Survey Common Themes

Common Themes from the Employee Survey on Benefits

A number of common themes appeared in the written comments of the benefits survey. This included the following:

We understand a problem exists with the escalating cost of health care, but someone else should pay more – "not me."

Many suggestions were received indicating who should pay more:

Abuser of health care

People with more children

Sick people / heavy healthcare users

Pilots

Smokers

Overweight people

Full-time employees

Part-time employees

The reality is not one single group is causing the problem. The problem affects everyone and everyone, including both the Company and employees will have to pay more for the coverage.

Just raise the prices that Airborne charges our customers. That will cover the cost increases in health care and our customers will understand.

Airborne’s business model is to be the "value provider," meaning that we provide the best value in terms of lower price, high quality service, and flexibility to our customers. In the main market we focus on – Fortune 500 companies – both FedEX and UPS offer large customers very competitive pricing and outstanding service comparable with Airborne.

Because Airborne is not the market leader, we are not in a position to increase our prices above what our competitors offer. In January 2003 we raised our prices following increases announced by both UPS and FedEx.

But this price increase barely will cover the increased costs to run our Company and provide a fair return to our shareholders. Unfortunately, healthcare costs are rising at a rate faster than our ability to raise prices to our customers.

Our customers expect us to keep our prices competitive. If we do not, they will leave us. If we lose too many customers, our jobs will be in jeopardy.

The Company wastes a lot of money on unnecessary things including:

New DC-9 simulator

Company house

Family Fun Day / Patty & Frank

Executive cars, pay, and bonuses

ABX-TV, newsletters, mailings

Uniforms, red shirts, foul weather gear

partial empty trucks & planes

New DC-9 simulator: The cost of the new simulator and the building to house it was about $7 million. The new simulator is a six-axis level C simulator, which offers improved capabilities and a new enhanced level of safety when compared to the older DC-9 simulator. The new machine can simulate situations that were not possible in the older three-axis level B DC-9 simulator.

Without this important upgrade, ABX would not have been able to continue to provide all of the required training for our 398 DC-9 pilots at the Wilmington flight-training center. We would have been forced to rent time (at $1,000s/hour) on DC-9 simulators in other cities. We would have to pay for travel expenses and hotels and to send our DC-9 crews so they could complete their required annual training. Additionally, the new simulator eliminates the need for any flight training in an actual DC-9 aircraft – another expense that will be avoided. The FAA certified the new DC-9 simulator in February 2003.

Company house: The company house was purchased to provide lodging to Airborne employees who do not work in Wilmington but travel here for business. By purchasing the house the Company avoids hotel bills. In 2002, 694 hotel room-nights were avoided, resulting in a savings of over $45,000. Last year was an off year because of the slow economy and reduced travel following Sept. 11. In prior years, the annual savings has averaged $80,000 to $90,000 a year. The company house has paid for itself.

Family Fun Day / Patty & Frank: The Family Fun Day is an Employee Activity Fund Board (EAFB) event. The EAFB receives its funding from the profits generated from the vending machines and from the aluminum can recycling.

Last year the Company reduced the number of Patty and Franks from two days to one day which saved $10,000. Even if we eliminated Patty and Frank altogether, the savings would not be significant.

Executive cars, pay, and bonuses: Executives are an easy target, especially after the mismanagement and outright fraud at Enron, Worldcom, and other major corporations. However, what you may not know is that ABX executives had their pay frozen for two years in 2000 and 2001 except for those receiving promotions. The executives also did not receive bonuses for three years running in 1999, 2000, and 2001. Likewise, pay for Airborne, Inc. executives was frozen for the same time period except for those receiving promotions, and no bonuses were paid to senior executive management.

During this same time, pay for ABX non-bargaining employees was not frozen and STAR bonuses were paid when the goals were met.

ABX-TV, newsletters, and mailings: The total cost of ABX TV is about $10,000 a year. The newsletters cost about $28,000 a year. Whenever possible, we distribute information through your supervisor as it costs about $2,200 to mail a letter to each employee’s home. However, sometimes in management’s judgment it is necessary to use a home mailing to ensure important messages are received.

Uniforms, red shirts, foul weather gear: ABX does spend a significant amount of money each year to provide certain employees with appropriate apparel. Uniforms and red shirts are provided to help identify certain employees such as leads in the Sort. Foul weather gear is provided to protect those employees whose job, regularly expose them to the weather.

Partial empty trucks and planes: During the 4^th quarter many employees commented that they saw partial empty trucks or aircraft. Several factors affect this. From day-to-day, shipment volumes for a given city can vary significantly. In addition, the volume of shipments to a given destination does not always equal the one planeload or truckload. Many times the volume is 1 ½ planes or trucks. Finally lane segment imbalance can occur with more freight outbound to a destination than inbound (or vice versa). Our commitment to our customers is to deliver their shipments in time. We cannot simply cancel flights because the plane is not full. Management meets regularly to review the schedule and makes adjustments to the schedule to minimize partial loads where possible.

Just cut STAR – that will save a lot of money

STAR is an expensive program. In 2002, the Company paid approximately $3.6 million to over 6,300 employees. The STAR program is designed to focus on service, which is a critical part of providing the best value to our customers. When the STAR program was introduced in 2000, we set a new on-time service record. In 2001, we broke that record. In 2002, we did not beat the record but still performed better than the years before STAR. It’s critical we maintain focus on on-time service. STAR helps us maintain an on-time focus for our customers.

There are too many managers, supervisors and leads.

Corporate-wide since May 2001, the Company has 11 fewer Vice Presidents. At ABX management has four fewer Directors, two fewer Managers, and eight fewer Supervisors. We now have 391 fewer positions at ABX compared to May 2001. All supervisory, management, and staff positions are reviewed by Joe Hete, President & C.O.O., before being filled to determine if the position really is needed.

In the Ground Department, Training Leads were instituted to improve the on-the-job training for new hires and to help reduce turnover. We have seen some decrease in turnover as a result of the Training Lead program. The ratio of Leads and Supervisors per employees is carefully monitored. Our current ratio has resulted in productivity improvements in the Sort operations.

We need better attendance incentives

The Company offers an attendance incentive program for excellent attendance. Over 800 employees recently were recognized for their outstanding attendance under this program.

Benefits are very important & they need to be affordable

We agree. We are working very hard to maintain an attractive and affordable benefit package for everyone. It’s important to have a great benefit package so we can continue to attract and retain great employees. While we are unlikely to please everyone, our goal is to provide a benefit package that meets our employees’ needs and is affordable for both the Company and our employees.

Revised: January 14, 2005.