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  • ANALYSIS: Airline unions seek long-term benefits from US tax cuts

ANALYSIS: Airline unions seek long-term benefits from US tax cuts

US labour unions are pushing airlines to provide employees with some form of long-term financial benefit from the savings they stand to reap from the recent 14-point cut to the US corporate tax rate.

"If the airline is benefiting from the new tax law, workers should share in that gain," said Sara Nelson, president of the Association of Flight Attendants-CWA (AFA), in a statement on 3 January. "Any long-term gain for the airline should result in negotiations for improvements for the workers."

Nelson's comments come after American Airlines and Southwest Airlines both announced that they will pay a $1,000 bonus to each non-executive employee following the US tax reform bill that was signed into law in December 2017. The bill cuts the corporate tax rate to 21% from 35%.

AFA represents flight attendants at a number of carriers, including Alaska Airlines, Hawaiian Airlines and United Airlines.

Alaska and JetBlue Airways joined American and Southwest on the bonus bandwagon in the days after the union's statement. Both carriers will also make one-time $1,000 payments to employees, excluding senior executives, as a result of tax reform.

American expects "positive long-term benefits" from the tax bill even though it does not expect to pay cash taxes until 2020 or 2021, chief executive Doug Parker and president Robert Isom said in a joint letter to employees announcing the bonus on 2 January.

The Fort Worth-based carrier had $10.5 billion in federal net operating loss (NOL) credits and $3.7 billion in state credits at the end of 2016, its most recent quarterly financial statement shows. It uses these credits to offset its tax bills.

"It doesn’t feel right to receive the positive impacts of this historic tax reform without making sure, in the clearest most direct way possible, that those benefits are shared with the very people who matter the most to our customers and shareholders," says Parker and Isom.

However, Nelson points out that American and Southwest stand to benefit permanently from the tax reform while the bonuses represent just a one-time gain for employees.

"While we are pleased that our request has prompted American to pay employees a one-time $1,000 bonus, it falls short of the permanent wage increase that working families were promised," said the Communication Workers of America (CWA), which represents passenger service agents at American, on 3 January.

Other US companies are raising employee wages, including Wells Fargo, or hiring additional workers, including CVS.

BETTING ON BUSINESS

President Donald Trump and Republicans in Congress say the tax bill will increase US economic output through increased wages and business investment. However, many economists have questioned how much of the economic benefits companies will pass on to employees.

For example, while airlines have increased wages for many of their unionised labour groups in recent years mostly through collective bargaining negotiations, they have also approved significant share repurchase programmes for investors. In December, United approved a $3 billion programme and JetBlue a $750 million programme.

Southwest, one of the few US carriers that currently pay cash taxes, anticipates the corporate tax cut will save roughly $1 billion to $1.5 billion in the fourth quarter of 2017. However, the employee bonuses are expected to cost it only $70 million – about 7% of the $1 billion savings – during the period.

While the Dallas-based carrier will also increase charitable giving by $5 million a year and firmed 40 options for the Boeing 737 Max 8, the majority of its tax savings appear to be going to its balance sheet or shareholders.

Southwest spent about $300 million on share repurchases in the fourth quarter and has $1.35 billion left under its repurchase programme at the end of 2017.

"As a company, tax reform has long been on our list of issues that we've been working to address," said Gary Kelly, chief executive of Southwest, in a video message posted to Twitter on 2 January. "This creates an opportunity to award our employees, invest in our business, to keep our costs and our fares low for our customers, and to take care of our communities."

The Southwest Airlines Pilots Association (SWAPA) declines to comment on the one-time bonuses.

SILENT MINORITY

A few US carriers have said nothing on topic of staff remuneration following the tax reform bill. Executives at Delta Air Lines, which also has NOLs that they expect will allow them to offset taxes through 2020, previously said that they would use any savings to fund their pension obligations.

"We want to get our pension plan funded such as when we are a cash tax payer, we can supplement anything we've been putting into the pension fund for any cash taxes that would be due," said Ed Bastian, chief executive of the Atlanta-based carrier, on 14 December 2017.

It is worth noting that Delta increased wages for many of its employees, including flight attendants and ground workers, by 6% in April 2017. Neither group is unionised.

In addition, pilots at Delta ratified a new contract in December 2016 that raised wages 18% immediately with 3-4% annual increases through 2019. The raises also benefitted pilots at United, which had to match the wage rates at Delta under a provision in their own contract.

United, another airline with significant NOL credits, declines to comment on their use of any savings from the tax bill.

American also raised hourly wages for flight attendants and pilots by 5% and 8%, respectively, in May 2017.

Hawaiian and the Air Line Pilots Association (ALPA) were not immediately available to comment on savings from the tax bill.

Updated with details of Alaska and JetBlue's $1,000 employee bonus.

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