Teamsters wanted ABF to buy YRC

Documents filed on ABF Freight System’s “Legal Action” website show that discussions with Teamsters officials were often terse, and that Teamsters offered to help ABF acquire financially-troubled YRC — ABF’s primary competitor.

On Nov. 1, the management at Fort Smith-based Arkansas Best Corp. decided to seek up to $750 million in financial damages from alleged violations of a National Master Freight Agreement (NMFA) by the International Brotherhood of Teamsters and others.

U.S. District Court Judge Susan Webber Wright (Eastern District of Arkansas) will preside over a Dec. 16 hearing to consider YRC’s motion to dismiss the case for lack of subject matter jurisdiction.

BACKGROUND
The NMFA, implemented April 1, 2008, was designed to cause equal labor costs and other benefit payments among trucking companies with drivers represented by the Teamsters.

However, YRC Worldwide, the largest less-than-truckload carrier in the U.S., received three rounds of wage and benefit concessions from the Teamsters, with the most recent announced Nov. 1 that includes up to $350 million annually through 2013. Previously, the Teamsters voted to approve a 15% pay cut among unionized YRC drivers.

ABF Freight System, the largest subsidiary of Arkansas Best and a less-than-truckload carrier that competes with YRC, was unable to obtain similar concessions from the Teamsters. In April, ABF and the Teamsters hammered out a deal that included a similar 15% pay cut approved by Teamster drivers for YRC. In attempting to convince drivers to approve the deal, Teamsters officials said Arkansas Best was losing about $10 million a month in 2010 and needed pay cuts to keep from burning through cash reserves.

But the special pleading did not sway union members. Ballots were sent April 30 to about 7,000 active employees and about 1,000 drivers with recall rights. The final count was 3,764 votes against and 2,936 votes for the new contract.

ECONOMIC WOES
The national trucking sector is only now slowly — if not erratically — emerging from a freight recession that began in late 2006. YRC and ABF have struggled through several years without making money.

Arkansas Best, which employs about 9,500 nationwide, posted a 2009 net income loss of $127.52 million, compared to a $29.168 million gain in 2008. However, the 2009 income loss includes a non-cash accounting charge of $64 million for the impairment of goodwill. Total revenue in 2009 was $1.472 billion, a 19.6% dip from 2008 revenue of $1.833 billion.

Conditions are improving, but much of the improvements have come from deep salary and benefit cuts among non-union employees. For the first half of 2010, the company posted a  net income loss of $28.836 million, an improvement compared to the $33.521 million net loss in the 2009 period.

Overland Park, Kan.-based YRC narrowly avoided bankruptcy in January through a complex bond swap agreement with creditors. The deal essentially reduced the company’s debt by about $500 million and provided short-term support for working capital.

The less-than-truckload company had piled up a mountain of debt with the $1.07 billion acquisition of Roadway Corp. in 2003 and the $1.23 billion acquisition of USF Corp. in 2005. As of January, YRC had posted $1.7 billion in losses in the previous five quarters.

BACK AND FORTH
When IBT began to help YRC with wage concessions, ABF asked for the same. The union wanted unfettered access to ABF financial records. ABF was initially unwilling to open the books.

Part of early attempts by the union to reach an agreement required ABF to be neutral on the issue of Card Check, to appoint an officer “subject to approval of TNFINC, to coordinate and oversee ABF’s return to profitability,” and for TNFINC to be able to appoint “persons” to serve on ABF’s board of directors.

The plan eventually rejected by the union drivers in April also gave the union veto power over any Arkansas Best move to buy a non-union company that provided no financial benefit to ABF.

When the Teamsters rejected the plan and union officials continued to make wage deals with YRC, the tone from ABF President and COO Wesley Kemp changed.

In a letter dated June 11 to Tyson Johnson, co-chair of the Teamsters National Freight Industry Negotiating Committee (TNFINC), Kemp noted in his concluding paragraph: “Let me be abundantly clear. ABF will not sit idly by and allow a sweetheart deal to apply to one favored employers to the detriment of ABF. We expressly reserve all legal positions and you can be certain that an appropriate legal challenge will be forthcoming.”

The union responded by saying ABF was “attempting to fabricate a lawsuit by misrepresenting the facts.”

AN ABF-YRC DEAL?
In August, Teamsters leader James Hoffa and Johnson said they were willing to help ABF acquire YRC. Their letter of Aug. 13 noted: “We are prepared to enter into discussions as soon as possible to address your interest in potentially acquiring YRCW. The Teamster National Freight Industry Negotiating Committee has assembled a working group consisting of senior IBT officers, as well as certain financial restructuring advisors, pension experts and corporate and labor law counsel.”

ABF said it was not interested in acquiring YRC. On the Legal Action website, the company offers this explanation:

“In an effort to avoid filing the lawsuit and grievance, ABF attempted to negotiate industry-wide changes to the NMFA.

“TNFINC and its representatives responded by pressuring ABF to acquire YRC, indicating that in exchange for committing to an acquisition of YRC, that TNFINC would agree to contract changes which would make such a transaction economically viable.

“When we communicated our reluctance to pursue such a transaction, TNFINC representatives advised that that IBT would be unwilling to work with us, going forward, after YRC’s deal was ratified by its employees.”