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YRC Teamsters OK more concessions
Monday, 10 August 2009 00:00

OVERLAND PARK, Kan.—Financially troubled less-than-truckload (LTL) freight and logistics giant YRC Worldwide has been given another lifeline by its unionized workforce. By a 58-42 percent majority, Teamsters at YRC and its Holland regional subsidiary approved 5 percent wage and pension concession package that is estimated to save the company approximately $45 million a month for the rest of this year and up to $50 million a month next year.

These latest concessions come on top of a previous 10 percent wage concession and pension freeze that took effect Jan. 1. Those concessions are estimated to be saving the company approximately $250 million annually.

Teamsters at YRC’s New Penn Northeast regional subsidiary rejected the concession package. Those votes were counted separately because those workers are not part of the same bargaining unit. In addition, Chicago Locals 705 and 710 and Local 179 in Joliet, Ill., rejected the concessions. They too are covered by their own separate contracts.

It is unclear what those locals’ rejections actually mean. With the largest unit of YRC and the Holland Teamsters approving the wage cut package, the International Brotherhood of Teamsters will have to decide how to resolve the situation. In a press release issued by the IBT, Teamsters President James P. Hoffa said he would deal with it “on a local-by-local basis.”

Whatever the long-term outcome, YRC officials said they were grateful that the majority of the workers voting approved the package. YRC has lost in excess of $2 billion over the past 10 operating quarters, including a $309 million loss in the second quarter ended June 30. Fewer than 22,000 YRC Teamsters voted. Currently YRC has approximately 32,000 Teamsters working, although another estimated 10,000 workers on furlough also were eligible to vote.

The wage concession comes on top of a 10 percent wage cut that went into effect on Jan. 1. In the second quarter alone, YRC deferred $1.265 million in pension payments by putting up terminals and real estate as collateral. It also eliminated 5,500 jobs in the second quarter and closed about 30 percent of its terminals as revenue fell by 45 percent to $1.33 billion compared with year-ago revenue.

As part of the wage and pension concession package, Teamsters are gaining a minority ownership position in the company. YRC Chairman, President and CEO William D. Zollars says he remains “guardedly optimistic” about the future as YRC and many other trucking companies struggle with freight demand levels that have fallen between 20 and 30 percent from last year’s levels.

“With the support of our employee-owners and other stakeholders, we continue making progress with our comprehensive recovery plan—realizing efficiencies from the YRC integration (of long-haul carriers Roadway and Yellow), restoring financial strength and positioning YRC Worldwide for future success,” Zollars said in a statement. “The contract changes enable us to reduce our cost structure, preserve capital and to be more competitive in the market place.”

Currently, the LTL marketplace is brutal. Last week, the Wall Street Journal reported competitors such as FedEx Freight, Con-way, Saia, A. Duie Pyle and others had been contacting YRC shippers and emphasizing their companies’ financial strengths and operational successes. But many YRC shippers have held fast, satisfied with the company’s service levels and pricing in the discount-heavy LTL market.

But without YRC’s Teamsters’ concessions, it is doubtful the company could have survived. YRC has been in constant negotiations with a consortium of lenders to alter its loan covenants.

“Our union employees approached this situation in a very professional manner,” said Mike Smid, president of YRC Inc. and COO of YRC Worldwide. “This vote sends a clear message to our customers and to our competitors. We are moving forward together. We are moving forward with confidence, delivering uninterrupted and unparalleled service in our superior networks.”

Analyst David Ross of Baltimore-based Stifel Nicolaus called YRC’s second-quarter losses “abysmal,” but emphasized what is most important right now for YRC is maintaining its customer base. He said YRC’s cash flow “remains significantly negative” and could remain so even after wage/pension concessions take effect. Ross had predicted that the company could still run aground of its loan covenants in November if it does not obtain cash influxes from further asset sales.

YRC seems aware of that. It recently signed a sale-leaseback agreement with North American Terminals Management Inc. to sell an undisclosed number of terminals in the third and fourth quarters. YRC said the aggregate sales price for those property sales is $81 million and those deals are expected to close before the first of the year.

This continues a long trend of terminal sale-leaseback arrangements for YRC. The company says those transactions are expected to generate about $375 million of cash proceeds and additional excess property sales “should generate” more than $100 million this year.

YRC’s lenders appear to be bending over backward to avoid liquidation and foreclosure. Minimum levels of earnings before interest, depreciation and debt (EBITDA) have been waived and new covenants have been set for the rest of this year and early 2010. Still, given YRC’s losses, Ross said he did not expect the company to reach the fourth quarter earnings minimum “even as low as it is.”

YRC’s lenders previously waived a $100 million minimum liquidity covenant for August. They also are allowing YRC to keep up to $50 million in asset sales, according to a bank amendment included in the company’s most recent 8-K filing with the Securities and Exchange Commission. Still, the market place seemed to welcome the Teamsters vote. YRC stock zoomed up 25 percent the day the vote was announced, to $2.24 per share.

Logistics Management, 8/10/2009