Labor agreements
still hurdle for
Hawaiian Air
Union contracts are the major
issue prior to emerging from
bankruptcy next year
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Hawaiian Airlines can see the landing lights as it approaches the end of its nearly two-year journey through bankruptcy.
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That leaves labor contracts as the major issue to be decided. But as many industry experts attest, renegotiating labor contracts may be the most difficult hurdle to overcome.
Hawaiian, which sought $15 million in workplace rule concessions in early 2003 under former Chief Executive John Adams, has begun meeting with the airline's three main labor groups to reach an agreement before the Jan. 25 confirmation hearing of the reorganization plan.
The company, which has about 3,400 employees, is offering the pilots, flight attendants and machinists pay increases and the resumption of profit sharing while seeking changes in benefits and improvements in productivity. The benefit changes would mean consolidating the airline's 64 health plans into one plan and increasing the amount employees have to pay.
Productivity changes would include paying more to employees who are actually working and less to reserves who are paid to be available on an as-needed basis.
Hawaiian also wants to freeze the pilots' pension plan -- but not terminate it -- and make up the underfunding over a period of time while switching the pilots to a defined contribution plan like a 401(k).
"Hawaiian is offering by far the best contract proposal of any of our competitors because the airline has done well and we believe the employees should benefit," Hawaiian trustee Joshua Gotbaum said.
As fuel prices spiral upward, airlines throughout the industry have turned to the one area they can control -- labor -- to keep expenses down. Gotbaum, though, said he doesn't want to cut wages but is seeking to "keep our costs from rising at a time when our competitors are cutting theirs."
But Jim Giddings, negotiating committee chairman for the Air Line Pilot Association's Hawaiian Airlines unit, said Gotbaum's proposal is an indirect way of saying that the airline is planning layoffs.
"They want us to work more so that they need fewer employees. They're asking everybody for that, not just the pilots," said Giddings.
"If what they're saying is they want you to be more productive, it basically means there are fewer employees for the amount of work that gets done. In a steady situation, it implies layoffs. In times of growth, it means working more to support the growth of the company."
Sharon Soper, president of the Association of Flight Attendants Hawaiian Airlines unit, said "we were shocked and disappointed by their proposal."
"We're a company that has made more money than we've ever made in our history," she said. "Also, the creditors are getting 100 cents on the dollar, and to be asking for labor to pay for a pay raise seems unconscionable at this point."
The labor groups point out that last year they agreed to annual concessions and that they were promised that if they did so they wouldn't be asked to do so again. The pilots gave back $8 million in concessions while the flight attendants relinquished nearly $3.5 million.
"We have 25 percent of our pilots who have been laid off, we agreed to $8 million per year in concessions at the beginning of the case, we've had several (bases) closed and our flying has been cut back," Giddings said. "Their proposal is asking us to give even more. They're looking for cuts in our retirement and our disability, and they're asking us to pay for pay raises with more job cuts."
Hawaiian's response, though, is that not all creditors will be made full because the largest creditors -- the aircraft lessors -- received less than 100 percent when they sold their claims to RC Aviation LLC, the investment group that is teaming up on a reorganization plan with Gotbaum, the unsecured creditors' committee and parent company Hawaiian Holdings Inc.
In addition, Hawaiian said that its once admittedly underpaid employees now earn wages more in line with their competitors who fly to Hawaii. Hawaiian said the gap has closed because of catch-up wages paid between 2000 and 2004 and due to wage reductions that other struggling airlines have implemented. Since 2000, the company said hourly rates have gone up 41 percent for pilots, 36 percent for flight attendants and 29 percent for mechanics. For example, Hawaiian said that top scale for a wide-body captain is $163 an hour today for a 767 compared with $116 an hour for a top-scale captain flying a DC-10 in 2000.
Moreover, Hawaiian said it has the second-highest unit labor costs per hour of any airline that flies to Hawaii at $1,293 an hour, according to second-quarter data from the U.S. Department of Transportation. Only Delta Airlines is higher, at $1,447 an hour. The unit labor costs refer to how it costs for the time the planes and employees are actually in the plane or in the air.
Hawaiian said it is unable to cut fares because of increased competition and it needs to make changes because profits are falling as fuel costs and labor costs are rising. In August, operating income dropped by a third for the third decline in four months as fuel costs climbed 48 percent from a year earlier and labor and benefit expenses rose 14 percent.
Giddings, though, doesn't buy Hawaiian's arguments.
"The other airlines are cutting their labor costs because they're not profitable," he said. "We have to look at what's going on with Hawaiian. And at a time when there's been record profits and the airline's operational performance is second to none, they're asking for these deep concessions."
Hawaiian management has said that it is growing and that it can improve productivity without layoffs. The airline also is seeking to purchase additional Boeing 767s -- preferably used ones -- as it eyes expansion to both the East and West. It was hamstrung in recent efforts to purchase two aircraft because of the time it takes to get requests approved by federal Bankruptcy Court.
Ironically, Hawaiian rejected the delivery of two new 767s last year -- one from Boeing Capital and one from Ansett Worldwide -- shortly after the company filed for Chapter 11 reorganization. The decision to reject those planes was made by Adams.
Officials at the airline now believe the decision by Adams to return the two 767s was a mistake. In addition to needing the aircraft for expansion, Hawaiian -- through reorganization partner and investor RC Aviation -- had to compensate Ansett and Boeing Capital for rejecting those planes in addition to restructuring their leases. RC Aviation paid an undisclosed amount -- believed by some to be about 75 percent of the claim -- to purchase Ansett's $107 million claim. RC Aviation also paid $66.5 million to buy a Boeing Capital claim whose total never was publicly disclosed.
Hawaiian also returned two Boeing 717s last year. Hawaiian's fleet now consists of 14 767s, used for the trans-Pacific flights, and 11 717s, used for interisland service. Trans-Pacific routes bring in roughly 70 percent of Hawaiian's annual revenue.