Feds say no to United bailout for third and 'final' time

[Airbubba]

Feds say no to United, again

U.S. panel rejects request for $1.1B in federal loan guarantees; says carrier is out of chances.

June 28, 2004: 9:27 AM EDT

NEW YORK (CNN/Money) - A panel has rejected a third request for federal loan guarantees from bankrupt United Airlines, saying Monday it will not entertain any more requests for help from the nation's troubled No. 2 airline.

United, a unit of UAL Corp. (UALAQ: Research, Estimates), had cut back its request for a loan guarantee to $1.1 billion, but the Air Transportation Stabilization Board, which earlier this month rejected a request for $1.6 billion in guarantees, said its three members had unanimously decided to reject the request.

"Board concluded that granting the loan guarantee is not a necessary part of maintaining a safe, efficient, and viable commercial aviation system in the United States," said the letter sent to UAL. "Moreover, the Board believes that airline credit markets have been improving since late 2001 and 2002, ... increasing the likelihood of United succeeding without a loan guarantee."

Spokesmen for United, which had argued it needed the loan guarantee to arrange financing it needed to emerge from bankruptcy, were not immediately available for comment.

[411A]

Now just maybe those at UAL will wake up to the very hard truth.
The gravy train is gone, time for more belt tightening to keep costs in check while hoping to restore revenue.
If management (and their still high paid pilots) don't wake up now, UAL will go bye-bye.

[Shaka Zulu]

@ 411A
This belt tightening you're talking about is killing off the whole aviation sector, the job I chose and love ain't the same anymore by a long shot and it's a big shame.
Pilots deserve their money and I say again deserve the money they get paid because of high responsibilities and always putting their life on the line (not withstanding how safe airliners may be these days). Low cost has given lots of guys a shot/break but it's put the flair of this profession in a whole different light.

So dont f***** it's a good thing, cos it ain't.

I hope for United they can make things happen with sensible cost savings etc. BA has done it so I believe can any international carrier (read: intercontinental carrier)

Safe flying!

[Digitalis]

Hmmm. Remind me of the pay of a senior 744 Captain in United? A BA Captain of similar experience and seniority would earn about the same as a relatively junior United 737 co-pilot. Still think United have done all they can to reduce costs?

[West Coast]

Well do tell then. How much is a senior BA 747 Ca pull down? I know what a junior 737 FO pulls down, lets compare numbers

[Digitalis]

About $170k annually, all in.

[Airbubba]

A senior (i.e. all) UAL 744 or 777 captain makes about $203 an hour plus a few dollars of international pay if applicable. A whale or 777 FO makes around $139 an hour. Lousy pay for the U.S. but great pay by some expat standards for example.

Under many British style pay schemes (e.g. EK) captain pay longevity is measured from date you upgraded to captain. In almost all U.S. pay systems it is measured from original date of hire so all 744 and 777 UAL captains presumably have at least eleven years of service and would be paid at the highest rate.

[Oilhead]

Mr. Digitalis

What a bitter post! Please tell us all what you think United (and any other airline, including BA) pilots should paid.

By the way, you may want to move to Virgin, I think with the latest pay increase negotiated by BALPA they are catching you up or even passed you - keep an eye on that rear view mirror!

One downside at Virgin........being deserted by your company when really bad things happen to you down route. They only know how to handle good news at Muppet Control.

OH

[Digitalis]

Sorry, it wasn't meant to be bitter - and perhaps my facts aren't quite correct - but my impression was that the pay at United was still considerably better than any European major, and not just for aircrew. I inferred from this that United's costs were not as low as they could be - and not as low as they are in Europe - though the cuts required for United's survival may be further than the unions will accept.

I apologise if my style was clumsy or offensive - and I don't work for BA!

[Nutty Nigel]

Well the very top of the BA pay scales ( 24 year Captains on 747 ) gets paid $210000 PA ( based on today's exchange rates ) plus expenses, how this compares to United i cant exactly say but i suspect it is less,the ludicrous spending spree that occurred with the US majors immediately pre 9/11 has a lot to answer for! :ugh:

[nlav8r]

United is now the 2nd lowest paid US Major. AA is the lowest. Check out airlinepay.com and check out the hourly rates and guarantees. I think a B767 Ca at Airborne Express makes about $320/hr. Not Bad!

[West Coast]

Digitalis posted

"A BA Captain of similar experience and seniority would earn about the same as a relatively junior United 737 co-pilot"

And then

"perhaps my facts aren't quite correct"

I'd say so. Somewhere around a $90,000 difference

To use your example, a junior 737/320 FO at UA is pulling down $35/hr to start. In today's terms a junior FO has been with the company 5 years, makes $92/hr and likely came from a number of years in the military or at a regional making lousy pay. He wasn't hired in some ab initio training program or sponsorship after university as is common outside the US. I don't know if this is a path BA uses or not, if however it does it further emphasizes the differences from the US model and that of other countries. You can't simply say you make too much because you compare wallet size. If you started only making a decent wage in your mid to late 30's able only then to properly fund a retirement and other considerations you might think otherwise.

I don't doubt additional pay, work rules and most likely the A fund will be given back in the near future to help in the cause. That doesn't mean they are now overpaid.

A little bit of research was called for before posting on something as touchy as ones pay and by extension continued viability of the company.

[411A]

All very well, West Coast, but the scenario UAL faces is rather grave, and if the company folds, Eastern Air Lines style, nobody there wins.

A job...or NO job, that's about what it amounts to, like it or not, and many certainly will not.

[Ignition Override]

Maybe giving away all of one's retirement, with only a few more years to work, would please those who work as either bankruptcy judge, or manage the banking/credit institutions. Much of it is lost when an airline's files Chapter 11. The bankers loan money to airlines at "commercial rates", to quote the ATSB. I wonder how much profit these banks bring in, on average? At USAirways, much of their pilot retirement was dissolved, behind their backs (!!), AFTER the filing was already planned to exclude any losses of retirement.

Let's not forget how valuable some airline assets are when/if an airline suffers breakup, depending on the world marketplace-and what is left of your retirement (already at about half its original value due to a previous Chap 11) might be dissolved, in order to satisfy certain creditors.:E :}

How do we portray blood-stained fangs?

[West Coast]

411A

As my text says, they will likely have to give more back. That doesn't mean they are overpaid. The janitor cleaning the UA bathrooms will have to give some back also in an attempt to keep the company solvent. Does that mean he is overpaid because he gave back a little more? I standby for another cute reply in which you infer they are overpaid until they are pulling down minimum wage.


There is a difference between being overpaid and giving back to save the company. They seem to be one in the same in your mind.

[Invictus]

Surely there must be a sound business model design for the profitable operation of an Airline.

Names aside, there are other airlines that are making profit, what makes this airline different today? Is this still the fall-out of 9/11? Is this airline managed worse than others? Is there any course like “Running an Airline 101” that explains the basics of running a profitable airline?

I understand that making the airline profitable might cost some pilots their jobs, and that is never nice, but surely that is better than watching the airline cruise down Bankruptcy Boulevard and having all those pilots lose their jobs?

Just asking

Invictus

[zed3]

If United is so deep in the sierra hotel one tango , how come the whole fleet is getting a new colour scheme ? ..... Yes I know it's done with scheduled checks but even so the desugn will have cost a packet .

[Ace Rimmer]

Here's the problem...

The way the company is run, it's debt load it's overall costs are simply too big for the availible revenues
....that's it.... nothing more complecated than that.

Of course the mangement has run around crying foul and said it's because of this, that or the other.

The reality is that the company has failed to adapt to the market - yields for example, in real terms, are half what they were 20 years ago. This is nothing new, if you look at ATA data you'll see that yield has been in decline since records began in 1927. In fact, you could say that the only constant in the airline business is that yields will decline.

I suspect that a convincing arguement could be made that any management (or union) that failed to spot that coming and adapt the company to the changes in the market is derelict in it's duty to it's shareholders (or members).

The bottom line is the airline is up the pungent creek - I believe the figures for May were a losses in the order of $90+m (albeit with an operating profit of $9m).

That's just not sustainable. The reality is that the time for evolution has past it's revolution time... either that or "say good night Gracie".

.....anyway just a thought

[Digitalis]

West Coast I apologised once; I'm not doing it again. United's pilots still appear well paid by most standards, though I have no idea what wages are like for other worker groups within the airline - or the executives. The fact remains that United's bills are bigger than its ability to pay. Borrowing more is only going to defer the inevitable unless the bills can be made smaller, and pay is one of the few expenses that the airline has any hope of controlling.

You're right that this is a touchy subject but, as 411A says, better a job and some pay than no job and no pay. Once the airline has survived, then something can be done to restore things nearer to normality - and you can start to examine why it all went so wrong in the first place.

Incidentally, joining the airlines from the military or from commuters is not a practise restricted to the USA - it is common on this side of the Atlantic too. However, the pay rise experienced in the process is not large!

[Airbubba]

>>Check out airlinepay.com and check out the hourly rates and guarantees. I think a B767 Ca at Airborne Express makes about $320/hr. Not Bad!<<

I checked out www.airlinepilotpay.com. Twelve year ABX 767 Captains will make $234 an hour in August 2004. The other number you gave must be an urban legend like $500 an hour for the Cathay A scalers. See: http://www.airlinepilotpay.com/abx/abx.htm

Cargo operators FedEx and UPS are trying to minimize the concessions in their current contract talks but the U.S. pilot market is headed south big time.

The prospect of United exiting bankruptcy without a massive federal bailout suddenly looks rather bleak.

UAL unions prepare to grab their ankles and hold on for the ride as they take more pay and personnel cuts:

_________________________


United's unions fear more cuts after federal aid failure

By DAVE CARPENTER
The Associated Press
6/29/04 12:44 AM


CHICAGO (AP) -- Employees at United Airlines are bracing for the prospect of new concessions after the failure of the carrier's nearly two-year quest for federal assistance.

Further cuts in United's bankruptcy restructuring would be especially painful for a work force already hit by heavy wage and benefit reductions that have enabled the company to reduce annual labor costs by $2.5 billion annually.

Fair or not, experts say they may be inevitable as United scrambles to redo its finances after being rejected for a third and final time Monday in its attempt to secure a government loan guarantee.

Among the areas likeliest to be targeted by management to make the company more attractive to outside investors is employee pensions, particularly since United must make at least $4 billion in pension payments through 2008.

Speculation on cuts also extends to United's Asia routes and the size of its work force, which already is down to 62,500 from 100,000 before the 2001 terror attacks.

"They're going to have do some things that are very unpleasant, including getting rid of a few people," said industry consultant Darryl Jenkins, professor of airline management at Embry Riddle Aeronautical University in Daytona Beach, Fla.

"This won't be a happy year for employees," he said. "Not so much pay (cuts), but additional work rules, pilots' stock that they were going to get in exchange for concessions, and pensions -- they'll all be on the table now."

United isn't discussing specifics of its options publicly. But even before the Air Transportation Stabilization Board dismissed its loan-guarantee efforts for a final time Monday, CEO Glenn Tilton cautioned employees last week that more cuts would be needed to cope with increased competitive pressures and high fuel costs.

"In order to attract a new equity investor and providers of credit, the airline will very likely have to undertake further cost cuts and demand further reductions in its debt and lease obligations," Standard and Poor's analyst Philip Baggaley wrote in a research note Monday. United's ability to attract new investment, he said, will depend partly on its success in further restructuring.

United's solid progress in overhauling its costs and operations since 2002 has won plaudits from the ATSB and others, and there is thought to be an abundance of investment groups who would like to have a piece of the airline's unparalleled route structure under certain conditions.

Some of the names mentioned by industry experts as potential investors include Texas Pacific Group, a Fort Worth-based private equity firm which invested in Continental Airlines and America West Airlines during their bankruptcies; Cerberus Capital Management, which is sinking money into bankrupt Air Canada; and the so-called Chapman group of United bankruptcy creditors, which owns 175 of the carrier's aircraft.

Discussions have been underway in earnest since the ATSB rejected United's loan guarantee application on June 17 -- a decision it affirmed unanimously on Monday -- but it's not known how long a new financing package will take to put together.

"Somebody has to belly up to the bar and say they believe in United's business plan and come forward with the cash," said Douglas Baird, a bankruptcy professor at the University of Chicago Law School. "Talk is a lot easier than writing a check for $500 million or more."

Even if a new investor demands more cuts, uneasy unions signaled they won't accept them readily.

Randy Canale, a union district president representing United machinists, said the airline must refuse to use its workers as "human fertilizer" to satisfy lenders and politicians.

United pilots' union chief Mark Bathurst said pilots will work with management in searching for solutions, but he emphasized, "We fully expect that such solutions will be found without the company again turning to employees who already have provided significant financial relief for this airline."

Negotiations with unions over what cuts would be acceptable could take months. Because of that, industry consultant Robert Mann called it unlikely that United can emerge from bankruptcy any earlier than spring 2005.

http://www.mlive.com/newsflash/business/index.ssf?/newsflash/get_story.ssf?/cgi-free/getstory_ssf.cgi?f0009_BC_UnitedLoan&&news&newsflash-financial

[bigbeerbelly]

I think Ace Rimmer has made the best point on this thread. Pilot's Pay is almost never the reason that the company is sinking... It's bad management. Airline pilot unions do not pick random numbers on how much they should make. They take a piece of the pie and through negotiations tell management how they would like it divided. United's problems are NOT pilot pay. UAL is showing an operating profit even with these high pay rates. The problem is that management has mismanaged finances so bad that even if the pilots worked for free, it would not get them out of debt at this point.

BBB

[Digitalis]

I don't think anyon'e suggesting that pilot (or any workgroup's) pay got United into this mess, but their problem is now that the overall bills (including debt servicing) exceed income. The payroll is one of the few expenses that is - more or less - within the airline's control; most of the other expenses are determined by third parties. For however long it takes to get the debt under control, the payroll will suffer. The alternative is closing the airline down!

Arguing over who's to blame is a pretty useless occupation when your job's at stake, with all that that implies. The priority is surely to sort out the mess now, and hang the guilty later.

[Ignition Override]

Good points, Ace and BigBeerB.

Maybe we should all, no matter how much debt our companies are under, simply give up at least a third of our salaries. How many tens of millions did a few US major airlines EACH spend/waste during the good times-and only to buy back their own stock? AMR reportedly spent about a BILLION (in the US, this is $1,000,000,000) to buy back stock. Wisely spent? That profit alone, came from many thousands of flights.

Back to the present. Who is so naiive that they believe that such a pay concession from all of us, will be "their" last major request from the unions? No matter what "we" give, it is never enough, unless we are then paid what a dump truck driver is paid to haul a load of dirt.;)

[skyslut]

Well it's hard for many in the aviation industry to feel sorry for United. They have been the big bully for years. Their crews have been very arrogant, and cocky for many years. I can remember them with stickers wishing for a bankrupt airline to go under. While it's sad to see anyone lose their job we all have to remember that what goes around comes around.

[arcniz]

Override:

The points about poor choices and flat out mistakes by management are well taken. The issue about how United employees will have difficulty regaining leverage if they give it up now are also valid.

But one of those is looking back-when and the other is in-the-future.

Meanwhile, the guys with the sharp pencils and even sharper knives are impatiently standing by the door. Read the bios of Michael Milliken and disciples in this kind of process if you harbor optimism about the affection of the money guys for UAL or any other pile of assets up for grabs at the breaking yard.

It appears the problem is Now.

The only (semi) sure fix for a financial upset is to reduce the daily burn of cash while maintaining or increasing activity that leads to revenue production - i.e, adding power to climb out of the dive - and the only BIG way to do this when there's little or nothing left to mortgage is to cut payrolls every how possible.

Otherwise we stand to see the still-shiny airline converted into a lot of aluminum scrap and a long line at the PGBC.

[Airbubba]

United snags $1B in loans, buys time to reorganize

By Marilyn Adams, USA TODAY

United Airlines and three big lenders Wednesday finalized $1 billion in new bankruptcy financing that gives the giant airline another year to reorganize in Chapter 11 protection.
The new loan is designed to give United, in reorganization for 19 months, until June 2005 to cut more costs and revise its business plan, said Bill Repko, restructuring chief at J.P. Morgan Chase.

The loan package will be split among J.P. Morgan and Citigroup, United's existing lead lenders, and GE Commercial Finance. United is a significant customer of General Electric, which makes aircraft engines and finances aircraft.

Neither the banks nor United would disclose specific terms or conditions of the loan package.

The new loan agreement "is a positive statement: We wanted to show that United is adequately financed," Repko said. "This will give United adequate liquidity and ample time" to redraw its business plan.

The development comes just weeks after a federal panel denied United's application for a $1.6 billion loan guarantee to help United exit bankruptcy.

The Air Transportation Stabilization Board said United didn't need a federal guarantee to get financing because the credit markets have improved since the Sept. 11 terrorist attacks, which prompted Congress to establish the guarantee program.

United filed for Chapter 11 bankruptcy protection in December 2002 with plans to emerge as a reorganized company by last month. That didn't happen. Now, United must line up private loans or obtain exit capital from an investor who would get a stake in the airline.

Following the government's denial last month, analysts said United's cash could run dangerously low by year's end. At the end of the first quarter, United had less available cash relative to its size than any other major airline. Despite major cuts in labor and aircraft costs, United is posting big losses amid weak airfares and high fuel prices.

GE Commercial Finance confirmed the deal was being finalized Wednesday night.

United spokeswoman Jean Medina said the airline is pleased with the extension.

United's existing bankruptcy loans had been extended to Dec. 31. But industry experts said the new loan deal isn't premature.

"United has to get itself reorganized, so it's not too early," said analyst Ray Neidl of Blaylock & Partners.

Last week, United took another step to bolster cash, deferring a $72 million scheduled payment for its employees' pension plans. Experts say it's a sign United, whose pension plans are underfunded by billions of dollars, may be forced to revise those plans in bankruptcy. Another pension payment is due in September.


http://www.usatoday.com/money/biztravel/2004-07-21-united_x.htm

[UAL Furlough]

As a UAL furloughed pilot, I can tell you that there is no way that a UAL pilot is overpayed. Review the facts...UAL pilots worked at a substantially lower pay rate from 1994-2000 in order to "buy" the company. Senior captains gave away hundreds of thousands of dollars of pay to do this. In one fail swoop of bankruptcy, this was wiped out and they lost hundreds of thousands of dollars. They also could not contribute to their own retirement at the time due to the stock being purchased for their retirement.

I will tell you this...the current pay of a junior 737 pilot at UAL is currently zero...they are all on furlough, up to 6 years seniority. Even those still working are making significantly less than their military counterparts. A junior 737 co pilot makes about $80,000 per year, gets an average of 10 days off a month, has an average of 12-14 hour days w/ about 8-9 hours actually in the hotel on a layover. If you think this is a lot of money, great...but it's not.

Someone mentioned a job vs no job...my question is how low will you go. Will you work as a major airline pilot for $30k per year??? How about $20k....Free??? You gotta have a bottom line and for me, if it is less than $100k per year, it isn't worth the stress and problems on the family, much less the health issues all pilots face...Get real.

Anyway, I am happy to be furloughed and hope to stay that way until United sorts out it's problems. United will do well, they will make big money, they will come back stronger than ever and it will be on the backs of it's employees. Trust me....airlines go in cycles and it will again be up, no matter what airline management wants to say.

If you are happy making $25k a year flying airplanes, being away from you family half the month, then continue to lobby for decreased pilot pay...I am sure you will get it.

My 2 cents....

[Airbubba]

>>United will do well, they will make big money, they will come back stronger than ever and it will be on the backs of it's employees. Trust me....airlines go in cycles and it will again be up, no matter what airline management wants to say.<<

Yep, they will be back just like Pan Am, Eastern, Braniff and all the rest. That bankruptcy is just a technicality, trust me...

Here's the latest roll of the dice:

_______________________________

UNITED AIRLINES

No payments made to workers' pension plans

Compiled by William Sluis from staff and wire reports
Published July 25, 2004

Troubled carrier United Airlines, still struggling to escape from bankruptcy, said it will not make payments to its underfunded pension plans, igniting the ire of its union members.

The carrier is "following a very dangerous path and cannot successfully exit bankruptcy without living up to the commitments they made to their employees," the International Association of Machinists and Aerospace Workers said.

The union, which represents 27,000 ramp and other workers at United, is considering taking legal action to protect its members' retirement income.

The airline missed a $72 million payment earlier this month and expects to miss nearly $500 million in payments in September and October.

"Because United's existing pension funding obligations will remain a huge financial burden after exit, it is incumbent on United to study all possible options and to determine whether United can sustain this burden and still attract exit financing," James Sprayregen, its lead bankruptcy attorney, told U.S. Bankruptcy Judge Eugene Wedoff.

The decision to hold off on payments will not have an immediate impact on United retirees already receiving pension payments.

Even so, "it's water torture treatment" for employees, said John Pincavage, a Westport, Conn.-based financial adviser to airlines.

United's pension plans are underfunded by at least $7.5 billion, according to the Pension Benefit Guaranty Corp.

Watch for: Scant progress in the impasse unless fuel costs fall. The airline is hamstrung by huge debts and sky-high fuel prices.

http://www.chicagotribune.com/business/chi-0407250155jul25,1,7800785.story?coll=chi-business-hed

[UAL Furlough]

We all knew that the A Fund retirement would go away, especially the junior guys. That is why the junior pilots tried to fight to get rid of it and keep more pay.

To compare United's situation with that of Eastern or Pan Am is ridiculous. United has the best route structure in the world and the fact that they are going to cancel the pension plans will give them an instant advantage over all the other network carriers. If you are buying into all the hype and media coverage you are hearing, then you are a bit naive. It is all posturing. Having been there and knowing what I know about United and the employees I will tell you this...they will give into more concessions (maybe not the mechanics), the pension funds will be drastically changed, and United will exit bankruptcy and EXPAND!! Read it now, and witness it later...

Again, all of you praying for drastic cuts in United pay, and losses of benefits, good for you...but you are in the wrong line of work and you will reap what you sow. Lower wages, no benefits, tougher working conditions...

United's costs for labor are among the lowest in the industry at this point and mgt will milk this whole thing for every penny. I will laugh my butt off when the big management bonuses get handed out about a year after exiting. That is the worst part about not getting a loan guarantee, the govt cannot limit the executive bonuses. And by the way, I personally think they earned every penny of the bonuses that they are going to get.

[Airbubba]

>>To compare United's situation with that of Eastern or Pan Am is ridiculous. United has the best route structure in the world and the fact that they are going to cancel the pension plans will give them an instant advantage over all the other network carriers. If you are buying into all the hype and media coverage you are hearing, then you are a bit naive. It is all posturing.<<

All the same, if you are on furlough from UAL, don't quit your day job just yet...

[whauet]

<<All the same, if you are on furlough from UAL, don't quit your day job just yet...>>

Doesn't matter if one is on furlough -- my father, having retired after 41 years in air freight at UAL has taken a part-time job out of fear that the pension checks will stop arriving, as has my mother -- both in their late-60's and already feeling the pinch of medical benefits being cut.

With the latest news, it kills me to receive the tearful phone calls from them wondering what is going to happen next. Yes, the pension is Federally guaranteed as long as UAL stays solvent, but what do I tell a man who devoted his entire life to the company? We can blame 9/11, we can blame the employee buyout, we can blame the Unions...

I grew up with UAL, it was part of my 'family' - but I can't help but wonder if when (yes, when) they do emerge from bankruptcy, will I still be getting those tearful phone calls wondering if those pension payments will still be there, will they be financially devestated if, God forbid, there's a medical problem?

A lot of people out there who helped make the airline as strong as it was for all those years are now living each day with a fear of what may be next...

[FlyingConsultant]

I will tell you this...the current pay of a junior 737 pilot at UAL is currently zero...they are all on furlough, up to 6 years seniority. Even those still working are making significantly less than their military counterparts. A junior 737 co pilot makes about $80,000 per year, gets an average of 10 days off a month, has an average of 12-14 hour days w/ about 8-9 hours actually in the hotel on a layover. If you think this is a lot of money, great...but it's not.

Someone mentioned a job vs no job...my question is how low will you go. Will you work as a major airline pilot for $30k per year??? How about $20k....Free??? You gotta have a bottom line and for me, if it is less than $100k per year, it isn't worth the stress and problems on the family, much less the health issues all pilots face...Get real.



This and many other posts go in the right direction but miss to follow through, in my opinion. The problem here is economics, not whether Pilots feel how much money they deserve.

(1)There are too many pilots for too few jobs right now, be it for mismanagement, demand, or industry structure reasons (or all of the above).
(2)Whenever you have overcapacity, prices go down. This is a fact of economics.
(3) As prices for pilots go down, the job will become unattractive for some, and people will seek other jobs, as this poster rightfully points out. But this does not mean we need to pay more - it means that economics is working! It means that the pilots who are willing to work for less will have a job, just like the guy who cuts my grass is the one who bid the lowest price for the job. Then after a while, growth picks up, and demand for pilots exceeds supply, and pay will raise again. Pricing takes place where marginal pay hits marginal ability to pay (i.e., where marginal price hits marginal cost). Again, this is not a reason to pay more, it is economics at work. Everything else is union or management role - or, for that matter, government subsidy like the huge payments for the corn industry, which pay farmers much more that their market price would be.


The fact that mostly junior pilots are of of job is purely a creation of the union rules, and in a free market, this would probably not be the case. This doesn't mean it is good or bad - it is a self-created situation, the rules that the pilots (and management) chose to accept. But we have to live with it, or change it - and for that one, you have to look in the union direction, not to management. The pilots have to take responsibility for the work rules - they proposed them and fought for them. Again, this is not inherently good or bad (although economists might disagree).

It is a sad situation, where high growth created a lot of overcapacity in both seats flown and pilots. But other industries see this too, and this is an economic fact. They bitch, too, as would I if my employer told me that I lost 30% of my pay. But that doesn't mean they should be paid more.

As long as pilots are willing to fly (and able, capable, legal, etc..), the airline will pay the lowest pay that these pilots are willing to accept. Right now, this is going down, and rightfully so from an economists perspective.

[Airbubba]

Bailout Feared if Airlines Shed Their Pensions

By MARY WILLIAMS WALSH

Published: August 1, 2004

In an echo of the savings and loan industry collapse of the 1980's, the federal agency that insures company pensions is facing a possible cascade of bankruptcies and pension defaults in the airline industry that some experts fear could lead to another multibillion-dollar taxpayer bailout.

"The similarities are incredible," said George J. Benston, a finance professor at Emory University in Atlanta who has written extensively on the regulatory failures that led to the costly savings and loan bailout.

Deposits in savings institutions are, like pensions, guaranteed by a federal insurance program. The savings industry first sickened because changes in market conditions made the traditional way savings and loans operated unprofitable, but government delays and policy missteps then made the situation much worse. In the end taxpayers bailed out the industry — at a cost, according to various estimates, of $150 billion to $200 billion.

Now experts say they see similar forces gathering in the pension sector, with United Airlines perhaps the first to go down the path. Operating in bankruptcy, United is striving to attract the lenders and investors it needs to survive. It said last month that it would no longer contribute to its pension plans; United also seems intent on shedding some or all of its $13 billion in pension obligations as the only way to succeed in emerging from bankruptcy proceedings.

If United manages to cut itself loose from the costly burden of its pension plans, it might force others determined to keep their costs similarly under control to emulate its move. "Rivals may feel they are at a competitive disadvantage and follow suit, raising the specter of a domino effect in the industry," said Bradley D. Belt, the executive director of the government's Pension Benefit Guaranty Corporation, which insures pensions. If every airline with a traditional pension plan were ultimately to default, the government would be on the hook for an estimated $31 billion. Its insurance coverage is limited, so some employees would have their benefits reduced.

"The pension insurance program is there to protect workers' benefits," said Mr. Belt, who took over the agency in April. "It shouldn't be used as a piggy bank to help companies restructure."...

http://www.nytimes.com/2004/08/01/business/01PENS.html?hp=&pagewanted=all&position=