Just where will the bottom be in this industry?


Sunday, July 14th, 2013

More Concessions?

Hello New York --

As you are undoubtedly aware, USAir management is asking your MEC to broker a deal to achieve further cost reductions as related to pilot labor. I’ll give a very brief history, a best and worse case scenario, and call for you to advise Phil & Me how you’d like us to proceed.

How we suddenly got here:
Delta Airlines CEO Richard Anderson announced during a recent Wall Street investors teleconference that he had Pinnacle, GoJets and Compass as low cost regional feed providers and that 50% of Delta’s feed (which itself is about 50% of the total Delta operation) was performed at Pinnacle costs. A clause in Delta’s Air Services Agreements (ASA) allows Delta to reset what it pays to its more costly feeders to closely align with the more ‘competitive’ rates. This occurs whenever larger aircraft are placed into service and/or at given time intervals. So, in short, Delta says a large portion of it’s domestic operations are performed at these low rates and by 2017 all of it's regional flying will be at those rates.

USAir/AA’s game-plan is not only in flux, but it’s being watched and supervised by Wall Street, the courts and management types who have something to prove to the world. For these reasons, they compelled to match their biggest competitor’s (Delta’s) costs. Hence the request for concessions.

Your MEC did meet with Scott Kirby and the rest of the USAir Senior Management recently where the above was discussed with more specificity. The new USAir bosses seem genuinely interested in the well-being of their acquisition and want to honor the deals we struck with AMR that honor our sacrifice and performance. Hence the concept of a B Scale: Leave us alone, while throwing the unborn into a future cost structure that has a downward trajectory.

My crystal ball is foggy. I have no way of knowing whether Pinnacle style pay-rates and career progressions are part of a sustainable regional airline model. Nobody knows how Delta’s other feeders are going to react when forced to slash their costs (and inevitably lower pilot pay rates). But that isn’t really the point, because that’s in the future. USAir wants to prove to Wall Street that they can run the operation with a similar or better cost structure today.

I do believe the tightening requirements of Part 121 First Officers will greatly reduce the number of individuals willing to slave away for $25k. There simply is no justification for an ATP qualified pilot to be earning anything less than a salary truly commensurate. The regional airline industry must quickly wean itself off the notion that someone who has invested the time and energy necessary to become an ATP (even a restricted ATP) is going to work for $25k a year. Like crack addicts, the sooner there is an intervention, the sooner the healing can begin. Management must shift to the new paradigm, and quickly. Those who get it right first will have the cream of the pilot crop.

What’s the worst case?
We get Comair’ed. Using Comair’s size as a rough model, I can tell you that I think it entirely realistic that AAG (the new AMR) could retire the Eagle certificate by mid 2016 to early 2017.

What’s the best case?
That’s actually a trick question: there is no best case right now. Ideally, management grows us and takes a bold, industry leading step to attract and retain pilots and provides a cradle to grave career progression with compensation befitting ATP pilots while honoring the pain and sacrifice this work group has endured. Having seen the plan, I can safely say that's not the works.

Again, I don’t have a crystal ball, but it’s no secret AAG is about to order several dozen planes. Maybe we will get a few new aircraft to offset the departing ones. Maybe not. And next time AAG wants to buy a few more, we’re going to have face this same issue again: will we match the industry's lowest cost carriers in exchange for aircraft?

Status quo is not good, and isn't sustainable. Eagle can not survive with the status quo. Worse than the airline shutting down, it means stagnation for everyone until the lights get turned out. If you’re a senior CA, you’ll stay that way. If you’re the most senior FO, you’ll probably stay FO. With no growth, with nobody coming in the bottom, there will be no career progression.

Sadly, I think this is a concern no matter how many concessions we give. If AAGdoesn’t invest in Eagle and keep us a bright, shining star and chooses to instead give nice, new airlines to some other carrier I believe Eagle will implode faster than management can wind it down. Performance will quickly languish, dependability will plummet, and FOs will leave for greener mainline or international pastures. Or leave the industry altogether.

The choice ahead is tough. It’s something pilot groups have been facing for quite some time and the pattern is well established: Do I take a haircut and live to fight another day? Or do I stand and say “no more!”

I, for one, am not inclined to attempt to match the industry's lowest costs. Right now they ARE the outliers. I can’t imagine anyone struggling to get an ATP and then going to any airline other than the best paying one. But if we match them, then they become the new de facto standard and the entire industry will follow and we will absolutely eat this at the next amendment round, if not before.

Make no mistake, we’re not alone. Republic, Air Wisconsin and Skywest pilots to name a few are in negotiations with their respective managements over pilot compensation. They’re probably being told they need to acquiesce quickly lest Eagle pilots lower the bar further!

The race to the bottom continues, and we haven’t found bottom yet.

Ladies and Gentlemen of New York, as I wrote when I ran for office, I’m not inclined to enable that race any further. I have outlined the risks involved, but right now I am inclined to invite Mr. Kirby to place his new aircraft elsewhere if it requires me to allow him a B Scale. I represent you, dear friend, to management. You elected me to this position, and contrary to our Chairman’s email of a few days ago, I am completely comfortable with the concept of the Status Reps (MEC) functioning in our role of governance in that ALPA is a Republic, not a democracy. I am completely comfortable voting NO on something that I believe is so wrong it doesn’t even warrant going out for a general pilot ratification.

Now is the time for you to speak up if you feel I am misguided or plain wrong. My understanding is that there is a vote on Monday on how to proceed. If you have comments, suggestions, or feedback please email me ASAP at


Regards,
-sam-