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Continued: Sept. 29: Sun Country workers face temporary 50% pay cut

  • Article by: LIZ FEDOR , Star Tribune
  • Last update: September 29, 2008 - 10:50 PM

Low on cash as it enters one of the slowest travel seasons of the year, Sun Country Airlines told workers on Monday it would cut their pay in half beginning next week and reimburse them in 2009.

But the carrier's two large unions -- representing pilots and flight attendants -- haven't endorsed that plan.

Sun Country's move came as its embattled chairman and majority shareholder, Tom Petters, resigned Monday as chairman and CEO of Petters Group Worldwide as well as from roles in its affiliate companies, including the airline. Petters is the main target of a federal fraud investigation.

Stan Gadek, Sun Country's CEO, told employees in a Monday letter that he had planned to request "a short-term loan" from Petters to help Sun Country make timely payments of its bills for fuel, wages and other expenses.

But, he said, Sun Country "must now become financially independent of our parent company" during the slow fall season.

Gadek unveiled the wage idea to Sun Country's union leaders on Friday.

When the flight attendants had their meeting, "there was no agreement on a 50 percent pay deferral," said Joe Battaglia, of the Teamsters, which represents about 250 flight attendants.

"We disagree with the unilateral action taken by the company" in simply announcing the pay deferral Monday, Battaglia said. "We will use all available avenues to protect our membership."

Leaders of the Air Line Pilots Association, which represents about 100 Sun Country pilots, declined to be interviewed.

"We have made no commitments to management," the union said in a Monday e-mail to pilots. The pilots' union executive council has "studied several options," but the e-mail didn't spell them out.

Gadek said he hopes to gain union support of the plan. But in the interview he added: "I intend to go forward with it regardless" of the union response. "I've got to run a business here."

In his letter, Gadek told Sun Country workers, he will "work without pay until this crisis is resolved."

Sun Country, based in Mendota Heights, lost $47 million on $251 million in operating revenue for the 12 months ending in June. It had a $2.3 million cash cushion at the end of June.

But Gadek stressed that the carrier made money in July and August and has expanded its military charters, which allows it to recoup actual fuel costs. He projects small losses in the third and fourth quarters and a profitable first quarter in 2009.

Of course that depends on fliers' reactions to the turmoil. Gadek said the airline hasn't seen "any significant impact on bookings and we've been monitoring it daily since these events arose."

He argues that consumers should be confident when booking flights on Sun Country. If a consumer buys a Sun Country ticket in October to fly to Mexico in February, Sun Country won't get the customer's payment for that flight until February.

That's because the credit card companies -- U.S. Bank and American Express -- hold back 100 percent of the payments to Sun Country until the flights are operated.

"If we don't fly, we don't get paid," Gadek said. In that case, customers would get a full refund of their ticket payments from the credit card companies.

But Gadek argued forcefully, because of changes to the business model this year, that Sun Country will remain in business.

In his letter to workers, he said, "There will be better days ahead." But he asked them to make a major financial sacrifice through the end of this year, so Sun Country will have the cash it needs to move into next year. The pay cuts start with Oct. 7 paychecks. But he emphasized in a late Monday interview that he intends to reimburse employees in 2009 for the wages they lost plus interest.

Gadek has made several changes in recent months to cut costs and boost revenue as he has attempted to make the carrier profitable. Earlier this year, Gadek reduced Sun Country's workforce by 11 percent. In addition, Sun Country's officers took pay cuts of 15 percent and union and nonunion workers got 10 percent pay cuts. For those June reductions, the unionized pilots, flight attendants and dispatchers ratified the pay cuts.

The airline employs about 1,000 during the winter season.

Since Petters' Minnetonka headquarters was raided by federal agents on Wednesday, Petters has constantly been in the news. Sun Country is one of his most visible businesses.

In the drive to achieve financial independence for Sun Country, Gadek said, "I thought we would have more time to prepare, but it didn't work out that way."

Liz Fedor • 612-673-7709

  • about this series

  • The Star Tribune's coverage of the federal fraud case against entrepreneur Tom Petters and the struggles of Petters-owned Sun Country Airlines.

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