Union says UPS is too optimistic on talks
The labour union representing United Parcel Service's 2,500 pilots on Thursday said the world's largest package carrier had been "overly optimistic" about resolving a long-running contract dispute and that a near-term resolution was not in sight.
Last month, UPS and the Independent Pilots Association announced they would seek a federal mediator after nearly two years of talks had failed to produce an agreement.
UPS and its pilots have been in negotiations since November 2002, but have failed to agree terms in scheduling, compensation, pension, scope and benefits.
Mediated negotiations are due to start in August.
Captain John Andersen, treasurer of the IPA, yesterday said the union wanted "to set the record straight" for Wall Street analysts on the status of contract negotiations.
"Given our commitment to transparency we felt it was important for investors to know the status of our talks with UPS," Mr Andersen said. "On UPS's last two quarterly calls there were questions about the status of our negotiations. Both times we felt that UPS CFO Scott Davis's answers were overly optimistic at best, and misinformed at worst."
He added: "It's important for you to know, and to pass on to investors, that pilot labour is an unresolved issue at UPS, with no near-term resolution in sight."
The statement was timed to coincide with the release of UPS's second-quarter results.
In a conference call Mr Davis said: "We are optimistic as we head into mediation." He added that both UPS and the pilots remained interested in resolving the dispute.
UPS said second-quarter profit rose 18 per cent to USD818m, or 72 cents a share, from USD692m, or 61 cents, a year ago. That was in line with the company's forecast and a penny higher than analysts' expectations.
Revenues rose 7.8 per cent to USD8.87bn.
Mr Davis said there was strength across all segments of the company but he singled out the global small package business as the highlight, saying it was "vibrant and growing".
For the third quarter, UPS forecast earnings of 69-72 cents a share.
The company raised its guidance for full-year earnings, saying it expects "growth approaching 20 per cent" compared with an earlier forecast of 12-18 per cent.
Last month FedEx, UPS's rival, reported that net income rose 47 per cent to USD280m while revenues increased 21 per cent to USD7.04bn.
from Bear Stearns – 22.7.04
UPS Pilots Begin Stirring the Pot
>
>· UPS' First Pilots Contract as a Public Company. UPS is in the
>midst of what appears to be an increasingly contentious negotiation with
>its pilots. The current contract became amendable on 12/31/03 but
>negotiations began almost two years prior to that between the two parties.
>
>· Pilots Begin to Stir the Pot. As we get closer to the August
>period when Mediation is scheduled to begin we expect the rhetoric around
>the contract to increase. This morning, UPS' pilots (represented by the
>IPA) announced that they intend to host a conference call on Thursday
>morning at 9AM an hour prior to UPS' scheduled earnings call.
>
>· We Expect the Call, If It Takes Place, to be Contentious. We are
>not sure how a Mediator will allow such a call to take place, but assuming
>it does, we would expect the pilots to voice concerns that they remain
>quite far apart with UPS on virtually all issues of compensation, scope and
>scheduling.
>
>· Rail Labor Act Prevents Any Near Term Strike. UPS' pilots are
>governed by the Rail Labor Act (not the ICC like the Teamsters). As a
>result the union cannot strike without going through a Federal Mediation
>process which typically can take from 6 months to two years and a
>subsequent 30 day cooling off period.
>
>· Increased Noise in the Near Term. While a potential strike is
>likely more than a year away and remains highly unlikely in our opinion,
>this represents a change in the level of noise we are likely to hear around
>the contract. Until now both sides have taken an approach not to negotiate
>in front of the media-that seems to be changing.
>
>INVESTMENT CONCLUSION: UPS remains one of our favorite stocks in our
>universe. We would use any weakness in the stock's performance from noise
>related to the pilot's contract as an opportunity to add to positions. We
>suspect this noise heading into the beginning of Mediation this August may
>only pick up later on in the year. Unlike the Teamster contract which
>involves over two thirds of UPS employees and is governed under the
>Interstate Commerce Commission (ICC), the pilots union which includes only
>about 2,500 employees falls under the Rail Labor Act as an airline which
>makes a strike more difficult to take place. We also note that FDX is in
>negotiations currently with its pilots (represented by the ALPA) for its
>contract which became amendable May 31, 2004, making it unlikely in our
>opinion that FDX will aggressively seek market share gains playing into
>fears of a potential UPS air strike a year from now. Finally we note that
>currently pilots generally are facing material labor cost reductions by the
>large passenger airlines, not increases so directionally this is a good
>time for UPS and FDX to be negotiating with pilots and leverage seems to
>favor the companies over the pilots in the market place. UPS remains rated
>Outperform.
