Pilots for all-cargo carrier Atlas Air are venting frustration over a new five-year contract imposed under binding arbitration even though analysts say the deal significantly raises pay toward the upper end of peers at comparable carriers. The outcome should provide labor certainty for Atlas as it tries to meet strong demand for shipping service, but union representatives warn the new benefits package will accelerate attrition rates and jeopardize service.
Initial estimates indicate captains could see wages increase more than 30%, with variation depending on the type of plane flown, when portions of the contract go into effect next month. But crew members claim the collective bargaining agreement (CBA) finalized Friday has poor retirement benefits and job protections, and they are mad it was forced on them by a third party.
Robert Kirchner, a trustee for Teamsters Local 2750 that represents more than 2,500 Atlas Air pilots, excoriated National Mediation Board arbitrator Dana Eischen of New York for delivering a “lopsided” award that is “catastrophic” for employees.
“The anger and animosity out there is unbelievable because this award tells our pilots very simply that there is no future at Atlas. … A lot of the employees have given up on Atlas and are looking for employment elsewhere. And while it may look like a huge victory for them, in the long run this is going to hurt the corporation deeply,” he said in an interview.
“This is probably going to go down as the biggest labor relations disaster in the airline industry since Frank Lorenzo and Eastern back in the [’80s]. It’s that bad,” he added, referring to the executive who famously took a get-tough, corporate-raider approach toward unions and ended up driving the company out of business. “Most of the younger pilots are telling me they aren’t going to stick around anymore” because there are better opportunities now at carriers such as FedEx, UPS, United Airlines and Delta Air Lines.
Kirchner said 310 pilots, about 12% of the force, have left Atlas Air this year because of continued management stalling on a new contract. An additional 28 members of the pilots association have retired. The union projects the bitter arbitration decision will increase full-year departures to between 450 and 500 pilots. Atlas has only been able to hire 250 replacement pilots, leaving a gap that pilots say is causing flight cancellations and degrading service levels, he said.
Atlas officials did not respond to requests for comment.
The COVID pandemic papered over a nationwide pilot shortage when travel disappeared and carriers furloughed tens of thousands of employees. With passenger airlines restoring flight schedules and cargo carriers expanding to accommodate heavy bookings, the need for pilots is growing. Many could jump to major carriers with top-tier compensation packages, according to industry officials.
Atlas Air Worldwide Holdings (NASDAQ: AAWW), Purchase, N.Y., is one of the largest all-cargo carriers in the world. It has a fleet of 107 aircraft, including 45 Boeing 747 freighters and eight narrowbody 737-800 cargo jets providing long-term and ad hoc charter service for airlines, express operators, freight forwarders and global shippers. In 2020, it had net income of $360.5 million on revenues of $3.2 billion yet it received $406 million in CARES Act federal aid intended as a lifeline for passenger airlines because it operates a handful of passenger aircraft. The holding company’s second-quarter revenue increased 20% to $990.4 million, and it projected sales will reach $1 billion in the current period.
Big-name customers include Amazon (NASDAQ: AMZN), Alibaba’s logistics arm Cainiao, DHL Express, FedEx Express (NYSE: FDX) and UPS (NYSE: UPS). Forwarders that charter Atlas aircraft through long-term leases include CEVA Logistics, Flexport, Geodis, Hellmann and DSV.
Lengthy contract dispute
The Atlas labor deal took six years of contentious negotiation. The parties eventually agreed to about two-thirds of the items, with the unresolved issues decided by the arbitrator.
The contract also covers pilots at sister company Southern Air and is one of the final pieces to completing Atlas Air’s merger with Southern Air, which it acquired in 2016. Atlas is expected to eliminate Southern’s airworthiness certificate and integrate the companies later this year.
One of the main sticking points in talks was the union’s unwillingness to produce merged seniority lists for pilots prior to a contract being voted on and ratified because it said that gives Atlas too much negotiating power. Atlas and Southern held that the parties were obligated to negotiate a joint CBA covering both companies’ pilots, while the union argued for separate negotiations to amend each individual CBA.
Pilots charged Atlas with deliberately understaffing its pilot rolls, overworking and underpaying its crews, and failing to understand the changes in flying tempo as the company adapted its business model to capture more domestic e-commerce business.
Limited by law from striking, the pilots worked to the minimum required by the contract to pressure the company to make concessions. Federal courts in 2019 ordered the union to stop work slowdowns and related tactics, such as taking excessive sick days on short notice or refusing to volunteer for overtime shifts. The courts also required the sides to follow an arbitrated contract process, much to the chagrin of pilots.
The labor dispute impacted Atlas Air’s on-time performance, which led e-tailer Amazon in 2019 to reassign three aircraft serving its private cargo airline to a rival carrier. But Amazon has since hired Atlas to fly and maintain eight 737-800 converted freighters that are under its control and has outstanding warrants for Atlas stock.
Kirchner accused the company of violating the contract last weekend by extending trips for pilots due to staffing shortages that resulted in flight cancellations and delays, and that the situation would get worse as more pilots flee for greener pastures.
“Our pilots are the best in the business and fly an unrivaled fleet across our global network to serve our customers,” said Atlas Air Worldwide CEO John Dietrich in a statement. “With this new agreement in place, we look forward to continuing to grow our company and creating more opportunities for pilots to grow their careers.”
The new CBA follows an interim 10% pay raise given to pilots in May 2020.
The contract raises hourly pay for a 12-year veteran at Atlas to within 5% to 15% of what pilots earn at Kalitta Air, a Michigan-based all-cargo carrier that operates 42 freighters, including more than two dozen 747s. But the pay scales still fall far below those at FedEx and UPS, according to an analysis by Christoper Stathoulopoulos at Susquehanna Financial Group.
Kalitta pilots ratified a new four-year contract in March.
Eischen, the arbitrator, set his baseline for average hourly pay at $295.58, comparable to top rates for flying widebody aircraft at Kalitta Air and Omni Air International. According to the decision, crew pay will increase by 32.5%, 3.7% more than Atlas offered and 7% less than the union requested.
Kirchner criticized the arbitrator for using Kalitta, as well as Air Transport Services Group (NASDAQ: ATSG) subsidiaries Air Transport International, ABX Air and Omni (a contract passenger carrier) as comparable airlines for comparing pilot pay. Eischen excluded Atlas Air’s proposal to consider Mesa Airways (NASDAQ: MESA), a regional passenger carrier that recently began flying a handful of 737-400 converted freighters for DHL Express, and 21 Air, a cargo operator with two 767 aircraft.
None of those carriers are “close to the size, magnitude and scope of Atlas Air,” Kirchner complained, adding that their fleets are filled with used aircraft whereas Atlas Air has the financial resources to buy many production freighters straight from Boeing.
Atlas Air does not offer a direct retirement program. It offers a capped match, common at many companies, but which Kirchner said “unfairly” restricts pilots who earn the smallest salaries. The arbitrator increased the match amount by 0.5%.
“No joint CBA resolution imposed by an outside third party can be a perfect solution, let alone as good as a JCBA fully negotiated by those who have to live under its terms,” Eischen said in his decision. “To be sure, there likely will be elements of dissatisfaction going forward, if for no other reason than no one achieved everything they wanted. That said, the pay rate tables and many other long-neglected CBA provisions are now updated to appropriate comparability standards that should allow the Company and its flight deck Crew Members an opportunity to thrive together in the burgeoning e-commerce market. Finally, the JCBA is of sufficient duration to allow the Atlas/IBT parties an opportunity to normalize their labor-management relationship in a more stable contractual environment.”
The pilots’ position is as much ideological as it is economic. They are miffed their compensation still falls below that of FedEx and UPS. For them, the contract is also about career expectations, lifestyle and having a voice on the job, such as how days off are scheduled and where a pilot is based. And they are upset that management exercised stock options and accepted COVID relief intended for companies on the brink when wage increases weren’t available to them for years.
A number of pilots haven’t notified the company yet but have told the union they plan to leave soon, Kirchner told American Shipper.
“The pilots are livid. … Atlas Air cannot service the flying they have in front of them for the fourth quarter. They can’t take any new business. We think they are going to have to heavily cut back on certain customers and certain flying,” he said.
Kirchner said Atlas has already dropped the ball on a new contract with FedEx that went into effect Sept. 1 to provide auxiliary airlift from Asia and Europe to its hub in Memphis, Tennessee. Atlas Air also did not respond to messages about the FedEx business.
But several major customers said they have not experienced any airfreight delays because of internal issues at Atlas and are pleased with their service.
DB Schenker hasn’t been affected by any pilot or maintenance issues at Atlas Air, said Benno Forster, senior vice president and head of air operations and procurement for the Americas, in an email message. “Atlas is very reliable and they always look out for us,” he said.
Kuehne + Nagel, the largest airfreight forwarder in the world, has not experienced problems with its weekly trans-Pacific charter flight operated by Atlas, said spokesperson Yulia Goloushina.
Also worth noting is the fact that cargo airlines of all kinds are facing delays and congestion at many airports around the world because of COVID outbreaks, infrastructure issues or lack of ground personnel that are unrelated to any particular labor dispute.
Kirchner said pilots wanted a three-year deal, knowing that Atlas’ playbook is to delay and push negotiations to arbitration. He claimed pilots are essentially confined to the current deal for 10 years because it will take five years to work through a lengthy series of negotiating procedures after the current deal technically expires and becomes amendable.
“There won’t be another fairly negotiated contract at Atlas Air until that language [enabling negotiations to be circumvented] comes out, and it’s not going to come out for at least 10 years,” the union chief said.
In a client note, Stathoulopoulos said the new benefits package could produce a 5% drag on earnings. Dietrich said Atlas Air has already planned for the additional expense by factoring increases into new leases and negotiations on existing contracts.