FedEx says has political clout to stop labor change

* Would stop investing in main business if law changed-CEO

* Says enough political support to defeat labor measure

WASHINGTON, March 10 (Reuters) - FedEx Corp FDX.N would stop investing in its core express business if the U.S. government made it easier for its employees to organize into local bargaining units, although that provision will probably not become law, Chief Executive Fred Smith said on Wednesday.

A provision included in sweeping aviation legislation before Congress could enable employees in FedEx’s Express unit, which includes its airline, to unionize locally instead of holding a nationwide vote.

The unit accounts for the bulk of the company’s revenue,

“If you put different bargaining units in different hubs it would be impossible to run that as an integrated system,” Smith told reporters. “If you subject the worldwide FedEx air system to being shut down, it would completely change the nature of the business and our ability to invest in it.”

Congress is slowly moving forward with legislation on long-term U.S. aviation priorities, including plans to modernize the nation’s aging air traffic system.

A provision included in the version already approved by the House of Representatives would cause FedEx Express employees to be covered by the National Labor Relations Act, which allows local union organization.

Senate legislation, which lawmakers began considering on Wednesday, does not contain the provision that FedEx opposes.

Whether the measure is included in a final bill will likely come down to a committee of House and Senate negotiators, who will meet after Senate passage to hammer out final details.

Smith said he was confident he had enough political support among both Republicans and Democrats to defeat the measure.

FedEx’s Express business, which includes about 660 aircraft and accounted for $22.36 billion of its $35.5 billion in revenue in 2009, is now governed by the Railway Labor Act.

The railway act was enacted almost a century ago to prevent strikes from disrupting the nation’s railroads.

Smith founded FedEx in the early 1970s with an emphasis on its express airline but that unit, called Express, now contains such a significant ground component that of its 125,000 U.S. employees, only 4,200 are pilots.

United Parcel Service Inc UPS.N, the world's largest package delivery service, contends the National Labor Relations Act should govern FedEx Express just as it does UPS since much of the Express unit's business involves trucks and drivers.

“Our position is that all drivers perform the same function and should be treated equally under the law. No company should be granted a competitive advantage under the law,” said UPS spokesman Malcolm Berkley.

COMPETITIVE EDGE UPS drivers are represented by the Teamsters, while FedEx drivers do not have union representation.

The Teamsters have been trying for years to unionize FedEx Express and have been lobbying for FedEx’ inclusion under the National Labor Relations Act.

Unions represent pilots at both companies.

FedEx argues that its Express ground service is inseparable from its air operations and that both should continue to be governed by the Railway Labor Act because a strike at one of its hubs could wreak havoc on the nation’s economy.

Switching its regulatory framework would amount to a bailout for UPS that would strip FedEx of its competitive edge, FedEx says. If this happened, the company would simply cease growing its Express business, Smith said.

FedEx has an order in with Boeing Co BA.N for 15 777 Freighter jets and an option for a further 15. It would cancel these orders if the NLRA provision became law, Smith said. "No board of directors could prudently could invest billions in a system subject to local labor disputes," he said.

FedEx is doing right by shareholders in fighting to maintain maximum flexibility with its employees, said Morningstar analyst Keith Schoonmaker. Local unionization would reduce the company’s margins, he said.

A FedEx whose Express business was covered by the National Labor Relations Act would not alter its short-term investment case, said Michael Cuggino, a portfolio manager who oversees two funds that own 360,000 FedEx shares.

“However, over the long term, we would continue to assess the change in the law on FedEx’ overall business model, profitability and valuation as compared to other investment opportunities,” Cuggino said.

Additional reporting by Andy Sullivan and John Crawley; Editing by Ted Kerr