The wages of 28,000 US Airways employees now lie in the hands of a bankruptcy court judge after the financially struggling carrier asked the judge to impose $38 million a month in salary reductions for its workers.
Late last night, US Airways released a statement saying it petitioned the court to approve the mandatory wage cuts on workers. The airline says it needs to save critical cash because it is entering the slower travel months and anticipating higher fuel costs.
"Over the next six months, we will be faced with significant aircraft lease payments, the traditional seasonal slowdown in both business and leisure travel, and the likely sustained impact of high fuel prices. Waiting for a cash crunch to be right in front of us is simply too late, and if we were forced to implement interim relief at a later date, the pay cuts would be deeper and even more painful. While I don't relish asking US Airways employees to make sacrifices, securing this short-term relief while we continue to negotiate new permanent labor agreements will allow us to complete an orderly restructuring and implementation of our Transformation Plan," chief executive Bruce R. Lakefield said in a written statement.
Unions pledged to fight the move in court, saying pay cuts are being imposed on them unfairly by executives who have not cut their own pay. Despite strained relations, the company and some union groups said they planned to continue to meet in the coming days to see if they could come to an agreement out of court. Union representatives said they did not expect the court to hold a hearing for several weeks on the company's proposed pay cuts.
"All along we've heard a lot of detail about what the union workers have to give up, but we've not heard what cost savings from management will be," said Candice Johnson, a spokeswoman for the Communication Workers of America. Johnson said the union still plans to meet with the company Monday. "All those things should be a part of restructuring. All the union workers are being asked to make extreme levels of sacrifice, but we're not hearing about management."
A US Airways official said the company plans to announce major cuts in management compensation in the next several weeks, and US Airways announced yesterday that these cuts, combined with other capital expenditure reductions, would produce an additional $5 million per month of savings. The airline eliminated 27 sales jobs several weeks ago and has decided not to fill 30 other sales jobs, said David Castelveter, a US Airways spokesman.
US Airways, which filed for Chapter 11 protection on Sept. 12, has said that it needs $800 million in labor cuts to transform itself into a profitable low-cost carrier. The Arlington airline faces liquidation if it cannot emerge quickly from its second bankruptcy filing in two years.
The airline is under pressure to obtain savings from its labor unions as soon as possible to maintain confidence among its creditors that it has a viable plan to emerge from bankruptcy. So far, it has reached an agreement with only one of its five unions, the one that represents 150 flight dispatchers. Pilots and flight attendants also said they would continue talks with the company; machinists have been the most reluctant to negotiate.
US Airways has been unable to reach cost-cutting agreements with its unions because of a breakdown in faith between workers and top management, labor experts said. Over the past several years, labor unions have accepted three pay cuts while top executives have left with multimillion-dollar bonuses in hand, they said.
While top executives agreed to pay cuts during the airline's first bankruptcy filing, former chief executive David N. Siegel walked away with $5 million, under the terms of his severance package, when he resigned in April. Before that, former chairman Stephen M. Wolf left with $15 million when he stepped down as chief executive. His predecessor, Rakesh Gangwal, also left with $15 million in 2001.
"How many times can the company expect . . . to reduce compensation before people start wondering what is the point and where the end is going to be?" said Paul F. Clark, a professor at the Department of Labor Studies and Industrial Relations at Pennsylvania State University. "Unions in the airline industry have taken cut after cut after cut. And, at some point, the membership wonders where it's going to end, and they kind of draw a line in the sand."
But bankruptcy experts said the company's request to impose salary cuts is fairly common and does not leave workers with many options. The practice is becoming common, particularly among airlines, said Robert Bruno, professor of labor and industrial relations at the University of Illinois.
Congress amended the bankruptcy law decades ago to make it slightly more difficult for employers to nullify union agreements. The change was designed to "prevent any employer from simply using a bankruptcy court to bust the union," Bruno said. But he said it has proved not to be much of an obstacle. "Employees in airlines are facing looking at having legacy benefits wiped out," Bruno said. "The union is in no position to defend its contract."