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Ahead of holidays, FedEx dangles bonuses to keep pilots from retiring

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Delivery giant FedEx Corp is paying retirement-age pilots bonuses of US$40,000 - and potentially as much as US$110,000 - to keep them flying into next year, said two sources.

Seattle

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 US$40,000 - and potentially as much as US$110,000 - to keep them flying into next year, said two sources 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 fuelled by the growth of global e-commerce are straining the world's largest air delivery fleet.

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

FedEx and rival United Parcel Service Inc play a crucial role in global supply chains from aerospace to retail, particularly during the holidays when average daily delivery volumes can double.

FedEx spokesman 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.

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

FedEx and UPS had record holiday peak business in 2016 and last year, 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, Walmart Inc and Best Buy Co to consumers' doorsteps.

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

FedEx expects to lose about 150 to 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 2015, includes a calculation that allows for bonuses of up to US$110,000 per pilot. The two sources told Reuters that they knew of pilots being paid US$40,000 to US$50,000 in bonuses this year. But the 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 US carriers, with 30-year pilots making roughly US$300,000 not counting overtime or bonuses, industry sources said.

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 long slump.

Each day, roughly a third of global trade by value - or about US$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 this year to modernise their fleets and meet rising demand.

Last November, FedEx also ordered 80 turboprops for its smaller partners - the "feeder" airlines - which carry packages from major facilities like its "SuperHub" at Memphis airport to smaller cities or rural areas. 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.

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 spokesman Jamie Smith said packed pilot schedules in recent months have forced it, on occasion, to pay for costlier charter flights or reject FedEx cargo. This has forced FedEx to find another carrier or send freight by truck, which takes longer.

Separate from the pilot bonuses, FedEx launched a programme in April to recruit college graduates with pilot licences for jobs with its feeder airlines.UPS has a similar recruitment programme and is working to recruit 200 to 300 pilots this year.

The pilot shortage is worsening as major US 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. REUTERS