An airline shows some sense on pay

IN the 30 years since the the government deregulated the airline industry, only two major carriers, American and Southwest, have avoided bankruptcy. Some, such as Houston's own Continental, US Airways and the defunct TWA, made multiple...


IN the 30 years since the the government deregulated the airline industry, only two major carriers, American and Southwest, have avoided bankruptcy.

Some, such as Houston's own Continental, US Airways and the defunct TWA, made multiple trips.

All that restructuring has fixed a lot of problems, from inefficient operations to bloated costs. But the industry has been unable to shed one enduring problem: labor strife.

Financial hardship brings a cycle of acrimony that goes something like this:

Struggling airline extracts billions of dollars in concessions from workers, sometimes because of bankruptcy, sometimes to avoid it. Airline completes restructuring. Airline posts first profit. Airline pays executives big bonuses. Airline workers demand a payback for their sacrifice. Airline executives say no.

Labor acrimony returns and the cycle repeats.

Delta Air Lines, though, may be breaking this bitter loop. It recently emerged from Chapter 11 and paid its chief executive, Gerald Grinstein, less than $338,000. That's a paltry sum by CEO standards these days, especially because it comes with no bonus or stock. What's more, it represents a 30 percent pay cut.

Delta's nonunion employees, meanwhile, are getting $480 million in cash and new Delta stock, which began trading last month. All told, the payments equal more than $12,000 per employee.

As for Delta's unions, they will get profit sharing and may also recover bankruptcy claims against the company that are still pending.

More than 1,000 mid-level managers will get stock that the company values at about $140 million.

Now at United ...

Compare this with United's pay structure coming out of bankruptcy last year.

United paid its CEO, Glenn Tilton, $24 million last year. In all, its five top executives got $86 million in stock. It also doled out another $209 million in stock to 800 management-level employees. That was after slashing some $4 billion in labor costs and foisting its underfunded worker pensions on the federal government.

US Airways, which merged with America West to emerge from bankruptcy in 2005, turned around and made an unsolicited offer for Delta while telling employees it couldn't spare any money to reward their sacrifice.

Like United, US Airways employees gave up billions in concessions to keep the airline flying through two bankruptcies in recent years.

In April, the head of the nation's largest pilots union estimated pilots had surrendered $5 billion in concessions since 2001.

Continental's pilots

All of this is worth keeping in mind as Continental mulls an early start to talks with its pilots union. Continental's pilots, as my colleague Bill Hensel Jr. reported Tuesday, want to recoup some of the sacrifices they made two years ago that helped the airline save $200 million annually.

The airline reported a profit last year and is on track for another one this year.

American executives

As I wrote about a few weeks ago, American, too, faces a similar situation. A plan to pay $21 million to top managers came under fire from unions who'd given up $1.6 billion in pay and benefit cuts to keep the carrier out of bankruptcy. American, which also reported a full-year profit, paid chief executive Gerard Arpey a $6.6 million bonus on top of his $581,000 salary.

That's a far cry from Grinstein, who has said he'll donate any stock he was supposed to receive to charities that will help laid-off Delta employees and retirees.

Grinstein, who's 75, has said he plans to leave the airline as soon as the board names a replacement.

Management's worth?

Given all the industry's problems, though, airlines haven't had an easy time retaining executive talent. Delta has already said it expects its executive pay to rise. Airline management pay lags other industries, and Delta, like most big airlines, has seen executives leave for better pay in other businesses.

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