Are Fedex Pilots Flying Into A Rage?

They're talking tough after rejecting a new contract

For trained pilots, landing a job at Federal Express Corp. has long been like getting accepted to the Ivy League. The highest-paying of all courier companies, FedEx starts pilots at $3,310 a month; veterans earn up to four times that. Other benefits, such as pay for time spent away from home, have traditionally been among the most generous. And in return for great treatment, pilots have showed remarkable loyalty to FedEx and its brash founder, Frederick W. Smith. Many have bragged that their blood ran purple, the color of the express-mail giant's logo.

Now, however, that loyalty is wearing thin. In the face of rising competition and sharply reduced margins, FedEx is trying to rein in its high-cost pilots. But in March, angry airmen rejected a proposed contract backed by their own union leadership, and rumblings of a possible work stoppage are on the rise. Worse, the problems with unhappy pilots could spread to other workers. For a company whose gung ho esprit de corps has long been central to its success--and its high service levels--that could mean trouble. "There was a trust relationship that has deteriorated," says pilot Kevin Scheiterlein, a nine-year veteran and one of 1,322 pilots who voted against the new contract. "A lot more guys are not willing to give 100%."

STANDOFF. FedEx officials downplay the difficulties. They refuse to discuss the specifics of the pilots' situation, saying only that the next move is the union's. Smith--who has long made a point of fostering good relations with his workforce--declined requests for an interview. A company spokesman disputes that workers are unhappy, citing annual surveys filled out by 97% of employees.

Still, the issue is unlikely to go away. Pilots complain that FedEx is offering only a 4% increase for the first year of the pact and an 11.4% raise over its four-year term, even though pay has improved little since 1990. Their anger has been fueled by the 23% raise and more flexible scheduling their counterparts at United Parcel Service Inc. won in March.

But pay isn't the only issue steaming FedEx pilots. Under the proposed contract, the flexible work schedules that had been a FedEx hallmark could become as rare as extra legroom in coach class. The pilots are particularly unhappy with proposed changes in work rules that would trim the amount of pay they get for downtime when away. The proposal also would allow FedEx to subcontract work to nonunion pilots flying leased planes.

Add it all up, and FedEx has one unhappy group of flyboys--and 'girls--on its hands. Some pilots are even openly discussing possible work slowdowns. "The only tool available to us is to impact reliability and service," says 25-year veteran pilot Richard D. MacGibbons. That could seriously threaten on-time deliveries at the company, which relies on airborne freight for most of the 3 million packages a day it delivers. "The company doesn't function without the pilots," says analyst Paul R. Schlesinger of Donaldson, Lufkin & Jenrette Inc.

Maybe not, but FedEx may have little choice but to clip the pilots' costly wings. Stiffer competition, rising costs, and a move into lower-margin businesses have trimmed its operating margins from 11.5% in 1987 to 6.1% in 1997.

Moreover, FedEx now has the highest cost structure of its major rivals, Schlesinger says. Even after the big raise UPS pilots gained, veteran FedEx captains still make more--$13,689 a month, vs. $13,195 a month at UPS, according to pay consultant Air Inc. "FedEx is realizing that it can't afford to pay high wages and fly expensive planes when its competitors are flying older planes and paying pilots less," says David F. Hoppin, a principal at air-cargo consultant MergeGlobal.

UNION BID. For now, however, talks are on hold. FedEx says it can do little until the union sorts itself out. Union head Michael Akin has surveyed members on why they vetoed the deal and asked to restart talks. "We want to make sure [the pilots] get exactly what they feel they deserve," says Akin. But many pilots say they remain unhappy with the union and fed up with Smith's perceived lack of action. "The company doesn't want to sit down and look at what's right," says veteran Don Wilson.

Of course, FedEx' silence may be little more than a bargaining tactic. "All we're seeing here is a tough negotiation process," says Keith A.

Patriquin of Loomis, Sayles & Co., which owns 99,000 FedEx shares. Still, FedEx is clearly paying a price for its toughened stance. Over the past two years, membership in the union has grown from 45% of pilots to 82% today.

Dissatisfaction may be spreading. Though FedEx says workers can receive annual pay raises as high as 7%, some ground workers get much less. Efforts by the Teamsters to capitalize on the pilots' unhappiness in its bid to unionize FedEx' 100,000 ground workers appear to be bearing some fruit. "Watching what the pilots are going through is making me think more about the Teamsters," says a nine-year FedEx courier in Tacoma, Wash. Still, the Teamsters effort is in the early stages.

So far, customers have not been affected. Having suffered through last year's UPS strike, they can only hope that remains the case.

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