UPS-IPA contract talks
 

EXCLUSIVE REPORTS
From the July 1, 2005 print edition

What can Brown do for us?
UPS pilots want 'industry-leading' contract

Mary Jane Credeur
Staff Writer
Atlanta Business Chronicle

After nearly three years of contract negotiations, the pilots union at UPS' airline unit has called on the company to make a "last, best and final" contract offer while the two sides are in a recess called by federal mediators.

The International Pilots Association, which represents United Parcel Service Inc.'s 2,600 pilots, has given the company (NYSE: UPS) a June 30 deadline to respond with an offer. Union officials say they will push for a strike vote among their members, who already are among the highest-paid in the industry, if the company does not comply.

However, an actual strike of UPS pilots is highly unlikely at this stage because the pilots are prohibited from doing so under the Railway Labor Act unless federal mediators release the union from the mediation process and a 30-day "cooling off" period passes without intervention from the White House or Congress.

If an airline work stoppage does occur, it would cripple UPS' global network because UPS Airlines is a critical piece of the company's overall operations with 2,000 flights each day.

Roughly 15 percent of the 14.1 million packages that UPS delivers each day are put on a plane at some point; all UPS packages are ultimately delivered by the company's signature brown trucks.

UPS has said it will not meet the IPA's demand for "last, best and final" offer because the company already has an outstanding offer on the table before federal mediators. UPS' offer includes compensation increases in every category -- pay, vacation, pensions, scheduling and other benefits such as health care, said UPS Airlines spokesman Mark Giuffré.

Business customers will not see any immediate impact on rates as a result of these contract negotiations, Giuffré said; however any increases in UPS' various costs could ultimately affect rates in the future.

"Much of what the union is saying now is rhetoric designed to dramatize the recess and put pressure on the company," Giuffré said. "We have an attractive package on the table. We are going to reward them for their hard work ... but we still need to [keep our costs reasonable in order to] remain competitive and serve our customers and shareholders."

Union leaders say they will not accept anything short of an "industry-leading contract" from UPS.

Senior UPS captains with 12 years or more at the company currently make $190 per hour, and the average salary for a UPS pilot is $175,000, according to the company. UPS pilots got a 29 percent raise over the life of their last seven-year contract.

Senior pilots at Ohio-based cargo carrier ABX Air Inc. (Nasdaq: ABXA) are paid a higher rate of $239 per hour and pilots with similar seniority at FedEx Corp. (NYSE: FDX) are paid $201. However, UPS says its pilots still have the potential to earn more money (up to $13.7 million) over the span of a 35-year career because pilots at UPS can move up the pay scale more quickly.

Brian Gaudet, spokesman for the International Pilots Association, said that UPS pilots are looking at ABX's $239 hourly rate as a benchmark in their own negotiations.

"We're looking at that $239 rate, and FedEx is looking at it and every other major cargo pilots union is looking at it," Gaudet said.

IPA officials point out that UPS made $3.3 billion in profit last year on $36.5 billion in revenue, a stark contrast from the dire financial situation at most legacy commercial airlines, who have gotten pay concessions from their pilots' unions in order to stay afloat.

Atlanta-based Delta Air Lines Inc. (NYSE: DAL), for example, got its pilots union to agree to a 33 percent pay cut last fall in a bid to keep the carrier out of bankruptcy court (a senior Delta captain still makes about $215 per hour). Delta lost $5.2 billion last year, and the carrier has warned repeatedly that it still may file for bankruptcy protection if it cannot achieve profitability soon.

Gaudet also noted that UPS Airlines has become a much more important piece of UPS' entire business since the division was created in 1988. Back then, the airline had just 69 planes and only a very small percentage of UPS packages were put on a plane.

Today, UPS Airlines has a fleet of nearly 570 planes that make 2,000 flights each day, making it the ninth-largest airline in North America.

"UPS created an airline in 1988 and they told these guys that they would reward them for helping build it," Gaudet said.

Airline compensation expert Kit Darby, president of salary research firm Aviation Information Resources Inc., said most unions can expect sizable pay raises when the companies themselves are earning steady profits.

"Cargo companies are doing very well right now, and the unions want their piece of the pie," Darby said. "This is really just business as usual in their industry."

Labor relations professor Peter Cappelli, who teaches at the Wharton School at the University of Pennsylvania, noted that these are "extremely unusual times" for pilots.

"You have the legacy pilots giving back billions of dollars in concessions, and you have the low-cost carrier pilots getting raises and you have the cargo pilots looking for even bigger raises," Cappelli said. "It just shows how volatile these industries are right now."

The International Pilots Association at UPS is compiling packets to send to its members summarizing the offer the company has on the table, and union spokesman Gaudet said union officials intend to ask for release from the federally mediated talks sometime within the next month or two -- which would start the clock ticking on the 30-day period before a strike can occur.

"We're trying to focus UPS' attention on something that they can make go away very easily," Gaudet said. "A strike is not something we want. Those 30 days would let us put some pressure on getting a deal done."