ABX Pilots Gear Up for Talks

The company is the main U.S. contractor for DHL.
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Now it's time for pilots at the No. 3 overnight parcel carrier to negotiate a new contract.

Plantation, Fla.-based DHL, a subsidiary of Germany's Deutsche Post, has about 10% of the domestic overnight package market, trailing

FedEx

(FDX) - Get Report

and

UPS

(UPS) - Get Report

. The two larger companies signed contract deals with their pilots in August and October, respectively.

Because it's owned by a foreign company, DHL can't own a U.S. airline, so it contracts with two U.S. companies to provide air service from its Wilmington, Ohio, hub. Both companies,

ABX Air

(ABXA)

and privately held Astar Air Cargo, are conducting contract talks for the first time since Deutsche Post acquired DHL in 2002.

With 100 airplanes and about 680 pilots, ABX Air is DHL's principal carrier, providing about nearly two-thirds of its air service. When DHL bought the sales and ground network of Airborne Express in 2003, ABX Air was spun off and signed agreements to provide DHL with air service and package sorting.

On Thursday, ABX reported net earnings of $6.6 million, or 11 cents a share, on revenue of $281.3 million. A year earlier, net earnings were $7.4 million, or 13 cents a share, on revenue of $369.9 million.

The decline primarily reflected DHL's move in May to take over management of its line-haul trucking operations from ABX. Those operations contributed $74.8 million in revenue and $1.3 million in earnings in the third quarter of 2005.

On a conference call Friday, CEO Joe Hete said he is often questioned about DHL's future plans to operate in the U.S. "We don't question that commitment," Hete said. "I'm telling our employees at ABX Air that we will be working with DHL and sharing in their success for many years to come."

At the same time, ABX continues efforts to expand its non-DHL operations, adding a third Boeing 767 freighter in September, with eight more 767s formerly operated by

Delta Air Lines

(DALRQ)

scheduled to arrive by 2008. ABX has also signed contracts to manage sorting centers for the U.S. Postal Service in Dallas and Memphis. DHL accounted for about 96% of third-quarter earnings.

The ABX pilot contract became amendable July 31. Talks began in January and have been "cordial," said Dave Ross, president of Teamsters Local 1224, which represents the ABX pilots. "We are hoping for a quick deal," he added, noting that negotiators hope to get to begin discussing salaries, the final item on their agenda, by the end of the year. The next round of talks begins Dec. 5 in Washington.

Ross said ABX pilots earn about 20% less than FedEx and UPS pilots, and hope to improve on that a bit in the current talks. The recent contract deals have essentially equalized pilot salaries at the two giants. UPS said the average annual salary for its pilots is now about $200,000, up from $175,000 before the new deal.

At ABX, annual base pay for a captain on the DC9, which comprises about two-thirds of the ABX fleet, averages about $156,000. Base pay for a Boeing 767 captain is roughly $187,000. However, most pilots earn more due to considerable overtime flying, Ross said. Additionally, he said, ABX pilots don't generally face the quality of life issues associated with overnight international flying.

Meanwhile, at privately held Astar, the pace of talks has been slow since the contract became amendable in December 2003. Astar operates a fleet of 44 jets, primarily Boeing 727s.

Earl Smith, chairman of the Astar chapter of the Air Line Pilots Association, said "talks are moving," but have been slowed by outside issues including the 2005 move of the airline's hub from Cincinnati to Wilmington, Ohio.

Additionally, he said, DHL's recent agreement to buy a 49% stake in Polar Air Cargo has raised new questions that involve "determining how DHL is going to allocate its resources in the U.S."