United’s CEO sees pilot deal adding over $8bn in costs

BLOOMBERG

United Airlines Holdings Inc is offering its pilots a contract with an incremental value in excess of $8 billion over four years, a figure that would make it the richest deal ever for a mainline US carrier.
The company is negotiating weekly as it tries to reach a formal agreement with the union, Chief Executive Officer Scott Kirby said in a wide-ranging interview with Bloomberg News. He didn’t detail the value of the pay, benefits and quality-of-life improvements included in the proposal other than to say that it would top the recent deals agreed to by its two biggest rivals.
“We have a deal on our table that would be industry leading,” Kirby said.
The Air Line Pilots Association at United disputed Kirby’s valuation of his contract offer, saying the union’s financial analysis shows it doesn’t meet or exceed the $7.2 billion cost of an agreement approved by pilots at Delta Air Lines Inc in March.
United’s proposals on issues such as long-term disability benefits and profit-sharing currently fall short of Delta’s provisions, said United union Chairman Garth Thompson.
“We don’t feel their offer — and our economists don’t believe their offer — is worth $8 billion,” he said in an interview. “Not even close.”
The labour talks have ratcheted up pressure on United even as it benefits from soaring demand for leisure travel and no signs of a slowdown in trips that mix personal time with work. Kirby reiterated that a “business recession” is keeping corporate travel as much as 25% below 2019 levels, but he said he expects a full recovery.
Overall demand is strong enough to withstand even a moderate recession, he said, and nothing short of an “exogenous shock” to the economy will derail it.
“It would require something pretty significant — beyond the scope of what anyone has in any other sort of base case scenario,” Kirby said.
Carriers are grappling with higher costs, particularly on the labor front. American Airlines Group Inc reached a preliminary agreement that would add $8 billion in additional costs. That came a couple months after Delta’s aviators approved their new contract, also with a four-year term.
Kirby said United has incorporated expected labor expenses into its guidance despite not having an agreement.
Pilots at United are set to vote on whether to authorise a strike, a common negotiating tactic. Such a vote doesn’t mean pilots will strike immediately, but would give union leaders approval to call for a walkout if one is authorised by the National Mediation Board.
Despite the uncertainty, United’s shares have rallied 36% this year through June 12, the largest gain in a Standard & Poor’s index of the five largest carriers.
Kirby also said United will not take part in any effort to reduce the requirement that most pilots have 1,500 hours of flight experience to get a license to fly large airliners.