UPS 2014 Annual Report Download - page 25

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Distinctive Culture. We believe that the dedication of our employees results in large part from our distinctive
“employee-owner” concept. Our employee stock ownership tradition dates from 1927, when our founders, who believed that
employee stock ownership was a vital foundation for successful business, first offered stock to employees. To facilitate
employee stock ownership, we maintain several stock-based compensation programs.
Our long-standing policy of “promotion from within” complements our tradition of employee ownership, and this policy
reduces the need for us to hire managers and executive officers from outside UPS. The majority of our management team began
their careers as full-time or part-time hourly UPS employees, and have spent their entire careers with us. Many of our executive
officers have more than 30 years of service with UPS and have accumulated a meaningful ownership stake in our company.
Therefore, our executive officers have a strong incentive to effectively manage UPS, which benefits all our shareowners.
Financial Strength. Our balance sheet reflects financial strength that few companies can match. Our financial strength
gives us the resources to achieve global scale; to invest in employee development, technology, transportation equipment and
facilities; to pursue strategic opportunities that facilitate our growth; to service our obligations; and to return value to our
shareowners in the form of dividends, share repurchases and steady share growth.
Government Regulation
Air Operations
The U.S. Department of Transportation (“DOT”), the Federal Aviation Administration (“FAA”), and the U.S. Department
of Homeland Security, through the Transportation Security Administration (“TSA”), have regulatory authority over United
Parcel Service Co.’s (“UPS Airlines’”) air transportation services. The Federal Aviation Act of 1958, as amended, is the
statutory basis for DOT and FAA authority and the Aviation and Transportation Security Act of 2001, as amended, is the basis
for TSA aviation security authority.
The DOT’s authority primarily relates to economic aspects of air transportation, such as discriminatory pricing, non-
competitive practices, interlocking relations and cooperative agreements. The DOT also regulates, subject to the authority of
the President of the United States, international routes, fares, rates and practices, and is authorized to investigate and take action
against discriminatory treatment of U.S. air carriers abroad. International operating rights for U.S. airlines are usually subject to
bilateral agreement between the U.S. and foreign governments. UPS Airlines has international route operating rights granted by
the DOT and we may apply for additional authorities when those operating rights are available and are required for the efficient
operation of our international network. The efficiency and flexibility of our international air transportation network is
dependent on DOT and foreign government regulations and operating restrictions.
The FAA’s authority primarily relates to safety aspects of air transportation, including aircraft operating procedures,
transportation of hazardous materials, record keeping standards and maintenance activities, and personnel. In 1988, the FAA
granted us an operating certificate, which remains in effect so long as we meet the safety and operational requirements of the
applicable FAA regulations. In addition, we are subject to non-U.S. government regulation of aviation rights involving non-
U.S. jurisdictions, and non-U.S. customs regulation.
UPS aircraft maintenance programs and procedures, including aircraft inspection and repair at periodic intervals, are
approved for all aircraft under FAA regulations. The future cost of repairs pursuant to these programs may fluctuate according
to aircraft condition, age and the enactment of additional FAA regulatory requirements.
The TSA regulates various security aspects of air cargo transportation in a manner consistent with the TSA mission
statement to “protect the Nation’s transportation systems to ensure freedom of movement for people and commerce.” UPS
Airlines, and specified airport and off-airport locations, are regulated under TSA regulations applicable to the transportation of
cargo in an air network. In addition, personnel, facilities and procedures involved in air cargo transportation must comply with
TSA regulations.
UPS Airlines, along with a number of other domestic airlines, participates in the Civil Reserve Air Fleet (“CRAF”)
program. Our participation in the CRAF program allows the U.S. Department of Defense (“DOD”) to requisition specified UPS
Airlines wide-body aircraft for military use during a national defense emergency. The DOD compensates us for the use of
aircraft under the CRAF program. In addition, participation in CRAF entitles UPS Airlines to bid for military cargo charter
operations.