ALEXANDRIA, Va. – A federal bankruptcy judge has granted approval for US Airways (UAIR) to cut the pay of its union workers by 21 percent through February to help the nation's seventh-largest airline stay in business and emerge from bankruptcy.
"I have absolutely no doubt that wage cuts of this magnitude would and will result in severe financial hardships," U.S. Bankruptcy Judge Stephen Mitchell (search) said Friday. But US Airways' financial situation is so unstable that "basically what we have here is a ticking fiscal time bomb."
US Airways employs 34,000 workers, of which 84 percent are represented by unions.
The 21 percent pay cut is nearly all of the 23 percent reduction that US Airways had sought. The reductions are in place until Feb. 15, 2005, six weeks short of what the airline wanted.
Also Friday, Delta Air Lines Inc. (DAL), the nation's third-largest carrier, said it was weeks away from being forced to file for bankruptcy because of losses ranging from labor and pension costs to fuel expenses. The company expects to shed 6,000 to 7,000 jobs over the next year and a half. In an internal memo this week that was obtained by the AP, Delta said up to 1,800 of those cuts would be jobs in the executive, supervisory and administrative ranks.
United Airlines (search) said it would need even more labor cuts than anticipated to get out of bankruptcy, and that it would seek the court's help if it is unable to reach an agreement with its unions.
Friday's ruling for US Airways means the company's average salary would drop from $59,509 to $47,012, putting the airline below the other five major traditional carriers as well as Southwest Airlines, but higher than JetBlue (JBLU) and America West (AWA) — two carriers US Airways now seeks to emulate.
US Airways had projected that a 23 percent pay cut would save $165 million between now and March 4, when it feared it would essentially run out of cash.
"Our mission here is to save as many jobs as possible. We are being attacked on every front" by low-cost competitors, said the airline's chief executive, Bruce Lakefield (search), when asked about the ruling's effect on workers.
Lakefield told employees in a recorded message that a timeline to impose the cuts will be announced in the next few days.
Mollie McCarthy, leader of the Association of Flight Attendants' (search) Philadelphia-based local, said the pay cuts are devastating and particularly galling given that management is not taking a similar hit.
"That's what's going to make my people really angry," she said.
Brian Leitch, an attorney for the airline, acknowledged that US Airways would need to do more to prevent a collapse, including obtaining permanent cost-savings from its unions twice as large as those achieved by the temporary cuts.
Those savings, however, can be achieved without deeper salary cuts.
US Airways pilots, for example, reached a tentative agreement on a deal that provides the airline the long-term savings it needs while only imposing an 18 percent pay cut, with additional savings through benefit reductions and work rule changes.
The 21 percent pay cut will only apply to the pilots if they reject the tentative agreement in an Oct. 21 ratification vote.
"Our pilots have now what we wanted them to have all along — a choice," said Jack Stephan, spokesman for the Air Line Pilots Association.
US Airways has yet to reach agreements with the majority of its union work force, and, in court Friday, the judge expressed concerns that his rulings could handicap those groups in their negotiations.
The unions had argued that cuts of such a severe magnitude were unnecessary and the bankruptcy code only permits a judge to take such steps in unforeseen and extraordinary circumstances such as natural disasters and terrorist attacks.
"What we have here is a trend dating back since before 9/11" of financial difficulties for traditional carriers like US Airways, Sharon Levine, a lawyer for the International Association of Machinists, told the judge. "We have a malaise in the airline industry. These are not surprises."
In trading Friday on the New York Stock Exchange, Delta shares closed down 79 cents, or 18.8 percent, at $3.42.