United Air Cuts Work Hours, Spurring Labor Showdown for Next CEO

(Bloomberg) -- United Airlines Holdings Inc. plans to reduce weekly work hours for about 15,000 airport and baggage employees as the company struggles to reduce labor costs amid a collapse in travel demand.

Full-time schedules will be cut to 30 hours a week from 40 hours, United Chief Operations Officer Greg Hart said Friday in a memo to the affected workers. The disclosure to the employees, who are represented by the International Association of Machinists and Aerospace Workers, came hours after United’s leaders warned of a dire outlook in a call with Wall Street analysts.

The decision to chop hours threatens to roil labor relations just as United President Scott Kirby takes over as chief executive officer from Oscar Munoz, who spent much of his tenure courting unions after years of tension. The reduced schedules will take effect May 24, four days after Kirby takes the reins with United embroiled in the airline industry’s worst-ever crisis because of the Covid-19 pandemic.

“This was a very difficult decision and one we didn’t take lightly,” Hart wrote in the memo. United “spent many hours trying to negotiate a consensual, more favorable agreement with your IAM leadership but unfortunately were unable to do so.”

In a letter to members, IAM District 141 President Michael Klemm called the decision “cruel and selfish” and accused United of initiating “forced layoffs.” The move may violate the terms of a federal bailout providing billions of dollars to the airlines, Klemm said in a statement, and the union is considering legal options to halt the action.

The company “refused to engage with the IAM in cost saving discussions that would provide the carrier with the same amount of financial relief as the involuntary furloughs will,” Klemm said. The union represents more than 27,000 workers at United.

Vanishing Revenue

Airlines are seeking to slash expenses as revenue tumbles because of the coronavirus outbreak and government travel restrictions. U.S. passenger totals are down about 95% compared with the same level a year ago.

Complicating the dispute at United is the U.S. government’s Cares Act, the economic rescue package that provides billions of dollars in support for airlines.

The carriers are barred from implementing mass layoffs or slicing pay rates under the terms of $25 billion in federal payroll aid. But the bailout legislation doesn’t contain language about minimum work hours or income levels.

United’s move to reduce work hours follows similar cuts for thousands of employees by Delta Air Lines Inc. and JetBlue Airways Corp., both of which have fewer workers represented by collective bargaining agreements.

Furlough Dispute

At United, the machinists union has said it considers a change in workers’ hours to be “a furlough event.” United classifies the move as “a reduction in work status, not a furlough event,” spokeswoman Leslie Scott said. United plans to arrange schedules so that every employee who had 40 hours of work will get 30, she said.

Apart from the decision affecting machinists, United is “evaluating all of the options we have available under our collective bargaining agreements” with other work groups, Scott said.

Already, about 20,000 United employees have taken voluntary unpaid leave or separations, and Munoz and Kirby won’t be paid a salary through at least June 30. United has also cut corporate officers’ base salaries in half.

The Chicago-based airline has said its 2019 labor expense was $6.5 billion for the six-month period covered by federal aid. The company is receiving $5 billion in payroll assistance, which includes $3.5 billion in grants and $1.5 billion in loans.

United has also applied for a low-interest federal loan that could provide another $4.5 billion in funds allocated by the U.S. assistance program if the company decides to tap it.

Cash Burn

United is bracing for a sustained drop in travel demand. It’s even planning for the risk of seeing no meaningful passenger revenue into next year, although Kirby said the company wasn’t forecasting such an outcome.

Still, the airline has “a plan on the shelf” to reduce daily cash burn to about $20 million, if needed, by cutting jobs in October, Kirby said. United said its burn rate will average no more than $45 million in the second quarter, and vowed to look for long-term expense reduction as well.

“We’re going to engineer costs permanently out of the system,” Kirby said. “Everything is on the table.”

©2020 Bloomberg L.P.

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