Mesa Seeks 'Symbolic' Pay Deferrals

The pilots at bankrupt US Airways' [UAIRQ] three wholly owned regional carriers - PSA, Piedmont and MidAtlantic - will not be asked to take wage cuts as their counterparts at the mainline will.

At the same time, Mesa Air [MESA] employees who are assigned to US Airways Express operations are being asked to take a voluntary salary deferral. Mesa's top executives have already taken a pay cut in an effort to assist US Airways.

Now operating in bankruptcy for the second time in two years, US Airways is seeking $950 million in cost savings from its unionized employees. Because most unions refused to even consider any more wage concessions to help the airline avoid bankruptcy and conserve cash, US Airways is asking the court to impose a temporary wage cut of 23 percent on those work groups that have not reached settlements.

In addition to the pay cuts requested of its unionized employees, US Airways last week said it would impose wage reductions of up to 10 percent on the management and non-union employees. About 10 percent of the airline's 3,700 salaried and nonunion employees would be cut. The move will cut $45 million from its $201 million management payroll.

A tentative concessionary agreement was reached last week with the mainline pilots, represented by the Air Line Pilots Association (ALPA). The agreement, which is expected to yield $300 million in annual savings, has been submitted to the membership for a vote with a tally expected on Oct. 21, said Jack Stephen, a union spokesman. While the mainline pilots would take on average a 18.25 percent pay cut, Stephen said the pilots who fly for MidAtlantic will not be asked to take a pay cut.

MidAtlantic, a division of the mainline, was formed earlier this year to fly the new Embraer [ERJ] 170s. Top priority has been given to hiring furloughed mainline pilots and flight attendants to staff the new carrier.

Stephen said some of the new work rules contained in the proposed settlement will apply to the MidAtlantic pilots, including changes to the credit provisions for time spent on furlough.

A first year MidAtlantic captain makes $58.44 an hour compared to a captain with a minimum of two years experience, who makes $138 an hour flying either a Boeing [BA] 737 or an Airbus 320. Under the proposed settlement with the 18.25 percent salary reduction, that two-year captain would earn $112 an hour.

USAirways hopes to cut its operating expenses so that it can compete head-to-head with the low-fare carriers and still be profitable. To that end, the new pilot pay scale will pay a five-year captain $116 an hour compared to $121 an hour at non-unionized JetBlue [JBLU] or $172 an hour at unionized Southwest Airlines [LUV]. It should be noted that even before this latest salary reduction, the US Airways pilots flying B737s make less on each step of a 12-year pay scale than their counterparts at Southwest. Only those US Airways pilots flying A330s consistently make more than the Southwest pilots.

The pilots who fly for PSA and Piedmont, who are also represented by ALPA, will not be asked to take pay cuts, said David Castelveter, the US Airways spokesman. A new contract was reached earlier this year at Piedmont when it merged with Allegheny Airlines, he said (CRAN, Jan. 19). Outstanding issues at PSA, including scope clause language, which permits the flying of 70-seat planes, were resolved in the last bankruptcy.

In US Airways' corporate structure, both PSA and Piedmont are wholly owned subsidiaries with a measure of independence from the mainline. However, MidAtlantic is a division of the mainline and thus it is more closely impacted by the events surround the bankruptcy. A different ALPA unit represents PSA and Piedmont pilots.

Mesa

Inspired by the sacrifices requested of US Airways employees, Mesa CEO Jonathan Ornstein has asked his employees who work with US Airways Express to defer part of their salaries until their partner exits bankruptcy.

"This will be symbolic," he said. "Our people should appreciate that US Airways' survival is in their interest and we should help them."

In his wildest dreams, the effort may produce a $1 million savings for US Airways. "I realize this is just a token." For every salary dollar deferred, Mesa will reduce its bill to US Airways. "We are passing the savings on," he said.

US Airways has not asked Mesa or its other code-share partners to change the terms of their contracts. "They [US Airways] were pleased that we did it. They appreciate the support," Ornstein told CRAN.

Mesa expects its operations to generate more than $1 billion in revenues this year. Its contract with US Airways will generated about 35 percent of its revenues.

In the executive suite, Ornstein said the 23 percent pay deferral will be based not on their base salary, but the 35 percent allocated to the US Airways account. The move applies to about 10 of Mesa's most senior employees.

While asking the 1,000 Mesa employees working under the US Airways Express livery to defer up to 23 percent of their salaries, Ornstein said those employees who do participate would be rewarded with a 20 percent bonus when US Airways exits bankruptcy. The participants would also be repaid the deferred salary at that time.

"I am trying to get our people here to appreciate that US Airways is important to us. If US Airways liquidates, we are going to be impacted. There is no silver bullet. We are not going to be able to keep all the jobs that we have. I am working hard to get people to make that connection. I still think that people believe that if US Airways goes away there will be something else for us to do. We are trying hard to find other things, but in today's environment that is tough."

Ornstein wants to place the deferral decision before each individual Mesa employee, but the company first needs the cooperation of its unions. At this point, he said, the company and the unions have been exchanging e-mails and have not talked about the issue.

"We have a symbiotic relationship with US Airways. They are asking their employees to do some things that are tough on them. I am asking our employees to do something they can volunteer for. I appreciate that we don't get paid what they do at US Airways."

A five-year captain flying a 50-seat regional jet in the US Airways colors earns $59 an hour. A full 23 percent deferral would drop the pilot's hourly wage to $45.

Ornstein has not considered seeking similar concessions from those Mesa workers assigned to the United Express account. "I don't view United [UALAQ] as desperate. The circumstances are different. I don't think United is on the potential verge of liquidation." Mesa derives 23 percent of its revenues from its United account.

>>Contacts: Jack Sephan, ALPA, (410) 703-9259; David Castelveter, US Airways, (703) 872-5116; Jonathan Ornstein, Mesa, (602) 685-4001.<<