NEW YORK — In another attempt to fight its low-cost competition and keep ahead of its creditors, Eastern Airlines said Thursday that it will cut the pay of its 17,000 non-union workers and management personnel by 20% effective Feb. 1.
The airline also said it would institute work-rule changes--including longer workweeks--in order to boost the productivity of its non-union employees, who include secretaries and ticket counter clerks.
"The cost-cutting measures we have taken all have been necessary--but they have not been enough," Eastern President John B. Leonard said in a letter to employees.
"If we are to achieve consistent profitability," he continued, "we must have basic changes in our cost structures, benefits, and work rules. . . . After considerable evaluation, we have come up with a plan for restructuring our employment costs which will enable us to compete more effectively in our industry as we find it today."
Airline observers said late Thursday that the move had been expected because Eastern took similar steps last Monday with its union flight attendants. Then, the airline laid off 1,010 of its more than 7,000 attendants and cut the pay of those remaining.
"Nothing is unusual," John V. Pincavage, airline analyst with Paine Webber, a New York-based brokerage house, said Thursday. "It is all expected. Eastern knew they would have to do this to their non-union workers once they did it to the union people."
Rush to Cut Overhead
The airline also said that its top management people, including Chairman Frank Borman, had taken salary reductions of between 20% and 25%.
Eastern's rush to cut overhead comes about because of a deadline with its lenders, who have given it until Feb. 28 to reach new agreements with the unions or face default on its $2.5 billion in debts.
Robert J. Joedicke, airline analyst with Shearson Lehman Bros., said he did not think the airline's U.S. commercial bank lenders would try to push it into bankruptcy. "But," he added, "the European creditors who helped Eastern finance its 34 Airbus Industrie A-300s don't care if they go bankrupt or not." Of its total debt, Eastern owes about $430 million in Germany, France and Britain.
The threat of bankruptcy appears to have been taken to heart by some travel agents, who are reportedly already booking their customers on other carriers.
While the troubled airline was taking the steps to reduce its operating costs, its unions, angered by the cuts, continued their earlier attempts to buy enough stock to oust the company's management and take over.
The suggestion originally came from Charles Bryan, president of the Eastern local of the International Assn. of Machinists, who said that a buy-out would be a "better alternative" than the wage cuts. Eastern's employees already own about 20% of the airline's stock.
It is believed that the other two unions at Eastern--the Airline Pilots Assn. and the Transport Workers Union, which represents the flight attendants--support the move.
The machinists union is the only one of Eastern's labor groups that has a contract, as the pacts with the pilots and flight attendants have expired. The agreement with the machinists does not run out until next year, but the airline, in its desire to reduce wages, wants to reopen it before then.
Analysts take a dim view of suggestions of a union takeover of Eastern.
"The problems don't go away. They are just transferred," said Hans J. Plickert, airline analyst with E. F. Hutton. "Whoever owns it has the same problems of costs that are too high."
High costs have been troubling Eastern since the airline industry was deregulated in 1978. New carriers with lower labor costs, such as Presidential Airways and New York Air, have expanded into Florida, Eastern's major market.
The severity of Eastern's problems is made clear by comparing its operating costs with those of one of its major competitors. According to David Sylvester, an analyst with San Francisco-based Montgomery Securities, People Express operates its planes with a seat-per-mile cost of 5 cents as opposed to Eastern's 8.3 cents. People Express' average salary is $30,000 while Eastern's is $44,000, he said.
Some of the work and benefit changes announced Thursday by Eastern for its non-union and management employees:
- The maximum vacation was cut from seven to five weeks.
- Medical and dental insurance plans were modified.
- Some employes' workweeks were increased from 37.5 hours to 40 hours. They will receive pay increases reflecting the changes.
- Work rules will be changed to require employees wishing a transfer to be qualified for the new job and to require that they stay in that job for a specified period of time to reduce productivity losses caused by excessive transfers.