YRC Worldwide is asking the Teamsters union for a new round of “cost savings,” but the price could be high for the largest U.S. trucking operator. The union insists on a “comprehensive restructuring” of the company to ensure its long-term survival.
It’s a matter of real short-term interest for YRC Worldwide, the Teamsters and the rest of the less-than-truckload trucking industry, as $5.3 billion YRC faces a Jan. 1 deadline to resume monthly pension contributions of $25 million to $30 million.
That could burn through the company’s available cash and revive the prospect of a bankruptcy at YRC Worldwide, perhaps as early as next June, unless the Teamsters offer YRC some pension relief, transportation analyst Edward M. Wolfe said Sept. 3.
“YRC Worldwide would run out of cash by June 2011 if 100 percent of its pension contributions resume” in January, the Wolfe Trahan founder and analyst told investors. Even partial contributions could be too heavy a burden for a company recovering from more than $2.2 billion in net losses over the past three years.
“If only 50 percent of its pension contributions resume, we estimate that YRC would run out of cash in the second half of 2011,” Wolfe said. He believes an extension of the 18-month suspension of contributions is the surest course to 2012 for YRC.
“If 100 percent of its pension contributions are deferred again, YRC Worldwide seems like it can easily survive through next year,” Wolfe said in an investor report.
For YRC, its employees and its customers, the notice recalls the down-to-the-wire race to head off a potential filing for bankruptcy protection at the end of 2009, a race the company won with the help of its lenders and the union concessions.
In 2011, YRC Worldwide will face another $240 million in deferred pension contributions and interest payments unless it gets relief from its lenders. But pension relief, from the Teamsters or Congress, is its first priority. The first is considered more likely, as Democrats and Republicans in Congress are highly unlikely to agree on a pension reform bill this year.
YRC and the Teamsters set up two committees in May to address the company’s pension issues and ways to make YRC more competitive. In a Sept. 10 letter to its YRC members, the Teamsters said YRC management presented a plan for “cost savings” the union is reviewing to make sure it addresses business needs.
“We are only willing to submit those cost savings for ratification if certain specific conditions are met that help protect your interests, and if the efforts support a comprehensive restructuring that will give the company the best opportunity to not only survive, but thrive, over the long term,” said Tyson Johnson, an international vice president and director of the union’s freight division.
“Our goal is to facilitate that restructuring and protect as many Teamsters jobs as possible.” Johnson said.
The union didn’t release any details on the “cost savings” or its “specific conditions,” but its letter underscores concern over potential rank-and-file frustration.
Teamsters at rival ABF Freight System this year rejected a 15 percent wage cut and a gain-sharing proposal aimed at reversing the company’s losses and leveling the playing field with YRC Worldwide, despite a $99 million loss in 2009 and a $39.4 million loss in the first half of 2010.
Any pension plan will have to be put to a vote and win the approval of YRC’s Teamsters employees, who have already gone more than a year without pension contributions. YRC Worldwide Teamsters agreed to an 18-month suspension of contributions, along with a total wage cut of 15 percent, in August 2009.
The company has stanched some of the financial losses and the loss of customers this year, and reported positive adjusted earnings before interest, taxes, depreciation and amortization in the second quarter as well as operating profits at its YRC National and YRC Regional segments. But the company also lost more than $284 million in the first half of 2010 and carried a $1.15 billion debt at the end of June.
The majority of YRC Worldwide’s Teamsters voted for the wage and benefits cuts last year, but several bargaining units resisted the plan put forward by YRC and the international union to save the company, complicating plans to impose “equality of sacrifice” across the company’s national and regional subsidiaries.
The Teamsters and YRC management will have to make the implications of their choice clear to union employees before putting any concessions to a vote.
The Teamsters also want to ensure the importance of the union and its members remains clear to YRC’s management.
“We go to sleep every night and wake up every morning worrying about the enormous toll this situation has already imposed on you and your family,” Johnson told YRC Teamsters in his letter. “If it wasn’t for your sacrifices, this company would have gone out of business.”
Contact William B. Cassidy at firstname.lastname@example.org.