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Wednesday, February 10, 2010

UPS to Furlough More Than 300 Pilots

The Wall Street Journal

United Parcel Service Inc. (UPS) announced plans to furlough at least 300 of its airline pilots, or nearly 11% of its total, in a move to cut $244 million in pilot costs by 2015.

The goal marks an increase from the company's target last year, when UPS and its pilots' union announced an agreement to avert pilot furloughs--until April 1, 2010--while they attempted to identify voluntary cost savings instead.

At the time, UPS said it aimed to cut $131 million in pilot costs by 2011.

"The voluntary initiatives have not met goals," Mike Mangeot, a spokesman for UPS Airlines, said Monday.

In addition, Mangeot said a new financial analysis since the agreement resulted in the increased savings target.

He attributed the change to the slow economy, as well as to newer jets and efficiency gains that enable the UPS fleet to fly longer with fewer pilots.

UPS, which employs about 2,800 pilots, said Monday that it still is working with the pilots' union--the Independent Pilots Association--to find solutions to avert or mitigate the layoffs before they take effect.

A union spokesman couldn't immediately be reached for comment. Last June, the union announced it had identified about $90 million in voluntary savings toward what at the time was a $131 million UPS target.

The planned furloughs announced Monday mark the latest step taken by the package delivery giant in the past two years in reaction to the tough economy. UPS has enacted a $1.4 billion cost-cutting effort that included freezing salaries, suspending matches in 401k plans and trimming capital expenditures.

UPS said last month that it would cut 1,800 U.S. jobs, although it described the move as part of a long-planned management restructuring instead of a response to the low demand.

More recently, the company has signaled that conditions appear to be improving, going so far as to reinstate salary increases and raise its dividend.

Bob Lekites, president of UPS Airlines, acknowledged the positive trends in a prepared statement Monday, but he also reiterated the company's expectation for "a very gradual recovery," which he said warrants "a continued need for belt-tightening."

"This is a painful decision for our people, but one that is right for the on-going health of our business," Lekites said.

If the furloughs go forward, UPS said they would be phased, with the first 170 pilots receiving notices in 2010. The initial group would be furloughed in May.

UPS shares were up about 0.5% in late trading at $56.90 on Monday.