Ahead of holidays, FedEx leans on special bonuses to keep pilots from retiring

[October 04, 2018]  By Eric M. Johnson and Lisa Baertlein

SEATTLE/LOS ANGELES (Reuters) - Santa's sleigh cannot fly without its pilot.

With the peak holiday shipping season fast-approaching, global package delivery giant FedEx Corp is paying retirement-age pilots bonuses of $40,000 - and potentially as much as $110,000 - to keep them flying into next year, according to two sources with knowledge of the matter and a contract seen by Reuters.

The bonuses, outlined in the latest pilot contract and previously unreported, reveal that a wave of pilot retirements, global pilot shortages and rising cargo demand fueled by the growth of global e-commerce are straining the world's largest air delivery fleet.

Any problem in maintaining capacity for FedEx, which many economists consider a barometer of U.S. economic strength, disrupts supply chains at a time when they are already being destabilized by international trade tensions.

FedEx and rival United Parcel Service Inc, which is trying to recruit hundreds of pilots this year but is not paying bonuses, play a crucial role in global supply chains from aerospace to retail, particularly during the holidays when average daily delivery volumes can double.

FedEx spokeswoman Bonny Harrison declined to comment on pilot pay or its use of bonuses to manage the timing of retirements. She did point to details of a pilot recruitment campaign it launched publicly in April and said FedEx had about 5,000 aviators on its payroll.

"FedEx Express is well staffed with pilots at this time, however we're always looking toward the future," Harrison said.

Two senior FedEx managers familiar with the strategy told Reuters the company offered cash bonuses to retain retiring pilots through the holiday shipping surge that stretches from the U.S. Thanksgiving holiday in November through year-end.

FedEx and UPS had record holiday peak business in 2016 and 2017, and plan to hire a total of 155,000 temporary workers for the peak season to help to deliver products bought from retailers like Amazon.com Inc, Walmart Inc and Best Buy Co Inc to consumers' doorsteps.

The National Retail Federation expects 2018 U.S. holiday retail sales in November and December to increase as much as 4.8 percent to $720.89 billion compared with a year ago.

FedEx expects to lose about 150-200 of its roughly 5,000 pilots this year - and around the same number annually for the foreseeable future - as more approach age 65, the federally mandated pilot retirement age, one of the sources said.

The FedEx pilot contract seen by Reuters, signed in late 2015, includes a calculation that allows for bonuses of up to $110,000 per pilot. The two sources told Reuters they were aware of pilots collecting bonuses this year of $40,000 to $50,000, though the total number of payouts was unclear.

These bonuses are calculated based on a portion of a pilot's salary over the 24 months prior to his or her retirement date, the contract says. To get the bonus, a pilot has to provide at least 12 months' notice of the day he or she will retire on Dec. 31 of a given future year.

Flying for FedEx is the highest-paying job among U.S. carriers, with 30-year pilots making roughly $300,000 not counting overtime or bonuses, industry sources said.

'ALREADY FEELING IT'

The bonuses are the latest sign of fallout from a global pilot shortage, which is already squeezing the operations of passenger airlines and now pressuring FedEx as it looks to cash in on the revival of the global air cargo market after a prolonged slump. [L3N1SM1DR]

A FedEx Express airplane is pictured during its approach to Los Angeles International Airport, in Los Angeles, California, U.S. February 11, 2015. REUTERS/Mario Anzuoni/File Photo

Each day, roughly a third of global trade by value - or about $17.5 billion worth of products from smartphones and televisions to wine and vaccines - travel by air, according to the International Air Transport Association, a lobby group.

Both FedEx and UPS ordered billions of dollars worth of Boeing Co freighters earlier this year in a move to modernize their fleets and meet rising demand.

Last November, FedEx also ordered 80 new turboprops for its smaller partners - known as "feeder" airlines - that carry packages from major facilities like its "SuperHub" at Memphis International Airport to smaller cities or rural areas where widebody jets do not fly.

Not having enough pilots means not flying jetliners as often as business plans dictate, or moving more freight by slower or costlier means, like ship or truck.

Dallas, Texas-based Ameriflight, one such feeder airline for FedEx and UPS, is taking matters into its own hands after its pilot headcount fell this year beneath the number of planes in its fleet.

While trying to recruit new pilots through social media and paid advertising, Ameriflight spokeswoman Jamie Smith said that packed pilot schedules in recent months have forced it, on occasion, to pay for costlier charter flights or reject FedEx cargo. This forces FedEx to find another carrier or send freight by truck, which takes longer.

"(FedEx and UPS) are already feeling it on our end," Smith said.

RECRUITMENT CAMPAIGNS

Separate from the pilot bonuses, FedEx launched the "Purple Runway" program in April to bulk up its ranks, recruiting college graduates with pilot licenses for jobs with its feeder airlines.

The goal is "to ensure a full pipeline of pilots for us and the industry at large," FedEx Chief Executive Officer Fred Smith told an audience in March at Mississippi's Delta State University, the first school in the program. The speech and the program were not reported by national media.

UPS has a similar recruitment program dubbed "FlightPath" and was working to recruit between 200-300 pilots this year, but is so far not paying bonuses, a spokesman said.

The pilot shortage is worsening as major U.S. trucking firms - including FedEx and UPS fleets - are already grappling with a chronic truck driver shortage that has raised shipping costs and hurt profits across corporate America.

Trip Miller, Managing Partner at Memphis-based Gullane Capital Partners, a long-time FedEx shareholder, said the pilot shortage will hit FedEx hardest in about 3-to-5 years.

"We live in a world where 2-day delivery is becoming much more the norm," Miller said. "The pilot shortage doesn't mean 'we won't be able to get your cargo from point A to point B' – it'll mean 'we can't get your packages there as quickly or, if we do, you're going to pay more.'"

(Editing by Tracy Rucinski and Edward Tobin)

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