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5% Pay Deferral Begins April 1, 2003.
(Question and Answer Below)
The first paycheck to be affected is the April 30th paycheck as this is an advance on the May 15th check for April pay.
In late December, US Airways reached agreements with all of its unions on the implementation of a 5 percent pay deferral in the event of war with Iraq. These agreements provided that this deferral would apply to all employees, regardless of position, level, and management or union status.
We have been carefully monitoring the war's impact on the industry, and more specifically, our revenue and booking data. While we had the authority to do so, we delayed an immediate implementation after bombing had begun in the hope that it would be a very short war or that the revenue impact would be limited. By every measurement, however, that is clearly not the result, and we have no choice but to implement the pay deferral to offset some of the company's lost revenue. Therefore, the 5 percent pay deferral will become effective March 31 or April 1 (depending on whether employees are on a weekly, bi-weekly or semi-monthly payroll schedule).
We know this is an additional sacrifice, but these are extraordinary circumstances, President and CEO Dave Siegel said in a letter being mailed to all employees. While our bankruptcy reorganization provides for a much brighter future, US Airways is still in a very fragile state. Like many other carriers, we face survival challenges related to the dramatic reduction in travel, the rise in fuel costs, and other effects on our operations and the economy from the war in Iraq, he said.
These challenges are exacerbated by our existing financial circumstances and liquidity situation, and we have invoked this provision as a preventive measure to help us survive this period of conflict and the associated economic impact, Siegel said.
Under the terms of the pay deferral agreement, the deferral will be cancelled and pay will be restored after any quarter in which the company reports a profit, but no later than 18 months after implementation. However, US Airways will continue to
monitor the effect of the war on revenue and commit to reassessing the need for the 5 percent deferral each month in the hope of canceling it as soon as is feasible.
While we must move forward with this deferral and modest capacity reduction, Siegel said the company has decided for the moment not to reduce the fleet. Again we will continually reassess the situation to ensure our long-term survival and not let this war inflict another casualty on us, he said.
To answer the most common questions associated with this policy, a "Q&A" follows. Should you have additional questions, please direct them to your manager or supervisor who will be able to seek additional information for you.
Q&A
Q. Does the five percent pay deferral apply to all employees, including officers and managers?
A. Yes. The pay deferral policy applies to all employees, regardless of level, both part-time and full-time. Everyone, from the CEO to our lowest paid employee is included. It is a temporary sacrifice we must make to help the company survive.
Q. I earn less than $30,000 per year, will this apply to me?
A. Yes. The pay deferral applies to all employees, regardless of annual salary.
Q. What parts of my pay will be affected?
A. The deferral will affect base pay only and will not affect differentials or allowances, unless they are driven off of your base hourly rate. Overtime rates will be calculated based upon your reduced hourly rate. The difference will be
repaid at the end of the deferral period along with the rest of your deferred pay.
Q. When will the deferral take effect?
A. The deferral period will begin with the March 31 or April 1 payroll cycle. Employees on a weekly payroll will first be impacted April 11, employees on a bi-weekly payroll on April 18 and employees on a semi-monthly payroll April 30.
Q. How long will the deferral period be in effect?
A. The deferral period will last no longer than 18 months. If the company reports a pretax profit in any quarter during which the deferral period is in effect, the deferral will immediately stop and repayment will begin in the next month.
Q. What if this is a very brief warwill the deferral period be abbreviated?
A. The deferral period is not necessarily tied to the timeframe of actual hostilities. Even after the war has ended, the economic impact from reduced travel or increased fuel prices could continue to affect revenues. While we all hope for a quick resolution to hostilities, the date to end the deferral period will have to be evaluated in light of the economic circumstances we later face.
Q. How will I be taxed?
A. You will only be taxed on the actual amount you are paid in a given pay period.
Q. What if I leave or I am furloughed after the deferral starts but before the repayment is made?
A. Employees who are involuntarily separated (except for cause) or furloughed before the completion of the deferral period will be repaid at the completion of the deferral period in the same manner as active employees.
Q. How will the deferral be reflected on my pay stub?
A. There will be a line item in the earnings section of your pay stub that will read "Deferral" and will be reflected with a negative number indicating the amount of your deferred pay.
Q. How will this be repaid?
A. Once the deferral period is over, you will be repaid in equal amounts over the equivalent number of pay periods as the deferral period.
Q. Will the deferral affect my pension?
A. Yes. For employees in the defined contribution plan (DCP), because the company makes contributions to your DCP based on the amount you are paid in a given pay period, a reduction in your pay will impact these contributions. When the deferral is repaid, the company will make the appropriate contributions to your DCP based on your repayment amounts. For employees with
defined benefit plans, the five percent deferral and the subsequent repayment may impact your final average earnings calculation.
Q. Will my annual salary be reduced in US Airways' records?
A. No. This is a pay deferral, not a salary reduction. You will maintain your salary of record. Benefits that are based on annual salary, for example, life insurance, will not be reduced.
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Voluntary
Furlough 5 (VF5) Reminder
VF5
request form must be received by Inflight Administration no later than Noon, (EST), April 2,
2003.
Inflight Services will offering
approximately 650 Voluntary Furloughs effective June 4, 2003.
The durations will be between 4 and 30 months. Please review the
program specifics listed HERE.
(print and send)
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Flight Attendants Union Holds Talks
With CWA
By SUSAN
CAREY
Staff Reporter of THE WALL STREET JOURNAL
The airline industry's calamitous
downturn has taken its toll on workers, investors, aircraft
lessors, suppliers and travelers. Now another casualty is
emerging: the biggest union representing flight attendants.
The Association of Flight
Attendants, an AFL-CIO member that until recently represented
50,000 cabin-crew workers at 26 U.S. airlines, has fallen on
hard times. Layoffs since 2001 have reduced its membership by
10,000. This has cut dues income drastically at a time when the
flight attendants need more help than ever.
The AFA's plight is especially
dire because three of its employers -- UAL Corp.'s United
Airlines, US Airways Group Inc., and Hawaiian Airlines -- are in
bankruptcy-court proceedings, and some of its other airlines are
on shaky financial footing. The war in Iraq, which has prompted
another wave of airline layoffs, and the industry's campaign to
cut worker pay and pension benefits have only added to the
pressure.
Fearing for its ability to
continue offering programs, organizing new members and
mobilizing lobbying campaigns in Washington, the union
leadership began looking for a merger partner after United filed
for Chapter 11 in December. The AFA, founded 58 years ago,
considered four unions and this month selected the
Communications Workers of America for further discussions.
Pat Friend, a United flight
attendant who has been the AFA president since 1995, said
seeking an affiliation with another labor organization
"wasn't an easy decision for me. I grew up in this
union." But she didn't want to "wait until we're like
some of our employers and practically bankrupt" before
seeking financial stability and strength in numbers.
AFA's dues revenue is down about
10% from the $19 million a year it collected before the Sept.
11, 2001, terrorist attacks. The union expects another 10% drop
after the latest round of furloughs goes into effect.
The CWA, one of the 10 largest
unions in the AFL-CIO, with 700,000 members, has a history of
successful affiliations with other labor organizations,
including the Newspaper Guild, the International Union of
Electronic Workers and a formerly independent union that
represents employees of Dow Jones & Co., publisher of The
Wall Street Journal. CWA entered the airline industry in 1997
when it organized nonunion customer-service and reservations
agents at US Airways, then the largest private-sector union
organizing victory in a decade.
CWA President Morton Bahr said he
is enthusiastic about the continuing talks with the AFA. Ms.
Friend said her union hopes to have a draft to present to the
AFA executive board next week. If endorsed, it would be put to
the union membership.
The AFA is the world's largest
union that solely looks after flight attendants and is one of
only two big U.S. unions that are exclusively aviation-based.
The other is the wealthy Air Line Pilots Association, of which
the AFA was a division from 1949 to 1973.
The AFA has worked to improve the
status of flight attendants, who were formerly known as
stewardesses and before that air hostesses. The union did away
with airlines' discriminatory practices such as making
attendants quit when they married, became pregnant or gained
weight. The union has fought for improvements in occupational
health and safety and taken airlines to task on issues ranging
from noxious cabin air to lodging attendants in unsafe, rundown
motels.
But despite years of organizing
efforts, the AFA never got all the attendants under its roof.
Cabin crews at AMR Corp.'s American Airlines are members of the
independent Association of Professional Flight Attendants.
Larger industrial unions represent attendants at other big
carriers, including Northwest Airlines, Continental Airlines and
Southwest Airlines.
Write to Susan Carey at susan.carey@wsj.com
Updated March 28, 2003 12:00 a.m.
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Airline subsidies may preclude raises
Bloomberg Business News
WASHINGTON -- Two senators say Congress may require airline executives to forgo pay increases as a condition of providing as much as $3 billion in government aid to avoid bankruptcies.
"It's insulting when they lay off thousands of people and then pay top executives millions of dollars in bonuses," said Sen. John McCain, chairman of the Senate Commerce, Science and Transportation Committee. "I'm not the only person that's angry. Everybody's angry."
McCain, an Arizona Republican, told reporters he wants to add a provision to an airline aid bill that would prevent such pay increases in similar circumstances. Sen. Kay Bailey Hutchison, a Texas Republican and a member of McCain's committee, said legislation may mandate cuts in employee and executive pay.
Delta Air Lines CEO Leo Mullin got a $12.9 million pay package in 2002, according to a Securities and Exchange Commission filing this week. Northwest Airlines CEO Richard Anderson received $2.8 million, 75 percent more than his pay package in 2001, and Houston-based Continental Airlines CEO Gordon Bethune received $11.9 million, more than twice what he received in 2001, according to filings this week.
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Ready to Hit the Market
US Airways Reorganization Built on Shorter Routes, Smaller Jets
US Airways shaved costs by aiming to become a niche carrier on the East Coast and using smaller jets.
By Keith L. Alexander
Washington Post Staff Writer
Friday, March 28, 2003
Barring any last-minute hitches, US Airways will be reborn Monday as a smaller, more regional carrier after seven months in bankruptcy.
The airline went into bankruptcy as the nation's sixth-largest carrier. It was known for its wide-body jets that crisscrossed the nation and spanned the Atlantic. It will emerge as the seventh-largest airline, with an enhanced fleet of 50-seat jets servicing the East Coast, the Caribbean and Latin America. It is paring its long-haul flights.
"US Airways will never be a global network carrier, but it will now be a very good East Coast niche player," said Darryl Jenkins, head of George Washington University's Aviation Institute.
US Airways returns in its lean, refocused form at the most difficult time in the industry's history. Although reinvigorated by a sharp reduction in costs and debt, the airline still faces a tough battle to attract passengers amid a severe drop-off in travel because of a slack economy and the war in Iraq. The Arlington-based airline has long suffered from middle-of-the-pack syndrome: It was not big enough to go head-to-head with the industry giants -- United, American and Delta -- and not small enough to compete with low-cost carriers such as Southwest, AirTran and JetBlue. But with United in bankruptcy and American close to filing, US Airways will emerge in possibly the strongest competitive position in its history.
Today, U.S. Bankruptcy Judge Stephen S. Mitchell is expected to deliver a final ruling on the creation of a new pension plan that the airline and its pilots agreed on last weekend. To cut costs, the airline sought to eliminate its former pension plan, which was underfunded by $2 billion. Also today, the Pension Benefit Guaranty Corp., the government agency that oversees pension benefits, is expected to sign off on the change. A delay, or rejection, from Mitchell or the agency would force a postponement in the airline's emergence.
Analysts aren't expecting any demurs in these final hurdles. William J. Rochelle III, a bankruptcy lawyer for Fulbright & Jaworski LLP in New York, praised US Airways for the speed of its reorganization and for emerging on schedule.
"They did it in the least amount of time conceivable for a company of that size and magnitude," said Rochelle, who has worked on previous airline bankruptcies, including United's and Continental's. "They moved forward with virtually no hiccup."
The test now is whether US Airways can turn a profit, he added. "There's a distinction between reorganization in Chapter 11 and fixing the business," he said. "Let's hope they really did fix the business."
The airline isn't likely to return to profitability anytime soon, analysts said, given the weak demand since Sept. 11, 2001, and the wartime environment. US Airways said yesterday that war in Iraq has forced it to reduce its flights by 5 percent on domestic and transatlantic routes. Bookings dropped 20 percent in the first week of the war, the airline said. It has suspended flights to London in April and cut the number of flights to Frankfurt and Amsterdam from Pittsburgh and Philadelphia.
United's troubles also are hanging over US Airways. If United fails to successfully reorganize and goes into liquidation, US Airways could suffer because of a marketing agreement between the airlines. In October, the two merged their frequent-flier programs and allowed their top frequent fliers to use each other's airport club. The code-share agreement was supposed to create about $200 million in additional revenue for each carrier.
Earlier this month, though, United said it could be forced to liquidate if it was unable to cut about $2.56 billion a year from its operations. The carrier reached an agreement yesterday with the leaders of its pilots union on the pilots' portion of the cuts. The union members still must ratify the agreement.
US Airways' stronger financial position should help it weather the weak market. The airline's debt has been slashed by more than $2 billion -- to $8.05 billion, from $10.65 billion last August, when it filed for bankruptcy. After it emerges from bankruptcy, the carrier can obtain a $900 million federal loan guarantee that it will use to secure $1 billion in loans. It will also get $371 million from its largest investor, the Retirement Systems of Alabama.
David N. Siegel took over as president and chief executive of the airline in March 2002. Siegel, 41, is confident US Airways executives have restructured the airline for long-term success. The carrier has retrenched from its long-haul markets and reduced cross-country flights by nearly 25 percent. With its eye on a more regional market, the airline is beefing up its service along the East Coast and to Florida and the Caribbean. It also is increasing its presence in Latin America by adding such cities as San Jose, Costa Rica, and Cozumel, Mexico.
The carrier, which flies 80 regional jets, will add up to 320 more of the smaller jets now that its pilots have agreed to the plan. The airline grounded many of its larger, fuel-guzzling planes and its less popular tiny turboprops. Passengers prefer the new 50-seat regional planes, which are cheaper to operate than wider ones.
The airline has eliminated many of its early and late-night flights, such as those before 6 a.m. or after 9:30 p.m., because those times attracted the fewest passengers. Other flights were cut for efficiency.
US Airways has closed most of its city ticket offices, sending travelers to the Internet to book flights. It has begun charging fees for paper tickets. Meals, of course, are history on most routes. The carrier is testing an a la carte service, allowing passengers to purchase simple foods, such as sandwiches, before boarding.
The airline said it was able to reduce its costs according to a key barometer the industry has used for years. US Airways has cut its expenses from 12.25 cents per seat per mile, the highest in the industry, to 10.5 cents. While that's still not as low as Southwest's 8.5 cents, it's below the levels of rivals Continental and Northwest.
Robert Fornaro, president and chief operating officer of AirTran, said US Airways' new cost structure will make it more competitive. "They've gone a long way in matching their supply to demand, and that will help them," he said. "They'll defend better, but the best defense is not having to play defense at all. It's playing offense." Fornaro was US Airways' vice president of planning from 1992 through 1997.
Sam Buttrick, an airline analyst at UBS Warburg, cautions that whatever cost reductions US Airways has achieved, it must confront other factors, too. "In effect, US Airways has gone from having extremely high costs to having high costs," he said. "It will take a combination of a vastly improved revenue environment and lower oil prices for the airline to become profitable. And that's certainly unlikely to happen anytime soon."
Overall, the airline cut costs by $1.9 billion. More than $1.2 billion of that came from employee concessions in pay, benefits and work rules. The rest came from agreements with the airline's major creditors, including aircraft leaseholders, suppliers and airports.
To achieve its cost targets, the airline eliminated nearly 17,000 jobs, and workers gave up thousands of dollars in pay and benefits. Many workers lost their retirement benefits because they were tied up in the airline's stock, which lost virtually all its value with the bankruptcy filing.
But the workers who remain seem optimistic about their employer's future. "We're still here," said US Airways flight attendant Bob Kenia. "There's still an airline and people still have a job." Kenia, who is also the Washington area president of the airline's flight attendants union, said employees are going to closely watch the new management and how they operate the airline.
"Siegel has been good in bringing this airline around, but it's been on the backs of the employees," Kenia said. "We had things crammed down our throats these past seven months, and we did things to survive. Now it's time to see how this management team works with its employees moving forward."
US Airways will have a new slate forming a majority on its board of directors. Only three current members will remain directors. The board, which could assume leadership of the airline April 1, has eight members representing the Alabama pension fund, including its chief executive, David G. Bronner. That investment fund invested $740 million in interim and long-term financing and took a 37 percent stake in the carrier. Industry observers said that Bronner could become chairman since the pension fund has 71 percent of the voting rights.
One name that is absent from the new board is US Airways' outgoing chairman, Stephen M. Wolf, who joined the carrier in 1996 after serving as head of several airlines, including United, Republic and Tiger International, in the 1980s and early 1990s.
Wolf, 61, who says he's enjoying life outside of the industry, believes that US Airways is bound for success. "While significantly smaller, US Airways under Dave Siegel's able leadership is clearly well positioned for the future," he said.
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