As turmoil continues in the airline industry, the credit unions that serve that industry are prepared for everything from dips in loan volume to delinquencies.
"We're just being prepared to help our members through this," said American Airlines CU CEO John Tippets, who spoke with The Credit Union Journal just days before a final announcement on whether the CU's primary sponsor will have to file for bankruptcy. "For those who are looking at pay cuts, it's a real challenge for them to suddenly live on a lot less pay. And for some of them, it's even more of a pay cut than is being reported, like in the case of a captain who is being demoted to first officer-that cut in pay is significant."
If there's any good news to be had, it's that the airline credit unions have a lot of experience with this kind of situation. "We've been dealing with a lot of this kind of thing since Sept. 11," Tippets observed. "We're getting to be really good at it. We have been proactive, and we're going to have to be even more proactive."
Christine Cedusky of United Airlines Employees CU, Chicago, agreed. "We've had various member assistance program in place since Sept. 11, and we have been building on those," she told The Credit Union Journal. "One is specific to people who have been furloughed. Another is for people who are taking a pay cut. One of the features of that one is a reduction in debt load by 10% to 30%, depending on how much their pay was reduced, for up to six months."
Both CUs said they're also trying to reach out to their members to help with financial counseling. "We're trying to get on the line with them and help them put together a new budget," Tippets explained. "They have to learn how to live on a lot less pay, and we can help them with that."
UAECU has teamed up with BALANCE to provide its members with the Financial Fitness program that helps members with basic financial planning. The credit union also recently launched a 2% loan rate reduction program available through June. "It's both a way of saying thanks for supporting us and giving them a great rate if they really do need a car or really do need a home equity loan," Cedusky related. "It's a great thing for them, and it's also a good thing for us, frankly, since it has helped boost our loan volume."
What has also helped the CU maintain a stable loan volume is the fact that only about 36% of its members are active American Airlines employees. The effect of allowing family members to join has helped diversify AACU's membership, she noted.
And loan volume is always a big issue when layoffs and pay cuts are in the offing.
"We expect loan volume generally to go down," Tippets noted. "If they were thinking about a new car or a new home, suddenly they're thinking maybe they better put that off. So, loan volume will go down, it's just a fact of life."
But there will be one part of the loan portfolio that will grow-but it won't really help the credit union, he added. "There will be refinance volume as we help them restructure their debt. But while that will show up as loan volume, and there will be a lot of work involved so the loan department will still be busy, the problem is that all those refinances will be at a lower interest rate. It helps the member, and that's what we're here to do, but it doesn't help our loan portfolio any."