Wednesday, May 20, 2009

ABF Freight System competitor seeks federal bailout funds

A request for federal bailout funds from a national trucking company is unlikely to obtain a favorable response, but it does indicate the potential impact of the precedent set by federal bailouts of the financial and auto sectors.

YRC Worldwide, the nation’s largest trucking company and a primary competitor in the less-than-truckload sector with Fort Smith-based ABF Freight System, has requested $1 billion in federal bailout money (Troubled Asset Relief Program, or TARP funds) to help cover an estimated $2 billion pension obligation the company will owe in the next two years.

YRC CEO Bill Zollars said a portion of the pension cost is unfair because the multi-employer pension program pays the costs of retirees who never worked for YRC. ABF Freight System also contributes to the multi-employer pension fund and, like YRC, is supporting retirement costs for those who never worked for ABF.

“For our union employees throughout the country, ABF participates in, and contributes to, many of the same multi-employer pension funds that YRCW does. We are in a much better financial position than they are as we have minimal debt and our balance of cash and short-term investments was $209 million as of April 15th,” David Humphrey, ABF spokesman noted in an e-mail interview with The City Wire. “However, we understand the issues they are raising regarding the unfairness of contributing companies like YRCW and ABF having to fund the benefits of retirees who never worked for us whose companies have gone out of business. These efforts by YRCW should help highlight the unfairness of this situation.”

Chad Brand, a trucking sector watcher at Seeking Alpha, was critical of Zollars’ request.

“Awfully presumptuous of him, don’t you think, applying as a trucking company without any indication Treasury would ever widen TARP to include any U.S. corporation? I would be shocked if this were approved, and if somehow it is, TARP would be completely out of control,” Brand noted in this post [1].

However, YRC employs more than 49,000, with many of them belonging to unions. It’s the union component, or, more specifically, propping up a pension plan for union members, that gives the YRC request a wisp of political cover.

John Taylor, senior vice president of John Taylor Financial-Sterne Agee and a member of the board of directors at Fort Smith-based Benefit Bank, said he can’t “fathom” how YRC will qualify for TARP funds. Taylor does not have investments in YRC or ABF.

“If they (YRC) do (get TARP funds) this is another classic example of a company (ABF) that did the right things (no debt, cash on the balance sheet, good expense control) being put at a competitive disadvantage by the government to a company that did all of the wrong things,” Taylor said. “ABF already has a disadvantage versus YRCW due to the wage concessions granted by the Teamsters to YRCW last year. Now a company that is debt free may have to compete with a competitor that is funded with taxpayer money. This is just like the GM versus Ford deal that is playing out except it is in the (trucking) industry. What is next? Maybe Krispy Kreme versus Dunkin’ Donut?”

No comments: