How Fedex Made Its Pilots Blink; Culture Colored by Chairman's Resolve Overwhelms Union
By LAURENCE ZUCKERMAN
Published: November 24, 1998

Callers to the message line of the Federal Express pilots' union just last Thursday were reassured that the pilots had Fedex on the run.

''We are pulling together to fight for our families and our careers,'' Byron Cobb, the union's vice president, said in the message. ''The plan is working.''

But later that same day at an emotional meeting at the union's cramped headquarters in Memphis, senior pilot after senior pilot stood up and pleaded with union leaders to call off a threatened holiday strike.

Pilots were worried that the company would do what Fred Smith, Federal Express's founder, had threatened: keep shipments going without them by spending tens of millions of dollars to contract out flights.

''These were people who knew Fred Smith, and said he was serious,'' said Bob Clement, a union spokesman.

Within hours, the fledgling union, which represents 3,500 pilots at Fedex, raised the white flag, agreeing to suspend its strike threat in exchange for the company's pledge to resume talks.

Federal Express's stunning victory stands in stark contrast to the experience of other passenger and cargo airlines, where pilots have maximum leverage over management -- and are not reluctant to use it. This summer, pilots at Northwest Airlines shut the carrier down for 15 days. Earlier this year, the pilots at Fedex's archrival, United Parcel Service, still recovering from last year's strike by teamsters, received the richest contract in the industry.

How Fedex, which Mr. Smith conceived in a 1965 Yale undergraduate term paper and has since turned into the world's largest express freight company, managed to succeed where other companies have failed is a result of a seductive corporate culture, a weak and inexperienced union and the skillful use of a classic divide-and-conquer strategy that isolated the union leadership and aroused the fears of its members.

Whether vanquishing the pilots is ultimately a Pyrrhic victory is another question. If Fedex, which has no other unions, presses this current advantage too hard, it may be left with bitter pilots at a time when some other Federal Express employees are beginning to warm to efforts by unions to organize them.

The talks with the pilots, which resumed yesterday, are expected to result in a tentative agreement quickly, even though the company has made it clear that the cost of the planes and trucks that have already been leased means that it will be forced to offer the pilots less than the proposal they rejected last month.

Unions have never been very popular with Mr. Smith, who is now chairman of Fedex's parent, the FDX Corporation. He successfully fended off several efforts by the teamsters and others to organize workers in the company's early years. His philosophy has been that if employees are treated well, they will provide superior service to customers -- and they will have no need to turn to organized labor. (Mr. Smith declined requests to be interviewed.)

Today, even part-time hourly workers who sort the 1.5 million packages that whip by nightly on high-speed conveyor belts at the giant hub in Memphis receive comprehensive health insurance, tuition reimbursement and other benefits. Many of the workers are students or have other full-time jobs but ''work the sort'' from 11 P.M. to 3 A.M. expressly for the benefits.

The company has also made a point of promoting from within. An impressive number of its managers -- including many at the highest levels -- started their careers at Federal Express as hourly workers and remain fiercely loyal to the company and its signature purple color.

''I've got purple blood,'' declared Brenda Saulsberry, 42, a mother of three, who has worked at Fedex for 10 years, most recently in customer service. She spoke at an employee rally last week to support Fedex.

At the rally -- which was heavily supported, if not entirely orchestrated, by the company -- thousands of Fedex workers took to the streets in Memphis waving placards and singing the company anthem. (''We carry dreams and plans to a hundred lands. We're the best way to ship it everywhere.'')

The crowd was so enthusiastic that it erupted into wild applause after a Filipino employee delivered a statement of support in Tagalog from workers at Federal Express's hub in Subic Bay. ''Did you even understand what I said?'' she asked before reading a translation.

But as the company has tried to squeeze more productivity out of its workers in recent years, many employees, especially those outside Memphis, where Fedex is the largest employer, have started to bridle.

''We have actually been losing ground for the last 8 or 10 years,'' said Dan Proffitt, a tractor-trailer driver in Indianapolis who has worked for Fedex for 23 years and is now a teamsters' organizer.

It was the pilots, in fact, who helped establish the Fedex culture. In the company's early days, they pitched in to load the planes as well as fly them. Mr. Smith, a former Marine aviator who flew missions in Vietnam, was known to hang out in the crew lounge.

In recent years, such camaraderie waned as the pilots complained about heavy work schedules and pay that lagged behind those of pilots at unionized companies. While Federal Express pilots earn between $40,000 and $164,000 a year in base salary depending on their years of service, they have not had a substantial wage increase in more than 10 years and have fallen behind their peers at several other airlines. And without union representation, the pilots were not entitled under Federal Law to the same retirement benefits enjoyed by their counterparts.

Still, the pilots might have had a contract earlier if their ranks were not so divided. After the Air Line Pilots Association narrowly won the right to represent them in 1993, pilots rejected the contract the union had negotiated. Many felt that the union, which has contracts at 50 airlines, was too strident. Then in March, pilots voted down a second tentative agreement negotiated by the Fedex Pilots Association, a more moderate in-house union, which replaced A.L.P.A. in 1996, because the pact did not deliver enough.

By this summer, widespread discontent had united the pilots against the company. In particular, there was a growing sense that the company had been taking advantage of the years of protracted contract negotiations by unilaterally changing the pilots' work rules.

''Instead of working 14 days a month, you were working 16 days a month for the same pay,'' said David I. Slatinsky, an Airbus A300 captain who began flying for Fedex in 1974.

Cynthia K. Berwyn, a DC-10 captain who has been at Federal Express for 13 years, said she became alarmed in 1996, when the company told her that the time she spent on pregnancy leave the year before was being deducted from her length of service at the company, an important determinant of pay.

After she complained that she did not have the time deducted following her two previous pregnancies, she was told that those leaves would be deducted retroactively. ''This is the issue that made me realize that we needed a set of rules that would be applied fairly,'' she said.

And whatever lingering doubts some pilots had about supporting the union were erased in June after the company introduced a new computer program to generate flight schedules. The new software sought to schedule the company's 326 jets as efficiently as possible. But it sent many pilots on grueling trips across dozens of time zones with only minimum rest between flights.

Fedex acknowledged that there were problems but insisted that they had been corrected.

Still, the pilots no longer trusted the company. More than 98 percent are members of the union, compared with 62 percent a year ago.

When contract negotiations began in July, the pilots asked for a large wage increase on top of one-time payment to make up for the raises they had not received since 1993, increased retirement benefits, and a series of new work rules.

The talks dragged into the fall, and the union threatened to strike during the peak holiday season. The results of a strike authorization vote were scheduled to be announced on Dec. 3.

On Oct. 30, the company gave the pilots what it said was its final offer and set a midnight deadline. The union said it needed more time.

The next day, Federal Express withdrew from talks and began leasing planes and trucks and assuring customers that it would continue to serve them no matter what.

Whether Fedex could have operated without its pilots will never be known. But the company was never planning to operate without pilots: its strike contingency plan was based in part on the assumption that many would cross the picket line.

''I can't tell you how many, but I know there is a large number of Federal Express pilots committed to providing service to our customers should there be a strike action by our union,'' Theodore L. Weise, Fedex's president and chief executive, said in an interview last week.

No one understood the divisions among the pilots better than Federal Express executives, as they sought to prevent the union leaders from getting the more than two-thirds vote they needed to call a strike.

The pilots were told in letters from Mr. Weise and finally, from Mr. Smith himself, that the company would move forward with or without them. And last week's raucous employee rally showed many pilots that unlike U.P.S., where most of the workers are unionized, they could expect little support from Fedex's 140,000 employees.

The union leaders themselves did little to help their cause. They were short on experience and had little support from the national labor movement. Federal officials who dealt with the union said they were surprised by its lack of knowledge of the Railway Labor Act, the arcane law that governs union activities in the airline industry.

In the end, the pilots surrendered after they learned on Thursday that Fedex was preparing to lay off 500 pilots this week and to announce that it had leased more airplanes to be flown by outside pilots.

''Knowing that Mr. Smith is an unconventional individual in the way he responds to things,'' said Mr. Cobb, the union vice president, ''we had to do something unconventional to get his attention.''

Mr. Cobb insisted that the union had not lost its leverage because it had agreed only to delay any potential strike for at least 60 days. But a walkout hardly seems likely because package volume drops precipitously after the holidays, making it easier for the company to weather a strike. And while the rank and file could vote down an agreement viewed as too concessionary -- indeed many pilots lashed out at union leaders at a meeting on Sunday in Memphis -- that is also unlikely because it now appears that any contract would be better than no contract at all.

Like other Fedex workers, the pilots are once again placing their faith in Mr. Smith's benevolence.

''He really will show his true colors to the world,'' Mr. Cobb said, referring to the new contract negotiations. ''It's the greatest opportunity for him to do the right thing.''

Photos: Federal Express aircraft lined up for early morning loading in Memphis, one of the company's hubs. Steve Gregory, a senior global operations control specialist, at the ''war board,'' which helps Fedex keep track of its worldwide flights. (Photographs by Steve Jones for The New York Times) Graph: ''Pay on the Skyway'' Federal Express pilots earn between $40,000 and $164,000 a year in base salary, depending on years of service, but they have not had a substantial wage increase in more than 10 years and have fallen behind many of their peers. Graph comares the average annual salaries for senior pilots. (Source: Air Inc. Atlanta)