Legislature(2009 - 2010)Anch LIO Conf Rm
08/31/2010 09:00 AM House TRANSPORTATION
| Audio | Topic |
|---|---|
| Start | |
| United Parcel Service Pilot Furlough | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE TRANSPORTATION STANDING COMMITTEE
Anchorage, Alaska
August 31, 2010
9:13 a.m.
MEMBERS PRESENT
Representative Peggy Wilson, Chair
Representative Craig Johnson, Vice Chair
Representative Kyle Johansen
Representative Cathy Engstrom Munoz
Representative Tammie Wilson
Representative Max Gruenberg
Representative Pete Petersen
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Bob Lynn
Senator Bettye Davis
COMMITTEE CALENDAR
UNITED PARCEL SERVICE PILOT FURLOUGH
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JOHN PARROTT, Manager
Ted Stevens International Airport
Anchorage, Alaska
POSITION STATEMENT: Testified on the topic of the United Parcel
Service Pilot Furlough.
MARY SIROKY, Legislative Liaison
Office of the Commissioner
Department of Transportation & Public Facilities
Juneau, Alaska
POSITION STATEMENT: Provided feedback during the hearing on the
United Parcel Service Pilot Furlough.
ROBERT THRUSH, President
Collective Bargaining Unit
Independent Pilots' Association (IPA)
No address provided
POSITION STATEMENT: Testified on the topic of the United Parcel
Service Pilot Furlough.
WILLIAM TRENT, General Counsel
Independent Pilots' Association (IPA)
No address provided
POSITION STATEMENT: Testified on the topic of the United Parcel
Service Pilot Furlough.
RICK BARR, Vice President
Flight Operations
United Parcel Service (UPS)
No Address Provided
POSITION STATEMENT: Testified on the topic of the United Parcel
Service Pilot Furlough.
SCOTT CASEY, Vice President
Public Affairs
United Parcel Service (UPS)
No address provided
POSITION STATEMENT: Testified on the topic of the United Parcel
Service Pilot Furlough.
ACTION NARRATIVE
9:13:24 AM
CHAIR PEGGY WILSON called the House Transportation Standing
Committee meeting to order at 9:13 a.m. Representatives Munoz
and T. Wilson via teleconference, and Representatives Johnson,
Johansen, Petersen, Gruenberg, and P. Wilson were present at the
call to order. Also present were Representative Millett via
teleconference and Representative Tuck and Senator Davis.
9:15:42 AM
^United Parcel Service Pilot Furlough
United Parcel Service Pilot Furlough
CHAIR P. WILSON announced that the only order of business was
the topic of the United Parcel Service Pilot Furlough.
CHAIR P. WILSON stated that the goal of the committee was to
hear from all involved parties and determine if the state has
any role in this labor issue. She said she knows this is an
emotional issue for many, and she emphasized that the committee
would remain neutral while hearing testimony.
9:17:23 AM
JOHN PARROTT, Manager, Ted Stevens International Airport,
reported that the airport has 68 land leases, 14 terminal
leases, 14 concession agreements, and 38 airline operating
agreements and permits. The United Parcel Service (UPS) is one
of the 38 air carriers; it is a signatory carrier with both an
operating agreement and land leases. He said businesses at the
airport pay appropriate rates and fees to conduct their
operations; as long as each business is conducted in accordance
with pertinent agreement, the airport does not insert itself
into its affairs. Mr. Parrott said the airport is a state
agency, which implements state policies and procedures as
directed. It does not interpret law or set state labor policy.
MR. PARROTT related that UPS pays the same land rent and landing
fees per thousand pounds of certified gross take-off weight as
the airport's other airline customers. He offered his
understanding that UPS has been treated the same as the
airport's other customers. He said whenever possible, the
airport attempts to work with its customers to facilitate their
businesses, but within the guidelines of the rules and
regulations, which include Federal Aviation Administration (FAA)
grant assurances and the Alaska Administrative Code, Title 17.
9:19:02 AM
MR. PARROTT, in response to a question from Representative
Gruenberg, said UPS has not, at this time, made applications for
any more spaces. Furthermore, he related that UPS has made
inquiries as to whether or not the airport would have parking
spaces available, in case UPS has broken aircraft. He specified
that such parking would not be designated for UPS.
9:19:41 AM
MR. PARROTT, in response to Representative Johnson, confirmed
that as airport manager, his responsibility is to manage the
airport according to rules and regulations, without personal
opinion about who may be right or wrong.
MR. PARROTT, in response to Representative Gruenberg, said he is
fairly certain that the land leases held by UPS will not expire
for a long time, because they range from 30 to 55 years, but the
operating agreement with all the signatory air carriers expires
6/30/2013. In response to a follow-up question, he indicated
that none of those agreements include language regarding
furloughs.
9:21:09 AM
MR. PARROTT, in response to Chair P. Wilson, said UPS was not
given any special incentive to operate through Anchorage.
9:22:12 AM
MARY SIROKY, Legislative Liaison, Office of the Commissioner,
Department of Transportation & Public Facilities, in response to
Representative Gruenberg, opined that Mr. Parrott did an
excellent job of describing the position of both the department
and the airport.
9:23:27 AM
ROBERT THRUSH, President, Collective Bargaining Unit,
Independent Pilots' Association (IPA), told the committee that
the collective bargaining unit serves the 2,800 people who fly
214 UPS large jet aircraft. He relayed that he has 21 years'
experience flying a UPS A300 as an airbus captain.
MR. THRUSH opined that although UPS's announcement last week
that it was reducing the number of furloughed pilots from 300 to
230 is good news for those 70 pilots and their families, it does
little to reduce the economic impact of the furlough on
Anchorage, Alaska, and nothing to restore UPS's broken
commitment to the city or to "our pilot group" - particularly
given that the furlough never had to happen. Mr. Thrush said
the economic impact of the UPS furlough on Anchorage is still
severe, with more than $39.5 million in lost payroll and
unemployment benefits through the year 2014. He said it is
important to know that since 1988, when UPS was established, all
pilots were told on their first day of new hire training that
they could tear up their resumes because this would be the last
job they would ever need. He explained that it was this
commitment from UPS that lead 155 UPS pilots and their families
to move to Alaska after the Anchorage domicile was opened in the
fall of 2006. Those pilots relied on UPS's commitment to take
care of its employees who worked hard and made sacrifices for
the company. He said unfortunately for those Anchorage pilots
who took UPS at its word, their relocation to Alaska was a one-
way ticket.
MR. THRUSH posited that UPS has not only failed to keep its
commitment to its pilots, but has also failed to keep its
commitment to the State of Alaska. He explained that instead of
creating a pilot base in Anchorage, UPS has created a commuter
domicile, which currently has 541 pilots, but only 140 resident
pilots. He said that is about 26 percent of the pilots assigned
to the Anchorage domicile, which is down from 33 percent in
February before the start of the furlough, when the domicile's
commuter to resident ratio was 505:167.
MR. THRUSH said the 2,800 UPS pilots had, since April 2009,
preserved all the jobs through voluntary cost-cutting measures.
The pilot group took it upon themselves to give up pay and
benefits to produce more than $117 million in guaranteed savings
for UPS, which is enough to keep 300 pilots employed well into
the year 2011. Under the voluntary job protection program, UPS
pilots were able to generate cost-savings for UPS by: taking
reductions in flight-pay guarantee; taking unpaid leaves of
absence; participating in job sharing; taking military leave;
contributing their unused sick leave/sick bank time; or taking
early retirement.
MR. THRUSH stated that on January 11, 2010, UPS "pulled a bait
'n' switch." He said UPS now told the pilots that the company
needed $245 million in savings through the year 2015, and that
the preference was for compulsory savings: furloughs. He said
the pilot group was willing to step up to cover the demands of
UPS in order to keep the 300 pilots employed. However, on
February 8, just days after UPS's CEO Scott Davis said it looked
like the recession was finally over, UPS told the pilot group
that it was unwilling to continue with voluntary savings
programs and it would not consider other programs. The company
issued a press release and began the furlough process.
MR. THRUSH noted that last Saturday, UPS celebrated its one
hundred and third birthday with the theme, "103 years of
promises." He said one of UPS's founders once gave credit to
the employees of companies as being significantly responsible
for the success of that company. Mr. Thrush opined that that
belief is no longer held.
MR. THRUSH said although at times IPA and UPS are on different
sides of the fence, every member of the IPA is proud to be
called a UPS pilot. The pilots believe in professionalism and
ensuring packages and letters are delivered on time around the
world. He said the pilots have proven their dedication,
loyalty, and commitment to UPS customers for 20 years, without
fail. He read the UPS founders' day message as follows:
Our success is not measured by industry accolades or
milestones; it's measured by the achievements of our
customers and the accomplishments of our employees.
It's their success that we celebrate during founders'
day.
MR. THRUSH said if this were true, he would not be testifying
today. He stated that there are 58 Alaskan pilots and their
families that feel betrayed by an employer whom they trusted
with their future. On behalf of those pilots and their
families, Mr. Thrush thanked the committee for bringing this
issue forward.
9:31:27 AM
MR. THRUSH, in response to Representative Lynn, said in addition
to the pilots being furloughed, there are also about 120
mechanics; however, he said he does not know if they are in
Alaska. In response to questions from Representative T. Wilson,
Mr. Thrush said the 58 targeted pilot jobs will be filled by
other pilots in the Lower 48 who have seniority, and he offered
his belief that very few of them will move to Alaska. He stated
his belief that the reason the senior pilots would not likely
move to Alaska is based on the uncertainty of the situation and
the history of 58 pilots having made the commitment and now
finding themselves stuck in Alaska "with no way to get back to
the Lower 48." He said he hopes that the legislature can look
into ways in which the pilots can reach some type of agreement
with UPS to prevent [the furloughs].
9:34:33 AM
MR. THRUSH, in response to Representative Lynn, said it is
possible for pilots to get temporary assignments with other
carriers while on furlough; however, currently most industry
employers are reluctant to hire UPS furloughed pilots because
they think this is political and they may lose the money spent
to train new pilots when they leave. In response to
Representative Johansen, he explained that that is what has been
reported to him by UPS pilots trying to get jobs with other
companies.
REPRESENTATIVE JOHANSEN asked, "Who are they trying to leverage
...?"
MR. THRUSH answered, "Well, I believe they're trying to leverage
us."
9:36:42 AM
MR. THRUSH, in response to Chair P. Wilson, said "they" have not
[broken] any specific language in the collective bargaining
agreement.
9:37:05 AM
REPRESENTATIVE PETERSEN questioned whether some of the
furloughed pilots will have trouble maintaining their current
flight status and capability.
MR. THRUSH said the pilots must make three takeoffs and landings
every 90 days in order to maintain "currency and proficiency" in
the aircraft they are currently operating. If a pilot begins
work with another airline, that airline company would train
him/her.
9:38:06 AM
REPRESENTATIVE GRUENBERG directed attention to the second
paragraph of a one-page document in the committee packet
entitled, "Executive Board Response to UPS Furlough
Announcement," which read as follows [original punctuation
provided]:
Your current and past EB spent thousands of man-hours
in efforts to find cost savings that would provide a
viable alternative to the Company Furlough Plan. The
membership stepped up and voluntarily provided cost
savings of $136 million. The Company continued to
imply they were looking for contract concessions to
which your Executive Board was unwilling to agree.
REPRESENTATIVE GRUENBERG asked Mr. Thrush to clarify what the
contract concessions were that the company was looking for, and
why the executive board was unwilling to agree.
MR. THRUSH replied that essentially the company handed IPA a
list of "fixed, permanent things" that would directly affect the
contract, including: hourly rates; guarantees for each month of
pay; and retirement pay. He recollected there were nine items
on the list, and he said they would affect "100 percent of all
the pilots here moving forward approximately a year prior to our
next contract negotiation." He said those were things that IPA
would have to renegotiate to get back. He continued as follows:
Our position was: If we could generate the cost
savings required with voluntary programs that weren't
permanent in affecting 100 percent of all our members,
why would we need to give contracting sessions? The
company told us from the very beginning they didn't
want a furlough, and they just were looking for a
certain amount of cost savings. We felt very positive
that we could provide those cost savings through
voluntary means and there was no reason to do a
contracting session.
MR. THRUSH said the company was trying to force IPA into [a
contracting session] and IPA would not agree to it. In response
to a follow-up question from Representative Gruenberg, he
clarified that the company essentially told IPA that if it was
unwilling to agree with the fixed cost-saving measures that
involved contracting sessions, then the company would furlough
employees.
9:41:25 AM
REPRESENTATIVE GRUENBERG directed attention to the first
sentence of a copy of a business wire in the committee packet,
dated February 8, 2010, entitled, "UPS Starts Pilot Furlough
Process," which read as follows [original punctuation provided]:
UPS (NYSE:UPS) today announced plans to furlough at
least 300 of its airline pilots, but at the same time
continued its effort to find a solution with the
pilots' union that would avert or mitigate the layoffs
before they take effect.
REPRESENTATIVE GRUENBERG asked if the company made efforts
beyond those described by Mr. Thrush, which would involve
renegotiating nine issues in the contract.
MR. THRUSH offered his understanding that UPS never presented
IPA "with anything other than those original nine." He said IPA
has come up with several plans to present to UPS, but the
company has emphatically told IPA it is not interested.
REPRESENTATIVE GRUENBERG recollected that Mr. Thrush had
indicated that the legislature could help [IPA and UPS] reach an
agreement. He asked Mr. Thrush to expound upon that.
MR. THRUSH suggested that the State of Alaska could view this
issue from the perspective of what it will cost the state and
perhaps influence UPS to come back to the table with IPA to
figure out other ways to resolve the issue without continuing
the furlough. In response to a follow-up question, he said IPA
has not had mediation, and he does not know whether or not it
would help. He indicated he thinks that based on the effect to
Alaska's economy that the furlough may have, the state might be
able to have some influence in speaking to UPS.
9:45:01 AM
WILLIAM TRENT, General Counsel, Independent Pilots' Association
(IPA), in response to Representative Gruenberg's question as to
whether mediation would be useful, said he thinks IPA is open to
any ideas that would stop the furloughs.
REPRESENTATIVE GRUENBERG observed that the legislature is more
reactive than proactive.
MR. TRENT emphasized that the most important thing the
legislature is doing is fact finding. He explained that the
efforts of both the committee and other lawmakers in the state
are helping to bring the issue to the forefront.
9:46:29 AM
REPRESENTATIVE JOHANSEN stated for the record that he is highly
uncomfortable with the conversation going on in the committee
room - discussions about contract negotiations and what the
state can do to make one side feel a little better. He said the
legislature does not get in the middle of discussions related to
contracts with state employees. He said he does not intend to
interfere with the process, but will do no more than sit back
and listen.
9:48:06 AM
REPRESENTATIVE JOHNSON said although he may have been one of the
driving forces behind this meeting, he, too, is uncomfortable
with labor negotiations. However, he said he was frustrated
hearing "the dueling numbers" bandied about by both parties, and
he opined that the main purpose of the meeting is that it serves
as a fact-finding mission. He said if the facts can be put down
on the table, the meeting will have been a success. He said he
does not think it is the legislature's role to step into
negotiations. He said this is an opportunity for information to
come forth in neutral territory.
9:49:52 AM
REPRESENTATIVE P. WILSON said she is holding this meeting as a
courtesy to the Vice Chair. She reiterated her opening remark
that the purpose of the meeting is for fact finding.
9:50:13 AM
REPRESENTATIVE TUCK expressed appreciation for the opportunity
to hear today's testimony. He said that although the state
might not have anything to do with these labor negotiations, he
thinks this issue does impact the community of Anchorage. He
indicated that he shares the panic felt by those who have
testified when he hears that 155 families moved to Alaska and
showed loyalty, only to have it not returned. He indicated
disappointment regarding the furloughs. He opined that this is
a good group of employees. He asked all those in the room to
raise their hands if they would be affected by the furlough [the
result was not stated for the record].
9:51:47 AM
REPRESENTATIVE T. WILSON concurred with Representative Johansen
that the committee is setting a precedent that it should not
set. She questioned whether pilots know, before entering into a
job, that they could lose it.
9:52:16 AM
MR. THRUSH answered absolutely; however, he said the difference
in this situation is that UPS told the pilots to tear up their
resumes because this would be the last job they would ever need.
He opined that leaving extended family behind in the Lower 48 to
come up and work in Alaska, only to have that job taken away is
"pretty significant."
REPRESENTATIVE T. WILSON asked Mr. Thrush if he believes that
UPS was sincere when it told the pilots this would be the last
job they would ever need.
MR. THRUSH answered yes. However, he emphasized that it was the
pilots who stepped forward to take cost-saving measures. He
said UPS announced plans to furlough at least 300 for at least
six years through the year 2015, and it has been a little over
six months since this began and the company has already reduced
the furlough number by 23 percent. In response to Chair P.
Wilson, he said IPA is happy about that.
REPRESENTATIVE T. WILSON asked, "Don't you believe that it's
UPS's right as a business to do what they feel is best for their
bottom dollar?"
MR. THRUSH said IPA does believe that.
9:54:50 AM
REPRESENTATIVE GRUENBERG said it sounds like IPA had a strong
trust in the company before the furloughs. He asked how the
furloughs have affected the union members' confidence in the
company's worth and how they might affect IPA's bargaining
position in the future.
MR. THRUSH confirmed that what Representative Gruenberg said is
correct. He relayed that the "bottom" 300-400 employees are
probably the most loyal in the company, but that they would no
longer go out of their way to do any favors for UPS because they
feel betrayed.
9:56:44 AM
CHAIR P. WILSON, regarding the nation's overall economy,
remarked that more than 1 million have lost their jobs. She
asked if IPA met its deadline in relation to an agreement made
with UPS.
9:57:49 AM
MR. TRENT began his testimony. He stated that the pilot
furlough initiated by UPS was 100 percent avoidable. He said
the furlough will affect the state by removing millions of
dollars from the local economy. He told the committee that he
has been directly involved with all negotiations between IPA and
UPS. He relayed that the pilots of UPS have negotiated three
milestone contracts in 1991, 1998, and 2006. Additionally, IPA
has negotiated hundreds of supplemental agreements over the
course of those years. He said the company has grown during
that time, from a handful of pilots flying primarily in the
Lower 48 to a robust national operation of more than 2,800
pilots flying worldwide. Not only Anchorage, but the entire
state of Alaska has benefited from this growth. He credited the
overall good relationship between UPS and its pilots for the
growth of the company. He said the pilots understand that their
success is linked to the success of the company. He said UPS
also understands that the strength of the airline is linked to
the professionalism and skill of the company's pilots.
MR. TRENT said there have been sharp differences. He relayed
that in the last round of negotiations, UPS formally proposed
outsourcing the majority of international flying to cheaper
foreign competitors who base their pilots abroad. If that had
happened, he said, there would likely not have been a base of
pilots in Anchorage. He reported that UPS was the first major
airline to use win-win bargaining; the National Mediation Board
has held the 2006 negotiations up to the industry as a model.
He said this cooperative approach was severely tested by the
recession that started in late 2008.
MR. TRENT related that in February 2009, UPS approached IPA with
a request that the pilots provide the company with $131 million
in total cost savings to the end of 2011. Even though UPS
remained highly profitable and maintains one of the strongest
balance sheets of any large corporation in America, all employee
groups were told they should make sacrifices in order to control
costs. He said even though pilots did not like all the details
of what the contribution should be that they decided that it was
a reasonable "belt-tightening" exercise to ensure the success of
the company. He said UPS had suggested that its employees raise
the money by agreeing to a combination of wage and pension cuts.
He emphasized that UPS told IPA in early 2009 that it did not
want to furlough pilots, because the company wanted to have all
hands on deck; however, the company told IPS that if the pilots
could not generate the $131 million, then UPS could forcibly
generate that savings by laying-off 300 pilots through the end
of 2011. Many of those pilots would be the junior pilots who
were just hired in 2007 and moved to Anchorage for the job.
10:05:58 AM
MR. TRENT said at the end of that 2009 meeting, UPS and IPA
agreed on two things: a furlough was not in the interest of
either UPS or its pilots; and discussions would be commenced on
March 11, 2009, to attempt to find an accessible approach to
reaching that $131 savings and to avoid pilot furloughs. The
pilots proposed a series of voluntary income reduction programs
to include: short and long nonpaid leave, job sharing, reduced
work schedules for reduced pay, early retirement, and the option
to allow pilots to donate some or all of their accumulated sick
leave directly to the company. The approach was arrived at
jointly and named, "The Voluntary Jobs Protection Program." On
April 29, 2009, UPS and IPA reached a formal agreement on
offering the program to the pilots. Mr. Trent stated that
against incredible odds, the program worked; following the first
sign-up period that ended in May, the pilots generated $88.5
million in voluntary savings as a down payment on the $131
million goal, and the effort was praised by UPS's president.
The remaining $30 million was added by January 2010, and leaders
were confident that the remaining amount would be saved by the
end of 2011.
10:10:41 AM
MR. TRENT stated that in December [2010], UPS suddenly raised
the ante to $245 million, and the company said it could extend
the hypothetical furlough to the end of 2015. He stated that by
this time, the pilots felt betrayed. To make matters worse, he
said, UPS said it wanted to keep the money that had been
generated by the pilots, but conduct a "partial" furlough. Mr.
Trent said UPS did not tell IPA how many pilots would be
affected by a partial furlough. He relayed that IPA
emphatically said no to this plan, because it had already talked
three-fourths of its pilots into voluntarily reducing their
salaries to ensure that there would be no furloughs. Instead,
IPA held another round of signups in late 2010 to complete its
end of the bargain.
10:14:54 AM
MR. TRENT said IPA also offered to extend the Voluntary Jobs
Protection Program through 2015, and it would, for the first
time, give pilots the opportunity to volunteer for unpaid time
off in 2012-2015 in order to boost the increased savings that
UPS said it required, but UPS said no. He said IPA made other
proposals that were refused by UPS, such as extending and
enhancing early retirement opportunities that could have saved
millions of dollars. As a last-ditch effort, IPA told UPS to
keep the savings, but postpone the furlough decision to 2012.
If the company decided at the end of that time that it still
needed to furlough, it could take the guaranteed volunteer
savings through 2011 and then, if necessary, combine that with
the furloughs starting the end of 2012 through the end of 2015.
Mr. Trent said the money that IPA's pilots generated voluntarily
through the end of 2011, added to the pot of money that could
have been generated through furloughs from 2012-2015, would
roughly equal the near quarter million dollars being asked for
by UPS. He stated that UPS was not interested in this plan; it
had decided on the immediate furlough option. He related that
IPA was informed on February 8, 2010, that UPS was withdrawing
from the Voluntary Jobs Preservation Program and opting instead
for forced pilot layoffs.
MR. TRENT stated that now, "under the microscope of public
scrutiny" in Alaska, "the story is changing." The furlough of
300 pilots, which UPS had been so confident would last through
2015, has been revised to 230. Mr. Trent said the reduction is
good. However, he added, "But when we heard spin coming from
some UPS officials, we know better." Mr. Trent said the
committee is right to hold this hearing, and he expressed
appreciation for the support that IPA has received from the
Alaska public and lawmakers.
10:18:24 AM
SENATOR DAVIS asked what Mr. Trent means by "spin."
MR. TRENT explained that IPA has heard second and third hand
that the pilots were not willing to avoid the furlough, and that
they could have accepted a partial furlough. He said he thinks
he has explained why that is unacceptable to IPA. He said, "If
you just hear the sound bite, it makes us sound very
unreasonable; I think if you hear the whole story, you can make
your own decisions."
10:19:29 AM
REPRESENTATIVE GRUENBERG asked if UPS management has reduced its
own salaries.
MR. TRENT answered that in 2009, management did take such
measures, for example, by deferring some of its 401K
contributions, which is why the pilots cooperated when asked to
take cost-saving measures. Since then, however, UPS's business
has bounced back a bit and the company has reinstated its 401K
contribution, but it is asking its pilots to sacrifice even more
for the company.
MR. THRUSH offered a correction to Mr. Trent's statement. He
offered his understanding that to date UPS management has not
reinstated its 401K, but it has reinstated its incentive pay,
bonuses, and pay raises.
MR. TRENT apologized for possibly having misstated information.
REPRESENTATIVE GRUENBERG said he would like UPS to follow up on
that point by supplying the committee with facts and figures.
He said he wants to know whether or not UPS [management] has
maintained some of its benefits while asking its employs to give
up theirs.
10:23:04 AM
MR. TRENT, in response to Chair P. Wilson, said the nature of a
furlough is that it has a bell curve, in that pilots would be
furloughed gradually and brought back gradually; the resulting
savings to the company would also be stretched out over that
period of time. He said IPA pointed out to UPS that the
voluntary savings methods agreed to by the pilots would actually
save more money up front for the company than the furlough plan.
In response to a follow-up question, he confirmed that there
were two periods of voluntary sign-ups to save the company
money, and by the end of the second period, which was December
31, 2009, the pilots had raised 93 percent of what UPS said it
wanted. He said both sides were elated by the results.
However, IPA was told that the pilots needed to contribute
double the original amount. In response to Chair Wilson, he
reiterated that he has gleaned this information from being
present during all the talks.
10:28:11 AM
REPRESENTATIVE GRUENBERG questioned whether the issue was not
about completing the remaining 7 percent, but rather was about
UPS wanting a lot more.
MR. TRENT responded that a point of interest is that before the
December 2009 sign-up period ended and before IPA knew that the
pilots were 93 percent towards the goal, UPS was beginning to
comment that the number was going to be raised.
REPRESENTATIVE GRUENBERG offered his understanding that UPS at
that time said the number would be raised significantly, but it
did not specify a number.
MR. TRENT explained that in December of 2009, when UPS told IPA
that the number would be raised to $245 million, IPA asked why.
He said UPS said that it could save a lot more money by
stretching out a furlough through 2015; therefore, to prevent
that from happening, UPS said the pilots would have to save the
higher amount of $245 million. Mr. Trent said IPA argued that
UPS did not need to be increasing the amount; it pointed out
that UPS has many valuable pilots with a lot of training, and a
mutual agreement was already made for no furloughs in exchange
for voluntary savings. He said IPA told UPS that if it was
going to insist on [the $245 million], then it is only fair that
the company give the pilots the opportunity to meet that goal -
to generate that money.
10:30:45 AM
CHAIR P. WILSON reviewed what happened again. She said she can
understand why more money would be involved if the time to
produce it was extended.
MR. TRENT said UPS could pocket the 93 percent savings already
manifested by the pilots and then wait until 2012 to see if
furloughs are still necessary. He said IPA gave UPS very
detailed charts and graphs to show that the company could "get
there."
10:32:53 AM
MR. TRENT, in response to Representative Tuck, clarified his
previous statement about more money saved upfront with the sign-
ups then with furloughs. He related that IPA had agreed to an
"out" clause, so that UPS could protect itself against the
possibility of the economy tanking.
10:34:03 AM
MR. THRUSH relayed that in nine months, the company generated
savings that exceeded $57 million, $48 million of which was in
2009, and $8-$9 million in the first few months of 2010. He
said UPS would have had to furlough all 300 pilots for almost 15
months to generate that same amount of savings. He said UPS got
that money up front but furloughed anyway, which he said IPA
sees as problematic. In response to Chair P. Wilson, he said
the only benefit that the pilots got from this was that the
pilots that would potentially be furloughed were kept on the
property for 10-11 more months. He said they started the
furloughs in May and have only 109 out the door currently and
will not get to 230 until well into 2011. He stated, "We didn't
see the equal return for the amount of money that we gave."
10:36:47 AM
MR. THRUSH, in response to a question from Representative
Johansen, said airlines are regulated under the Railway Labor
Act, under which employee groups can engage in collective
bargaining. The IPA was selected by the UPS pilots to be their
selective bargaining organization in 1990. He said that is the
only group that IPA represents. The entity is a union and dues
are determined by vote of the membership, he said.
10:38:21 AM
REPRESENTATIVE GRUENBERG suggested that a breach had occurred
between UPS and IPA.
MR. TRENT concurred that the pilots, through IPA, had agreed to
do one thing in order to receive protection from furloughs, but
agreed to an "out" for UPS. However, he said he does not think
it was an illusory contract; the pilots did receive 9-10 months
protection from furloughs that they would not otherwise have
had. He said the pilots were engaged in the process of raising
$131 million. In response to a follow-up question from
Representative Gruenberg as to whether there were any expressed
or implied conditions to the "out" clause, he said the clause
was linked to deterioration in the economy.
REPRESENTATIVE GRUENBERG offered his understanding that UPS had
said that the recession was no longer at the level that required
"it."
MR. TRENT explained, "We were hearing ... a CEO talking to
shareholders, ... trying to pump up the share price, and we were
hearing the people ... on the local level saying something
different; so, we were hearing two different things."
The committee took an at-ease from 10:42:15 AM to 10:53:49 AM.
10:53:54 AM
RICK BARR, Vice President, Flight Operations, United Parcel
Service (UPS), said he has worked in his current position since
1977 and, thus, has been present for the aforementioned
discussions between UPS and IPA. He thanked the legislature,
the Department of Transportation & Public Facilities and the
Department of Labor & Workforce Development. He recognized
those pilots and their families present at the meeting. Mr.
Barr said he would cover three topics: UPS in Alaska, the
reasons behind the pilot furlough, and misleading public claims
made recently about the UPS furlough.
MR. BARR stated that UPS is good for Alaska, because it is one
of the state's largest employers, with over 1,000 employees in
Alaska and an annual payroll of $108 million. Additionally, UPS
spends $220 million annually to run its operation. That money
is spent on fuel, maintenance, and housekeeping services. All
told, he reported, UPS spends almost $328 million each year in
Alaska, and that figure does not include the additional millions
on one-time capital expenditures. He specified that UPS has
invested nearly $50 million on the infrastructure of the
Anchorage facility in recent years. In 2008, he reported, UPS
opened a multi-million dollar training facility in Anchorage,
and hundreds of its pilots train there. Those pilots spend
money in hotels and restaurants in Anchorage. He said UPS has
operated in Anchorage for almost 20 years, and over the last
three years has generated an average of $4.4 million annually in
landing fees. The company has increased its Anchorage-based
pilots from 55 in 2007 to 500 in 2010. He said by the end of
2010, UPS will transfer another 50 pilots from other locations
to handle reemergent growth. Furthermore, it will add 75 new
jobs for package handlers. He stated that UPS pays $2.2 million
to Alaska annually in property, fuel, unemployment, and hotel
taxes.
MR. BARR announced that this year the corporation exceeded $1
billion in donations to United Way. He said UPS Foundation
annually donates more than $40 million to charitable
organizations and its employees volunteer hundreds of thousands
of hours to worthy causes. When Anchorage suffered a jet fuel
shortage earlier this year, UPS headed a committee to help solve
that crisis - a solution that will ultimately result in more jet
fuel supplying operations in Alaska. Furthermore, through the
Capstone Project, UPS has helped pioneer next-generation
aviation safety technology now broadly used in Alaska. He said
the planes flown by UPS pilots operate within the strictest
noise standards.
11:00:50 AM
MR. BARR stated that economically and socially, UPS is good for
Alaska; the company has been here many years and plans to stay
many more. He recognized the importance of job growth and
living in the state in which one works. He said although not
contractually obligated to do so, UPS provided incentives for
pilots to move to Alaska.
11:01:11 AM
MR. BARR spoke to the issue of the pilot furloughs. He related
that this is the first time in UPS's history that it has had to
furlough pilots. He said in the airline industry, a furlough is
a temporary layoff; there is full expectation of rehiring all
the furloughed pilots in the future. He said because Anchorage
pilots are the newest, they will be the first to be furloughed;
however, Anchorage will not lose jobs, because every pilot being
furloughed will be replaced by a senior pilot, and those pilots
are being offered relocation packages at the cost of $32,000
each. Mr. Barr reemphasized the temporary nature of the
furloughs.
11:04:11 AM
MR. BARR said the furlough is not happening in a vacuum. He
explained that virtually every UPS employee group has been
impacted by the recession over the last two years; a pilot
furlough was just one of many cost-cutting measures. He listed
other measures that have been taken: reducing aging aircraft;
significantly reducing capital expenditures; freezing management
pay for one year; suspending the 401K matching program for
management - a cut-back that is still ongoing; reorganizing
ground package organizations from 46 to 20 operating units; and
eliminating 1,100 management jobs. He said as the recession
abates, the company is in recovery mode. For example, he said,
in its recent second quarter review, UPS noted a 46 percent
increase in its Asia export business, which is one of the
reasons the company was able to add jobs in Anchorage. He
stated, "At UPS, the equation is simple: packages equal jobs."
He said that is the reason the company has been able to reduce
the furlough from 300 to 230 crew members, effective in 2011.
He expressed appreciation and pride for the pilots of UPS. He
said the company remains hopeful that conditions will continue
to improve so that the furlough number can be reduced even
further, but at the same time, it remains cautious because
economic indicators continue to provide mixed signals. He
stated that regardless of the economy, the conditions that are
driving the furloughs still exist: 48 fewer aircraft are being
flown than were flown in 2003; the company has formally retired
three-person aircraft in favor of more efficient two-person
aircraft; the FAA's 2007 "age 65 ruling" has kept 200 pilots on
the payroll who otherwise would no longer be working; and there
are fewer flying hours than before the recession.
11:07:32 AM
MR. BARR said he would like to set the record straight regarding
the events that brought UPS to where it is today. He emphasized
that UPS never wanted the furlough, because the company
understands the effect of furloughs on its employees. He stated
that union leaders were not interested in contractual cost
reductions to avoid a furlough, such as foregoing wage
increases. However, the union agreed to work with UPS on a
voluntary savings program that would allow: part-time work,
long- or short-term leave of absences, and military leave. He
said UPS also offered an early retirement option, as well as an
option to donate sick leave. It was necessary for the pilots to
save a total of $131 million from 2009 through 2011. He related
that the union opened up a volunteer period in 2009, and initial
attempts fell short. At that point UPS could have furloughed
the pilots, but did not, instead agreeing to delay the furlough
until January 2010. The union fell short again, but UPS still
did not furlough, instead entering into agreements with Mr.
Thrush. In January 2010, UPS received an updated business plan,
which showed that the recession had become more severe, and
which indicated that the pilot overstaffing situation would
extend beyond the previously anticipated 2009-2011 period. He
said UPS believed that the union needed to be aware of these
facts, but that this has been referred to as a "bait and
switch."
11:11:02 AM
MR. BARR stated, "There was never a new number associated with
avoiding furloughs through 2011; the number remained $131
million that they had to achieve." He said if the union could
have reached the original agreed upon numbers, then there would
not have been a furlough through 2011. He also pointed out that
on multiple occasions the union agreed UPS was overstaffed,
having more than 400 extra crew members. He emphasized that UPS
never pursued a furlough of more than 300, and, in fact, reduced
that to 230. He said union leaders only started publicly
attacking the underlying need for the furlough after failing to
achieve the agreed upon savings target. He emphasized that in
attempts to save as many jobs as possible, UPS repeatedly
offered to accept the savings generated from the voluntary
efforts of its crew members to mitigate the number of crew
members who would have been furloughed. However, union leaders
took an "all-or-nothing" stance to the savings program, refusing
to allow UPS to accept the smaller savings amount and in turn
conduct a much smaller furlough. Mr. Barr relayed that in
January 2010, UPS found itself at a crossroads, with a worsening
economic forecast, excess crew members for an extended period of
time, and a memorandum of understanding (MOU) process that
failed to produce the savings required to avoid a furlough
through 2011. Furthermore, he related that UPS was still
holding assignments for 240 pilots for a DC8 airplane that was
retired, which means those pilots were drawing full pay and
benefits although there was no airplane for them to fly. The
company needed to realize the required savings, he said, and
with union leaders unwilling to consider wage and benefit
changes, unable to meet the voluntary savings goals, and
unwilling to accept partial savings, UPS had no choice but to
proceed with the furlough in May 2010 in order to maintain the
health of the company. To date, he reported, 109 pilots have
been furloughed.
11:14:08 AM
MR. BARR next offered a breakdown of the furlough numbers. He
said UPS expects a furlough of 230 pilots, 197 of which are
assigned to Anchorage. He said according to company records, 71
of the 197 chose to become Alaska residents, and 28 of UPS's
newly reassigned Anchorage pilots are in the process of moving
to Alaska. By the end of 2010, he reiterated, UPS will transfer
another 50 pilots from other locations to Anchorage to handle
reemerging growth in the company's Asian export market, and 75
jobs for package handlers will be added, as well. He said from
an economic impact perspective, there may be some loss as a
result of the furloughs, which is regrettable; however, any
attempt to assess this number is purely speculative.
MR. BARR expressed appreciation for the efforts of the
Department of Labor & Workforce Development in helping the
furloughed employees to obtain other gainful employment. He
said it is important to keep the numbers in economic
perspective. He reiterated that UPS spends $328 million
annually in Alaska to run its operations. In the final
analysis, he said, both UPS and Alaska have benefited from this
partnership. Looking to future, he concluded, UPS remains
focused on ensuring the long-term strength of the company and
seizing growth opportunities in Alaska and worldwide.
11:17:33 AM
MR. BARR, in response to Representative Lynn, said UPS is paying
to move pilots to Anchorage to replace the pilots being
furloughed, but it has not looked into the possibility of having
those pilots buy the homes of the pilots being furloughed who
may be leaving the state. He said that is a good idea that UPS
would be willing to pursue. He said that over and above the
requirements of the contract, UPS is paying out sick leave to
those pilots being furloughed, which in most cases equals
approximately $20,000. In response to a follow-up question, he
said the contract does not provide for relocation expenses to be
paid to the furloughed pilots by the company. He said the
decision regarding furloughs is a corroborative one; however, he
said he and the president of the airline are the ultimate
decision makers. He confirmed that the top man at UPS is Scott
Davis.
REPRESENTATIVE LYNN asked why Mr. Davis was not present today.
CHAIR P. WILSON interjected that she gave each group leeway to
bring forward whom they chose to testify, and the testifiers did
not need to be questioned about their choices.
MR. BARR, in response to Chair P. Wilson, said Anchorage pilots
were not targeted in this furlough. He clarified that the
decisions are based on the collective bargaining agreement and
seniority. He confirmed that each of the pilots were aware of
that information when they moved to Alaska.
11:23:00 AM
REPRESENTATIVE T. WILSON asked if UPS received any incentive to
move its operations to Alaska.
MR. BARR said he does not know the answer to that question. In
response to a follow-up question, he expressed a willingness to
find out that answer.
11:24:02 AM
REPRESENTATIVE TUCK asked for a comparison of UPS's revenues in
2008 versus current revenues.
MR. BARR said UPS has not seen a major rebound, with the
exception of the aforementioned Asian market. He said UPS is
cautious in terms of how freight costs will impact the company
in the future. In response to a follow-up question, he said
revenue levels have still not risen to the level that they were
at pre-recession.
11:25:38 AM
SCOTT CASEY, Vice President, Public Affairs, United Parcel
Service (UPS), underscored that there were several primary
drivers that led UPS "down this road," and a couple of them had
no direct connection to the recession. For example, the
aforementioned increase by the FAA of the mandatory retirement
age from 60 to 65 led to approximately 200 excess crew members
on UPS's payroll. Another example was the retiring of the 3-
pilot aircraft in favor of the more environmentally friendly 2-
pilot aircraft.
REPRESENTATIVE TUCK concluded, then, that UPS has more pilots
than it currently needs.
MR. CASEY responded that that is an accurate statement.
11:28:12 AM
SENATOR DAVIS asked if the pilots' decision to come up with $131
million in savings was isolated to Alaska.
MR. BARR answered that it was a system-wide pilots' decision;
the association, through an agreement with UPS, looked to all
2,800 pilots to come up with savings. In response to a follow-
up question, he confirmed that UPS knew that there was going to
be a significant impact on the pilots in Anchorage, because of
the lack of seniority in that area. He mentioned again the
pilots who, as a result of the company's retiring its DC8 fleet,
had been drawing salary for a year without having worked. In
response to Chair Wilson, he said UPS made a decision not to
train those pilots on another airplane, because there are a
completely different set of rules outlined in the contract
depending on whether pilots are furloughed or whether the MOU
between IPA and UPS was successful.
11:33:13 AM
REPRESENTATIVE TUCK asked if UPS is open to third-party
negotiations in order to come up with concessions and keep
pilots employed.
MR. BARR responded that the challenge there is that the airline
is under the umbrella of the National Mediation Board, under the
Railway Labor Act. So, if there was an opportunity for
mediation, then that would be the group that UPS would approach.
He said he thinks UPS is open to "other opportunities out
there."
REPRESENTATIVE TUCK said what conditions would satisfy UPS to
the point that no pilots would have to be furloughed.
CHAIR P. WILSON interjected that while it is important for the
committee to know that the parties involved are willing to
negotiate, the actual terms of negotiations should remain
between the parties.
11:35:43 AM
MR. CASEY, in response to a question from Representative
Petersen, reiterated that although the recession has been an
exacerbating factor that has influenced UPS's long-term view of
the cost savings required through the year 2015, there are a
number of factors he previously named that led to the need to
furlough that don't directly relate to the recession.
11:37:34 AM
MR. CASEY, in response to Representative Gruenberg, clarified
that all airlines fall under the Railway Labor Act.
REPRESENTATIVE GRUENBERG noted that there is a federal mediation
board with which UPS and IPA could work to find solutions to the
conflicts they face, and he asked each party if it would be
willing to do so.
CHAIR P. WILSON said she does not want either party to have to
answer that question.
MR. CASEY said he would take Representative Gruenberg's comments
and suggestions under advisement.
MR. BARR, in response to Representative Gruenberg, offered his
understanding that UPS continues to match its employees'
donations to United Way.
REPRESENTATIVE GRUENBERG observed that since most of the
furloughed pilots in the Anchorage area have already given up
sick leave as part of the voluntary savings program, the fact
that UPS is allowing them to cash out their sick time is not
particularly significant.
MR. BARR replied that the contract does not require pilots to be
paid their sick leave when they are furloughed; however, UPS
went above and beyond the contract and offered that to the
furloughed pilots.
11:43:20 AM
REPRESENTATIVE GRUENBERG offered his understanding that the
furloughs could last five years, and he asked Mr. Barr if he
thinks five years is temporary.
MR. BARR opined that five years is temporary but lengthy.
11:44:07 AM
REPRESENTATIVE JOHNSON opined that this issue is about local
hire and affects Alaskans. He emphasized that it is important
that companies from the Lower 48 that do business in Alaska hire
Alaskans, and he said he wants the company to consider local
hire. He said if companies do not, then they should expect the
legislature to take notice.
11:46:52 AM
REPRESENTATIVE LYNN opined that outsourcing should be kept to a
bare necessity.
11:47:50 AM
MR. BARR, in response to Representative Gruenberg, said UPS is
looking for opportunities overseas, but it is not outsourcing
jobs to foreign entities.
11:49:19 AM
REPRESENTATIVE TUCK observed that there were pilots present
wearing their uniforms. He expressed gratitude for the
opportunity to hear the testimony from IPA and UPS, and he said
he harbors hope that a solution can be found.
11:51:07 AM
MR. BARR, in response to a question from Representative T.
Wilson, said he does not know how many of the pilots working in
Anchorage were Alaska residents to begin with, but he said he
could find out.
11:51:56 AM
MR. THRUSH proffered that the number is between 17 and 20.
Regarding the previous remarks made about sick leave, he said
many pilots only had about half of their sick leave left because
they had given the rest to the voluntary savings program. He
said the ones most affected by this issue are the ones who gave
the most during the voluntary time period. In response to
Representative Tuck's previous query, he said the company
reported that its second-quarter profits were up over 70
percent; it made $1.3 billion operating profit last quarter. He
stated, "They may be at pre-recession numbers, but they're
pretty close to going past those numbers, if not already, [then]
in the very near future."
11:54:31 AM
MR. TRENT offered a brief summary. He clarified that UPS agreed
to a second sign-up period, which could have generated 100
percent of the money needed, but before IPA ever knew what the
results of the that second signup were, UPS came to IPA and
increased the amount it said it needed. He said IPA asked for
the opportunity for the pilots to meet that second number, but
the company said no to that. Mr. Trent then acknowledged the
aforementioned change made by the FAA, but said when that change
was made in 2007, UPS did not approach IPA about a need to
furlough. Furthermore, he said the retiring of aging aircraft
has been occurring for years. He said the first time UPS
approached IPA was in 2009, and even then it said it did not
want to furlough its pilots. He emphasized that IPA took a
cooperative approach, rather than an adversarial one. He
expressed appreciation for the scrutiny of the committee of this
issue, and he said he thinks [the pilots] will benefit from that
scrutiny.
11:56:45 AM
CHAIR P. WILSON thanked the testifiers. She acknowledged that
the committee heard differing points of view, and she posited
that the facts had been "skirted around a little bit." She
proffered that there is not much the legislature can do, except
to make changes to statute and regulation regarding companies
from Outside working in Alaska. She said she understands the
limitations sometimes imposed by contracts. She said she thinks
UPS is making choices geared toward the health of the company in
the long run. She expressed her hope that both sides can return
to the table and "allow some more flexibility." She remarked on
the change in the world in the last five years resulting from
the shift in economy.
12:01:09 PM
SENATOR DAVIS opined that the legislature has a role in knowing
what is going on without sitting at the bargaining table.
12:02:12 PM
REPRESENTATIVE LYNN noted that he is the chair of the House
State Affairs Standing Committee, and the issue at hand is a
state affair because it affects the state's economy. Regarding
sick leave, he said he thinks pilots are sometimes forced to
take sick leave because of issues with the Eustachian tubes and
sinuses that are unique to that occupation. He expressed
appreciation to those who testified.
12:03:47 PM
MR. CASEY, in response to a question from Senator Davis, said
the $244 million figure she referenced is a cost savings figure
through 2015. He reiterated a couple points about that number
as previously made by Mr. Barr. First, he said the savings
required in order to avoid a furlough through 2011 never
changed; it remained $131 million. As the economy worsened, UPS
realized that the total savings needed to maintain the health of
the company extended out to 2015. However, in many ways that
did not impact the decision that was made at the conclusion of
UPS's discussions with IPA, because IPA never produced the
savings required to avoid a furlough through 2011.
12:05:33 PM
ADJOURNMENT
There being no further business before the committee, the House
Transportation Standing Committee meeting was adjourned at 12:06
p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| IPA book 1.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| IPA book 2.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| IPA book 3.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| IPA book 4.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| IPA book 5 .pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| IPA book 6 .pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| UPS Ltr Millett.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| UPS ltr Parnell.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| UPS ltr Lynn.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| UPS Response Lynn.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| UPS Ltr Murkowski .pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| UPS Ltr Begich.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| UPS Response both Sen.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| UPS LTR Sullivan.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| UPS LTR Meyer.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| ADN fewer UPS furloughs.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| UPS AK Impacts.docx |
HTRA 8/31/2010 9:00:00 AM |
|
| IPA HISTORY FURLOUGH.docx |
HTRA 8/31/2010 9:00:00 AM |
|
| AK Ecomonic Impact from ISER.docx |
HTRA 8/31/2010 9:00:00 AM |
|
| AK Economic impact from IPA.htm.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| UPS Layoffs FAQs DOL.htm |
HTRA 8/31/2010 9:00:00 AM |
|
| ups MOU Addendum 2.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| UPS MOU Addendum 1.pdf |
HTRA 8/31/2010 9:00:00 AM |
|
| DOL Rapid Response UPS .docx |
HTRA 8/31/2010 9:00:00 AM |
|
| ISER Airport2007_final.pdf |
HTRA 8/31/2010 9:00:00 AM |