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Bumpy ride

Business | Pilots at U.S. Airways are balking at the huge paycut management says is needed

Issue: "Terrorism: Unmasked men," Oct. 16, 2004

What do you do when your company is on the verge of extinction, but you've already conceded twice to your employer's cost-cutting demands with no apparent reward?

That's the situation facing approximately 3,000 pilots at US Airways. Already in bankruptcy protection, the nation's seventh-largest airline has warned that it could be forced to liquidate by February if it doesn't receive a 23 percent pay cut from all of its union workers.

While many of the company's 34,000 employees have agreed to more pay cuts, leaders of the pilots union are balking. The cuts would drop the average salary of US Airways pilots from $155,000 a year to $119,000 a year.

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The news isn't much better at Delta, where CEO Gerald Grinstein announced he will forgo his salary for the rest of the year in connection with a 10 percent pay cut for all senior officials, administrative staff, and ticket and gate agents.

Delta employees also will pay more for healthcare coverage, and the airline is seeking $1 billion in concessions from its pilots. Facing higher-than-expected fuel prices and increased competition from low-fare carriers, Delta has racked up $20 billion in debt.

"In distressed times like these, when everyone must sacrifice, it is especially important that leadership participates, and they have," Mr. Grinstein said.

Market pain

Merck & Co. voluntarily pulled Vioxx off the market on Sept. 30, citing an increased risk of heart attack and stroke in people who used the popular arthritis pain reliever. The withdrawal came just weeks after the company defended the safety of its second-biggest-selling drug and the FDA approved its use in children as young as 2 years old.

But a study by Merck itself deemed Vioxx unsafe. The company began the study to determine whether Vioxx might work as a cancer medication but instead found that the drug doubled the risk of heart attack and stroke.

With Vioxx accounting for $2.5 billion in worldwide sales last year, Merck's decision had an immediate impact on investors and placed the company's future in doubt. Merck shares plunged 26.8 percent upon the announcement, closing at an eight-year low and wiping away $28 billion in shareholder value.

Many analysts think Merck's low stock price makes it vulnerable as a takeover or merger target. Possible suitors include Norvartis AG, Johnson & Johnson, and Schering-Plough Corp.

In the near term, Merck will lose more than $7.5 billion in the next two years because of the Vioxx withdrawal and the loss of patent protection on Zocor, a popular cholesterol medication. That represents nearly a third of the company's total sales last year.

Balance Sheet

  • The 2005 Mitsubishi Galant and 2004 Saab 9-3 earned the highest ratings among midsize sedans in side-impact crash tests conducted by the Insurance Institute for Highway Safety. The tests measured the impact on dummies in the front and back seats of a sedan that is struck in the side by a sport utility vehicle traveling 31 mph. The 2004 Jaguar X-Type received the worst rating.
  • Frank's Nursery & Crafts Inc., having filed for bankruptcy twice in three years, is closing 169 stores in 14 states, putting 2,800 workers out of work. Since filing for bankruptcy protection, the company has begun selling off assets as it tries to pay back a portion of the $140 million it owes creditors.
  • The automotive industry recorded one of its most robust months of the year in September with U.S. sales up more than 6 percent from a year ago. GM led the way with a surprising 20 percent increase, while Toyota, Nissan, and Daimler-Chrysler also posted double-digit gains. Ford and Honda both saw overall sales drop.
  • Business software maker PeopleSoft Inc. unexpectedly fired CEO Craig Conway, likely clearing the way for the company to accept Oracle Corp.'s $7.7 billion takeover bid. Oracle has indicated it will fire more than half of PeopleSoft's 11,500 employees in a takeover.

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