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How a Pilot Strike Threat Could Derail the UPS Turnaround
Cargo pilots at UPS are threatening a strike -- and it could be bad news if any customers get spooked.

Adam Levine-Weinberg
Oct 31, 2015

Last week, pilots at package delivery giant United Parcel Service (NYSE:UPS) voted to authorize a strike if negotiations with the company break down.

The pilots still need to be released from negotiations by the National Mediation Board for a strike to be legal, something that rarely occurs.

As a result, UPS has characterized the strike vote as merely "a symbolic gesture" by the union.

UPS PILOTS ARE FED UP WITH SLOW CONTRACT NEGOTIATIONS.

While it may be a symbolic gesture, it's not a meaningless one.

With the threat of a pilot strike during the busy holiday season -- even if it's a low-probability outcome -- and UPS drivers promising to support any pilot strike, customers could worry about relying too heavily on UPS.

FedEx (NYSE:FDX) may be able to capitalize on this uncertainty to gain market share.

Pay envy rising
Frustration with management is clearly reaching a boiling point among the UPS pilots as negotiations have dragged on for four years with no resolution.

Of the 2,260 pilots who participated in the strike authorization vote, just eight voted no.

The fact that pilots at rival FedEx just got a big raise is clearly aggravating the tensions at UPS.

Today, pilots at the two delivery companies earn roughly the same wage rate.

However, now that FedEx pilots have ratified a new six-year contract, they will get a 10% raise in November, followed by 3% annual raises thereafter.

FedEx pilots will also get hefty signing bonuses of $20,000-$35,000 each.

FEDEX PILOTS JUST GOT BIG RAISES THAT UPS WILL HAVE TO MATCH.

By the end of the contract, FedEx widebody captains will be making more than $335/hour at the top of the wage scale.

That's 28% ahead of where they, and top-of-scale UPS pilots, are today.

UPS can't let this linger
The ratification of a new pilot contract at FedEx could help move the negotiations forward at UPS.

The pilots aren't likely to agree to anything less than a match of the raises that their peers at FedEx are getting.

As long as UPS agrees to match the pay terms, the two sides should be able to agree on that key aspect of a new contract.

There are other issues that need to be resolved, though, especially related to work rules.

UPS pilots want more rest time between flights, which could add to the company's costs by hurting productivity.

UPS needs to achieve a contract that won't significantly dent its profitability, so it can't just concede on this issue.

However, now that FedEx has its pilots under contract through 2021, it's more important than ever for UPS to reach an agreement with its own pilots.

UPS NEEDS A SMOOTH HOLIDAY SEASON AFTER HITTING TROUBLE IN 2013 AND 2014.

That's because UPS risks losing business from wary customers as long as its pilots continue to threaten a strike.

For example, an e-commerce retailer can't afford to have a disruption in holiday season deliveries.

Thus, even if it didn't think a strike at UPS was likely, the retailer might give some business to FedEx and the USPS just to keep its options open.

Furthermore, UPS has had a rocky time during the last two holiday seasons.

In 2013, it was overwhelmed by packages and bad weather in the last few days before Christmas, causing many presents to arrive after the holiday.

Last year, the company added a lot of capacity to avoid a repeat of its poor 2013 performance, but that drove up costs, leading to a big Q4 earnings miss.

UPS has gotten back on track this year. Its Q1 and Q2 earnings exceeded analysts' estimates, and the company also reported solid Q3 results this week.

If UPS can deliver a smooth holiday season performance, it would ease a lot of investors' worries.

On the flip side, if demand falls short of UPS' forecast due to customer concerns about the labor situation, the company could be in for a third straight Q4 earnings wipeout.

That would likely send UPS stock even lower.

Commando

I assure you, the IPA in not in envy. UPS owes the IPA $80,000 to $100,000 grand in back pay. Not some lame $35K. And we surely are not envious of the Pay Rates which are 10% low.

Now we are wishing for your DHeading Policy. But the idiot who wrote this article has no clue.

pdo bump

10% and no NURPS on property?

busdriver12

I will be very impressed if UPS pilots get 100K back pay. I was happy to get my measley 39.6K. I really hope they do well, better than us, in every section of their contract.

PurpleTail

As a No voter, I too was underwhelmed with the new pay rates and signing bonus but there were other financial incentives that helped make up for it. The 40k signing bonus was a bit short but we were only 2.5 yrs past our last pay raise. So 40k/2.5 is roughly 16k a year.

By the time UPS signs a new contract it will probably be 5 years past the last raise so 16k x 5 yrs would be 80k. That's what I expect UPS pilots to get. Anything less than that would be robbery.

I wish Brown flyers all the best in raising the bar even higher.

whalesurfer

Commando - I don't get your attitude, why do you continuously bash FDX guys & gals? Every GMM meeting I've attended made me believe Bob T & his team want the exact opposite from us, to work with our brothers & sisters over there.

Sure, the timing of their TA and the vote isn't helping us but so what? It's their company and their contract. Don't forget that some 43% of them voted against their new contract so stop lumping them all together..
Bob won't even discuss other airlines' TAs and contracts because it's like comparing apples & oranges. Some things we have are better here and some things they have are better over there.

You say you wish we all worked together but in the same thread you poke fun at them by saying "Let IPA lead the way" (or something like that?)...
Why? Please explain, maybe I'm misunderstanding? I've read some of your comments that I totally agreed with and thought were excellent. ..but this?

So while their contract isn't great - (all my friends over there voted no but they're all junior; 10 years or less on property) - I know for a fact that none of my junior friends over there had ever been furloughed from FDX, they all commute on their own airline with ease (getting bumped is very rare), none of them had ever flown with a new-hire über-captain, (4 for me in the last 6 months or so), etc., etc. I still think we have it better overall because of our union and how we help each other out. The MOU, or paying for our furloughees health insurance, Christmas collections, the almost unanimous open-time ban enforcement, etc., etc, made me very proud of our group.

Yes, I'm proud of our group and think and hope we'll get a great contract. However, I'm sick & tired of picking on pilots who're working for a different airline. It makes no sense!
Do it in your crashpad while drinking beer with your purple buddies, not on an online forum where management types salivate at the idea of our groups hating each other. We can do much better and you know it..

...oh, and get some underwear for crying out loud!

Sideshow Bob

Bear in mind captain signing bonus for the '06 contract was $60,000.

It is amusing how defensive FDX guys are...given your lackluster contract it's that much more amusing.:roll eyes:

I can't wait for the cornucopia of excuses if/when we come up with a far better contract. ALPA will no doubt take credit for it.

Sideshow Bob

In the meantime, what's up at Delta ALPA?

Crickets for months.

Raptor

How long had your contract been amendable before your 2006 bonus payments? Need to know that to properly consider the size of your 2006 bonus.

Our bonus has always been sold to us as a payment to recoup the "lost" raises while negotiating. We went 2.5 years for this recent TA. The reason a lot of us are carping over our bonus is that our pay raise is essentially a 3% YOY raise from our amendable date, but our bonus falls a bit short of compensating us fully for that 2.5 years.

Adlerdriver

Bob, any of us who can really call a spade a spade will not offer up any excuses. It's embarrassing. I would love to see you guys get a great contract much better than ours. Not that we made the situation any easier for you. The sad reality is we suck at the union thing. We have way too many independent contractors and leadership plus a majority that's simply weak. Anything more positive than that is coming from a state of denial. Good luck.