards an agreement. The latest proposals ALPA's negotiating team submitted before the most recent session of talks broke down would have raised our costs to an unacceptable level, well over $300 million over the three-year term of the agreement. The cost increase ALPA proposes would be more than our entire net income last year, benefiting only 2.5 percent of all employees. To fund such increase, we would have to raise prices to level our customers simply would not accept.
This company is clearly at a crossroads, and each of our pilots faces a pivotal decision as ALPA's leadership calls for them to withhold their services from our customers. In our 22 year history, we have never faced the prospect of a systematic effort to harm our customers. Any actions that ALPA's leaders direct our pilots to take have the potential to permanently damage the company's reputation, a reputation all of us has helped build. It is my personal belief that if our customers no longer feel they can rely on FedEx services, it will affect their competitive choices for years to come.
We fully intend to continue to provide our services to customers during the self-help period. We hope we can depend on the personal support of each employee--including our pilots--as we continue to seek a balanced and mutually beneficial agreement. Clearly, not all of our pilots agree with ALPA's confrontational tactics and all employees should be careful not to generalize about how “all pilots” may feel about this process. In fact, the vast majority of our pilots have continued to serve our customers through volunteering and overtime flying during the negotiating period, and we greatly appreciate their loyalty and support. You should also understand that our resolve is strong and we intend to use all available options under the rules of the Railway Labor Act for any pilot who chooses to engage in job actions.
We fully respect the enormous contributions all of our employees have made to this company over the years, and certainly that includes the pilots who have helped build Federal Express. We appreciate the extra effort and personal sacrifice many of you have made during this negotiation process to maintain reliability to our customers. We remain committed to reaching an agreement that can put these differences behind us and move on to a new chapter in the company's history. Such an agreement must, however, respect the balance between the needs of our pilots, the needs of our other employees and the demands of our customers.
We trust that all pilots will consider the long-term impact of their decisions carefully as they make what will undoubtedly be the most important choices of their professional lives.