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Will a Pilots Strike Cripple UPS?

By Rich Smith - Sep 19, 2015 at 12:13PM

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FedEx pilots just got a big pay raise. Now UPS pilots want a raise, too. Three guesses on who will pay the freight.

If it's a fat paycheck you're looking for, you could do a lot worse than working as an airline pilot -- and a lot, lot worse than working as a parcel post pilot.

FedEx's pilots union is about to ink a contract guaranteeing successive wage bumps over the next six years. UPS pilots might want a similar deal. Image source: The Pilots of FedEx.

According to employment website, the average pilot in the U.S. earns just under $122,000 a year, plus benefits. As we learned earlier this month, though, the average pilot working for FedEx (FDX 3.91%) earns closer to $234,000 a year. And thanks to a new contract, FedEx's pilots salaries could climb by more than 25% over the next few years.

If you'd find it hard to scrape by on just $234,000 a year... how does the idea of earning $298,397 grab you?

Brown with envy
I'll tell you how it makes one group of pilots feel: jealous. Downright green with envy -- or "Brown with envy" might be closer to the mark.

You see, the pilots at FedEx rival UPS (UPS 2.60%) are not exactly jumping with joy over the prospect of earning barely half what their technicolor rivals rake in at FedEx. According to Glassdoor, the UPS pilots it has surveyed earn closer to $168,000 a year, or just 56% of what FedEx pilots could soon be earning.

Voicing their disgruntlement, UPS' pilots union, the Independent Pilots Association, ran a full-page ad in The Wall Street Journal last week. Citing management's four-year history of "stalled and delayed" contract negotiations, IPA announced its intention to call a strike vote and force UPS' hand if pilots' demands are not met.

According to IPA President Captain Robert Travis, "A strike is the least desirable outcome of labor negotiations, but ... we've reached a point where UPS needs to hear loud and clear from our membership that they are willing to do whatever it takes to secure an industry leading contract." Accordingly, IPA plans to begin collecting votes from its 2,600 members soon, to "request a release from federal mediated negotiations" with UPS management and call a strike.

Why not just strike?
As IPA explained in a note to its members, "UPS pilot labor negotiations are conducted pursuant to the Railway Labor Act (RLA)." Under the RLA, UPS pilots' contract with UPS does not automatically expire on its end date. Rather, it continues in force while pilots and management negotiate a new contract pursuant to "a statutory negotiations process supervised by the National Mediation Board."

According to IPA, it spent September 2011 through January 2014 negotiating directly with UPS to no result. Federal mediators were then called in, and mediated negotiations began in February 2014 -- also with no result. Now, IPA thinks the only way to get what it's asking for is to remove the mediators from the picture and force UPS' hand by calling a strike. It needs its members' permission to take this step, however. (And then it must get the mediators to agree.)

What comes next?
Voting on the first step will begin Oct. 1, with the results to be announced Oct. 23. Assuming the pilots authorize their union to proceed, federal mediators will presumably recommend the parties submit to binding arbitration of their dispute. If this offer is not accepted (it has to be voluntary), the parties must wait another 30 days before taking further action. After that, the pilots would be free to strike -- and UPS would be free to lock them out if they do strike.

Alternatively, the White House might decide to step in and create an "emergency board" to help mediate the dispute -- delaying a strike by an additional 30 days. Finally, there's a possibility for Congress to intervene, further elongating the timeline.

What it means to you
As you can see, it's a complicated process. What happens next is really anybody's guess. But with two month-long delays built into the process, odds are good that no strike can be called before this year's Christmas holiday season is past. At that point, the pilots would lose a lot of their leverage.

In the meantime, though, IPA can make a lot of noise and make a lot of Christmas shoppers think a strike could delay Santa's arrival. Additionally, IPA is doing all it can to "invite the investment community to learn more about our dispute with UPS," and to keep investors "informed" and "apprised of developments" -- and presumably, apprehensive about UPS' stock price.

In short, IPA will do its best to rattle cages and agitate for better wages. The upshot for investors, therefore, is that even without an immediate pilot strike, UPS' stock could soon encounter some turbulence. Better buckle up.

Skies could turn unfriendly for UPS shareholders, and pilot contract negotiations could turn hostile. Image source: UPS.

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