I have an honest question: what happened to the pilots? It's my impression that pilots can earn up to $500 k and started calling themselves CEOs of the sky in the boom times. What were their givebacks in the negotiations?

I'm not sure what you're asking for, but here's a link to aviation now's survey of pilot salaries for 2001.

http://www.aviationnow.com/content/careercenter/global/car2001d.htm

No pilot makes anywhere close to $500K. And, as part of the negotiations w/ management, pilots agreed to an 18% cut in pay.

On the other hand, here are the proposed changes in executive salaries at United.

"The 36 officers will contribute an average of 11 percent of their annual compensation over the five-and-one-half year recovery period. The total officer contribution, including the reduction in the number of officers, is more than USD$60 million. In addition to their wage reductions... the officers have forgone their planned 2002 merit salary increase and a 2002 incentive payment."

OK. 60 million over 5 years is 12 million per year, divided by 36 officers is 333K which is 11% of the individual officer's salary. So let's just round it off and say the execs were averaging about $3 million per year. They were making 12 times the salaries of their best paid employees.

Ok thanks for that. Sorry about the $500 k. Looks more like the figure I should be using is $250 k. But that still seems like a lot. That is, I'm not going to be crying for the pilots. The flight attendants, clerks, baggage handlers are another story...

Agree of course that management is in another league entirely. Truly infamous. They drive the company into bankruptcy and still think they should be getting $2.5 million. One could hope that in Chapter 11 they get their salaries slashed, but I guess that would be a delusion.

Andrew,

Did you cry for the 8 pilots that were murdered on 9-11-01? How much would it take for you to command a jet carrying 200 passengers at 600 mph wondering who was trying to shoot you down with a missle, or break into your office and slit your throat with a boxcutter?

Andrew,

No problem. By the way, I had exactly the same reaction upon looking at CEO compensation. I'd luv to find a job where I can screw up completely and my penance consists of a cut in the INCREASE of my merit salary.

This one is simple

1) Company is losing money due to inefficient operations, dissatisfied customers, and a high cost structure (sure, corporate execs take care of their own, but in this case, unions took care of themselves too..)

2) Company wants to borrow money for short term survival and to supposedly defray the short term hit to a profitable business model caused by September 11 (but see item 1 - not a profitable business model)

3) Company can not demonstrate any realistic plan to stop losing money in the long term, therefore loan would almost certainly be defaulted upon.

4) Company should go bankrupt and more efficient competitors should be free of having some government-sponsored lode-stone competing with them.

Voila! Capitalism at its best!

You can just bet that when some con opinion is preceded by a "this is simple" qualifier that said opinion will be ill-informed at best.

Here's what a recent analysis in the NYT reported on labor costs at UA:

' " With employees owning a majority stake in United, labor costs have risen significantly since the mid-1990's, but they remain no higher than those at American Airlines, United's main rival. . . . Tim Doke, a spokesman for American, said, "We have basically the same labor cost structure and facility cost." He added, "We certainly aren't in a strong financial condition right now, but we aren't where United is." '

http://www.nytimes.com/2002/12/06/business/06UNIT.html

And you can guarantee that many people who use quotes to rebut an argument either will use them to lie intentionally or just be ignorant of what they really mean..

First, American is not exactly a shining example of an efficient airline. They are in better shape than United due to cash and assets that they have on hand, which can keep them operating. With United's cutback in schedule, other failing airlines might even see a boost. But they are also predicting that unless they get wage concessions to help them reduce their cost structure, bankruptcy might be a'comin.

For reference..check out the Dec 8th NY Post

"With a bankruptcy filing by United Airlines all but certain, rival American Airlines has launched a drastic cost-cutting drive in a bid to stay solvent.

American's parent company, AMR Corp., is asking its employees to forgo pay increases next year to help the financially troubled carrier, the company said in a statement Friday."

Second, why don't we let United talk about its wage costs.. they pay 'em, so they ought to know. Let us listen to the CEO of UAL talk about his cost structure...

Business Week, Dec 13th - Interview w/ Glenn Tilton

Q: One of the issues that has to top your to-do list is bringing down your extraordinarily high labor costs so UAL can emerge from bankruptcy and have a future. How realistic is that?
A: I think it's very realistic. The best way to look at it...is to put these cuts in context. In the 90-day discussions I had with unions, we were creating an application to stabilize the company...so we could then work together on transformation.

Q: But labor is one of the chief things that keep United from being competitive. You were able to come up with $1 billion a year, on average, in labor savings, but your own filing says that to match Continental's labor costs, you need $2 billion a year in savings.
A: It will be significantly more than $1 billion, and let me give you a data point. When I arrived on the job, the previous management had said the company would need $9 billion in labor savings or about $1.5 billion a year. That's a good number, because it gets you close to the number we're talking about

Q: As I recall, Shuttle by United did very well in its first years in the 1990s in California, but came undone as labor brought in work rules that raised its costs and made it unprofitable.
A: I think that's perfectly well said, but the reasons are more complex. What happened is we lost sight of the distinctions between the two offerings to the public, and both labor and management brought Shuttle by United closer and closer to the mainline until the value proposition offered up to the public was indistinguishable.

Now I am sure that part of their high labor costs are due to their operating model - tightly connected hub and spoke systems tend to require a lot of people working for short periods to handle connecting flights, but either way, they need to cut wages or people as part of a plan to become viable. If they don't have a plan that works, then they can go the way of Eastern and PanAm. Heck, I think that is half the reason that the mechanics voted down the contract and tilted United into bankruptcy - to force change for a stagnant company. If the union can be a part of fixing the firm and swallow some of the bitter medicine that will be necessary (labor, planes, jet fuel, airport fees, and bags of airline pretzels - not many options here..), then more power to them.

I don't think I would be mischaracterizing your argument by saying that you believe UAL's problems are the result of excessive costs, particularly labor costs. No? As yuor biz week guy says, "One of the issues that has to top your to-do list is bringing down your extraordinarily high labor costs . . . ."

The argument being made in the article I cited is that labor costs are NOT the cause of the problem; revenues are. But, if you can blame UAL's problems on labor (and this was Nathan's point), then you've got a great justification for cutting wages and busting unions.

Incidentally, given your second post, the problems at UAL are not so "simple" after all.

Fixing them isn't simple..understanding them is.

And I didn't think it worthwhile to get into the top line side of the argument - United was losing money prior to Sept 11, so the short term revenue hit of people being hesitant to fly wasn't that key. However, if you feel that United can grow its revenue quickly enough to allow profitability for a firm of its size, then you are an optimistic soul. Fixing that is even harder, and its far more complex than saying "Well, team, lets just go give our customers our gosh darn best!"

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