• The designated bargaining representative of the approximately 1,400 UPS aircraft mechanics - Teamsters Local 2727 in Louisville , KY - announced today that it is calling for a strike vote by its members, expected on September 14th. 
• The union and UPS have been negotiating for a new labor contract since November 2006 when the contract became amendable without coming to an agreement. The union claims the parties are now at an impasse. 
• The key areas of disagreement appear to be around the Teamsters' consistent demands for no health care co-pay and the union's desire for protection from outsourcing mechanics' work outside the U.S. The wage increase is also being debated, but we do not believe that is as important as the first two issues. 
• Timeline of the strike process - 1) votes are expected to be counted September 14th, 2) if "yes," the National Mediation Board (under the Railway Labor Act) requires a 30-day cooling off period for the parties to come back to the table to continue discussions, 3) if no agreement has been reached at the end of the cooling off period, the workers may strike (as early as mid-October). 
• We doubt the workers ultimately go on strike. Given that October/November is the start of peak season for UPS, we think the company will likely reach an agreement to avoid a strike. 
• While it is a difficult economy to be asking for wage and benefit increases, UPS is not in the best bargaining position, in our view, as an extremely profitable company with better margins than its closest competitor. 
• We should note a "yes" vote does not ensure a strike. If the mechanics do strike, though, we believe it could potentially disrupt activity heading into the company's busiest shipping period of the year. A strike could have a material impact on near-term financials, whereas we do not see a new agreement as having a material impact. 
• We are maintaining our Hold rating on the shares of UPS mainly due to valuation and our expectation for a gradual, rather than sharp, economic recovery in the U.S. and globally. 

For more information, download the PDF. 

View UPS mechanics strike vote_8_14_09H_1.pdf