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Teamsters Picket United Airlines: What You Need to Know

By Rich Smith - Mar 10, 2016 at 4:03PM

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Good times for airlines beget tough times for salary negotiations.

Teamsters rally for a strike against United Airlines. Image source: International Brotherhood of Teamsters.

"United's top executives get nearly 40% of their compensation in stock ... Eight UAL executives have reaped more than $6.5 million from cashing in options and buybacks over the past year, and that's not right when the company refuses to give the mechanics a fair contract."
-- Teamsters General Secretary-Treasurer Ken Hall 

Decrying anti-labor labor practices and a reluctance by airlines to share the wealth in these boom times, United Airlines (UAL -0.73%) mechanics and technicians have spent the past two weeks picketing United at airports from LAX to Chicago O'Hare to LaGuardia. At issue is an employment contract that United offered its employees in late February -- a contract that 7,800 United Teamsters members voted down by a resounding 93%.

The deal
On the face of it, United's offer to the Teamsters doesn't look half bad. According to media reports, United offered its mechanics raises of anywhere from 25% to 33%, and bonuses that would average $9,000 per employee. But according to the Teamsters union representing United's employees, these numbers tell only half the story.

As one Teamsters representative explained, United's bankruptcy back in 2002 cost its employees big money in lost pensions and stock holdings rendered worthless. Back then, management told employees that if they stuck with the airline, United "would make it up to them when good times returned. Now United is earning record profits and spending billions to buy back stock."

But according to the union, the 25% raise and big bonus offer United has put on the table comes with some steep costs -- among them, a two-thirds reduction in profit sharing, less pay for overtime work, and higher health insurance costs. The union also points out that for new hires, United's contract also offers less pay (starting "in the low $20s" per hour) and less vacation and sick leave -- none of which appeals to its more junior members.

Who's right?
Who has the right side of this debate: the airline, which says it's offering its employs a steep wage hike, or the union, which says it's facing steep declines in other benefits? Without seeing the actual contract being proposed, it's hard for an investor on the outside to know for sure -- but there are a few things we do know.

For one, the Teamsters are right about United Airlines earning beaucoup bucks in the current boom times for airlines. In 2015, data from S&P Global Market Intelligence show that United booked a $7.3 billion profit on $33.7 billion in revenue. That was six-and-a-half times as much profit as United earned in 2014 (when revenues boomed even bigger), and nearly six times as much as the company has ever earned in a single year. (United's previous most profitable year, says S&P Global, was in 1999 -- just before the dot-com bubble burst.)

The other side of the coin
It's little wonder, therefore, that if United's contract offer requires United's employees to give up much of their ability to share in these profits, that might irk the rank and file. It's little wonder, too, that earlier this week, Teamsters showed up in New York City planning to picket United's appearance at the J.P. Morgan Aviation, Transportation & Industrials Conference on Tuesday, threatening to strike if they don't get a better deal.

On the other hand, though, it's worth pointing out that United has only ever broken above $1 billion in profits three times in its history -- the aforementioned $1.2 billion profit in 1999, 2014's $1.1 billion haul, and of course 2015 itself. And as the union itself pointed out in a warning to investors this week, "United has announced plans to spend as much as $2.9 billion on new aircraft and other capital expenditures in 2016" -- moves that could greatly pinch profits in the year ahead.

When you get right down to it, maybe the moral of this story for investors and for the union both is that the smart play here is to "Take the money and run." There's little point in arguing over "profit sharing" when history suggests that United's huge profits of yesteryear are not likely to last.

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