A321

I was at the DFW roadshow meeting that John Darrah spoke at and thought John had some very valid questions and made some very good points. Most at the meeting thought that so far he provided the best overall view of what the process and the agreement entailed. I had the opportunity to talk with him after the meeting to try to clarify and understand exactly what he said. I was going to post my summation of his statements but realized I would not be able to accurately articulate his points.
I phoned John to ask if he would write a summation for me to post. He said he has been receiving numerous texts, emails and phone calls asking for his opinion and for him to either write something or make a video explaining his points. He said he was not interested in getting involved in this contract debate and contrary to what is being stated by some, he has not expressed how he will ultimately vote. He said he would continue to gather information and on the 30th of January make the most informed de- cision he could. He hopes others will as well.
I then asked him if he would be willing to at least explain again to me his questions and points he raised at the meeting. He said his intent at the meeting was merely to be- come better informed, not to influence the decision of others one way or another. He said that given the number of inquiries he is receiving, and his present inability to re- spond to all of them, that he would agree to clarify his points with me as long as I stressed the point he is not saying how anyone should vote (yes or no). That’s their choice. He simply believes that everyone should gather all the information they can from the APA, the Company and others before they make their yes/no decision.
Trying to articulate John’s points in writing is no easy task. To accurately capture his questions and points requires a lot of explanation. Understanding that many don’t have the appetite to read a long dialogue I will start by summarizing John’s questions and points raised at the meeting.
1. People and Process
John wanted to know from the APA representatives present what if any of the alleged statements that were attributed to Mr. Parker in 2012 were true? Were statements ever made that if APA supported him that when the time came and AAL was profitable like its competitors, DAL and UAL, that he would provide us DAL and UAL pilot pay rates?
It’s no secret that for years Mr. Parker has been telling USAirway’s pilots that they could only receive AMR, DAL and UAL pay if they worked for an airline that produced revenues and profits like they did. Now they are.
So, are we having to give up items (Duration, excise tax, etc.) to get something that was already a gentlemen’s agreement?
He has noticed some very deliberate and well thought out sound bites used by management in the Crew News’ that appear to be overtly biased to sway the pi- lots’ view of this process and this agreement.
He then raised questions about the purpose of Mr. Kirby’s email and the retrac- tion 48 hours later?
2. Duration
He wondered where the extended duration came from? What was the quid for extending our contract by a year? Was it a requirement to get the pay rates? He doesn’t see any other reason than management made a grab for an extra year, unless someone could explain otherwise. Some have expressed that we will get another 3% pay raise, but in return the pilots have to wait another year for Profit Sharing, Calendar Day, LTD, etc. What was the thought process and reasoning behind the one-year extension?
3. Work Rules and Benefits
When looking at Work Rules and Benefits it appears there was no overall
value created for the pilots. There were changes, but looking at the APA valuations it appears it was just the moving of the deck chairs. Unfortunately, some of the most important chairs were not changed, Calendar Day,
LTD, Life Insurance, A321 pay, etc. If you were to include the
value of profitability for HBT, one could argue the Company received more value than the APA received with respect to valuations?
Additionally, the items in the proposed agreement come with uncertainty.
No one can guarantee the limits of our monetary exposure, both in the short- term and the long-term with the excise tax letter. Uncertainty also appears to exist with the creation of the International/Domestic fences, Short Call Reserve Report and the treatment of Vacancy bids.
4. Pay
Pay is obviously the most important issue given the amounts. Many pilots aren’t even looking past them. Under the Company proposal we know what the pay rates will be. The rates shown are the ceiling, with no mechanism to raise them any higher regardless what occurs with the DAL pilots this year.
And, they come attached with the items above.
MTA pay rates are the floor. Based on the mechanism in the MTA they can only go higher. Unlike the Company proposed pay rates, there is no way to definitive- ly define what they will be. We only know they can’t go lower than the rates in the MTA and they do not come conditional with the items above.
Moving forward with a ratified contract, what are our options? Moving forward with a rejected contract, what are our options?
That is a summarization of John’s questions and points, but that in no way does justice to what everyone believed were very valid questions and comments at the meeting.
At the meeting John started by saying that he had spoken with his wife about the agreement, because like most, he thinks this is a very difficult decision. He had said he had never sat down with his wife before to get her perspective or feedback on trying to make a decision about an agreement. He said after he was done explaining the situa- tion his wife’s response was, “that it was obvious that management has been very suc- cessful at confusing the pilots”. He said that he was very surprised by her response, but in thinking about it, she was correct.
He mentioned to just look at the issue of profit sharing. Management over time has very successfully managed pilots expectations that they should not expect profit shar- ing. Mr. Parker explained in one of the Crew News’, no one should be paid based purely on profitability, especially if items like lower fuel prices would result in individuals get- ting profit sharing (variable pay) based on issues outside of their control. Ironically, Mr. Parker is set to receive a 200% bonus (variable pay) based on AAL making a $2.5 billion operating profit in 2014.
John then went on to explain how he is trying to make his decision and listed some facts and some possible scenarios to which he asked the APA leadership to comment on where his conclusions might be incorrect.
He stated he has been watching the actions and statements of those involved, both at APA and in management, but particularly Mr. Parker and Mr. Kirby since he has had no previous experience with them.
He asked if anyone could comment about Mr. Parker’s alleged comments in 2012 when he was courting the APA for their support of him as the CEO of AAL. It has been al- leged he stated if APA supported him that when the time came he would pay the pilots of APA like DAL pilots.
Neither Tom nor Josey, the DFW domicile representatives, where on the Board then and at the time John asked the question no one in the room at the DFW domicile meeting was present at that meeting in 2012. He went on to describe what he had been told and we have all heard over time. Mr. Parker had been alleged to have said that if the APA would support him, though he could not put it into writing, that if the time came where AAL made DAL revenues and profits that the pilots of AAL should make DAL pay. To John’s knowledge no one present at that meeting has denied that was said, or at least some version of it. But even if it was never said, what Mr. Parker has been very public about over the years with US Airways pilots is that he could not pay them like AMR, DAL or UAL pilots until they had the structure, revenues and profits like they did.
What John asked of the APA reps was, it appears APA leadership did what they said they would do. They supported Mr. Parker and worked collaboratively with him to oust Mr. Horton. Why is it now that if the comments were true, that APA is being asked to fund these pay raises with a contract extension, work rules changes and last minute items like the excise tax issue? It appeared the APA representatives had no explanation.
He then went on to say that he had watched the Crew News’ in an effort to try to learn as much as he could. He said that Mr. Parker and Mr. Kirby appeared to be much more affable then our past executives, but he also noticed the inclusion of some very well de- signed and placed sound bites.
He gave a couple of examples of where Mr. Parker in an earlier Crew News gave an example of what kind of pay raise he was offering. This was for the original proposal and I believe he said Mr. Parker said that pilots would be receiving a 15% pay raise. He didn’t think that number was correct so he checked them and discovered Group II was 15%, but Group III and IV was 13%. He thought it was interesting that he would ran- domly choose the one figure that illustrated the large raise, but realizing Mr. Parker’s intentions John didn’t think much more about it.
Last week Mr. Parker had a Crew News in CLT and in that video he said that the DAL pilots would have to receive a 22% pay raise for the AAL pilots to receive the same pay raise he was offering (APA puts the figure at 19%). John said he didn’t think that was accurate, that it seemed high so he went and checked the figures. He determined that Group I would need a 8% raise, Group II a 18.5% raise and Group IV a 17.5%. Group III did need a 22% raise to match DAL. John said he now understood these figures be- ing used by Mr. Parker were no coincidence, he felt Mr. Parker’s statements and exam- ples in the Crew News’ were a deliberate and direct attempt to persuade pilots by using the most biased numbers to support his statements knowing that most pilots would not take the time to gather the facts.
He found it interesting that in the earlier video Mr. Parker used Group II as an example and in the latest example he used Group III. Even more interesting, Mr. Parker used the aircraft group in the latest Crew News that will not even have any aircraft left on the property by the end of the proposed agreement.
He then briefly addressed Mr. Kirby’s emails and thought it was a mistake for him to send them.
Most pilots read the first email as an ultimatum. Secondly, Mr. Kirby stated that the APA and management had an understanding that the agreement would be voted on by the 19th of January and more importantly it wouldn’t be fair to the other employee groups to change that date. Thirdly, Mr. Kirby stated he couldn’t give the APA pilots a 5:15 cal- endar day because it was the equivalent of a 3% pay raise. In other words, the pilots of APA are not just 15% behind DAL pilots in profit sharing they are 3% more behind in pay due to duty rigs.
Then 48 hours later Mr. Kirby retracted his previous position and said they would agree to allow the pilots to vote on the 30th.
John thought it was interesting that an executive would publicly state he couldn’t do something for his beliefs on fairness to the other employee groups and then 48 hours later totally disregard those beliefs.
Based on management’s actions he does not believe they want to head to arbitration. He is not suggesting that management will not go to arbitration, just that once arbitra- tion is done there is a tremendous amount of uncertainty for them. Neither party should want to, but both parties must measure their risks of doing so. He believes there are risks for both, risks on either side that most have not thought through.
He then discussed duration. Why is it there? No one from APA had a good explanation. He believes management has figured out given the money being presented, the pilots will look past a one-year extension. If they had tried for two years it may have been a deal breaker, but they figured they could get away with asking for one year.
He then discussed the change in duration and how it affects negotiations. Under or current MTA we begin negotiations in one year and eleven months. Under the proposed agreement we begin negotiations in three years and eleven months. The start of negotiations has therefore been moved by two years.
In my discussion with John he said one item he has heard being stated is that the pilots of DAL have been able to increase their contracts by agreeing to deals and moving for- ward each contract cycle. He agreed with that philosophy, but the difference between what the pilots of DAL did and what we are doing is the DAL agreements have been two to four years in length whereas ours have been much longer. In our case, it’s five years and if we agree to the Company’s proposal it will be seven in total. In comparison DAL pilots have had new contracts in 2006, 2008, 2012 and begin negotiations for another new contract to be in place by 2016. He mentioned that the DAL pilots’ contract is up next year and management at DAL has already stated they expect to have a con- tract concluded this year. In 2012 they concluded a contract seven months before their amendable date. In the last ten years the DAL pilots will have had four agreements. It seems much easier to get continued improvements with shorter duration contracts.
He concluded his discussion on duration by stating that, given his understanding of why it was extended, the total length of the contract and the effect on pushing negotiations back by two years he stated he could not see voting for the agreement based purely on the aspect of duration.
No one from the APA leadership offered a differing view. The next item he discussed was work rules.
He said to look at APA’s valuations for the years left in our current agreement, 2015-2018. He said it was not a fair comparison to use 2019 as that was after the end of our current agreement and our follow-on agreement may provide more value than what we are being offered in this agreement for 2019.
Based on the years 2015-2018, looking at the value received for line pilots (excluding check airmen for a moment) line pilots receive $53 million in value for those years for LOS, 5:10 daily average, Mexico flying, etc. The Company receives $58 million in value over this same period just for Int/Dom fence. This one provision for the Company pays for all the line pilots work rule changes. Additionally, the APA did an analysis of HBT to see the potential value. In completion factor alone the Company may realize $10 mil- lion in profit. The new routes may potentially add an additional $57 million in annual profit. HBT may add a total of $67 million in annual profit. This profit potential more than offsets any additional costs created by the check airman proposal.
So for years 2015-2018, at best, APA appears to have received neutral value. However, one could argue the Company may recognize nearly $50 million in additional annual profit after paying for all proposed APA enhancements and after all the items are im- plemented.
He then said that looking at 2019, after all items were fully implemented the line pilots would be receiving approximately $11 million in additional annual work rules enhancements and the Company would be receiving $26 million additional value in Int/Dom alone. The Company would be making $15 million more a year the last year of the agreement and for every year thereafter until those items are changed.
In the last year of the agreement, 2019, the check airmen agreement would bring $23 million in value to APA pilots. HBT now being fully implemented would have the potential to provide nearly $67 million in additional annual profit for the Company. The HBT profit would easily offset the $8 million gap left between the $23 million check airman provision and the $15 million leftover value of Int/Dom fence illustrated above.
One item John did not discuss at the meeting, but was widely debated, particularly by Tom Westbrook, was the implication of the excise tax provision. The letter as written has no limit on the value of exposure since no one knows what the new rules will look like. Based on what Tom was saying the effects of this one item could potentially over time wipe out any value the pilots receive in retroactivity or even the higher pay rates received for 2015 if we were to agree to this agreement.
The excise tax exposure is not quantifiable – by anyone. APA is being asked to sign a blank check.
John concluded his discussion on work rules by saying that given what he is seeing in the valuations and acknowledging there are some other beneficial low cost items for the pilots he does not see how you would conclude to vote for the agreement based solely on work rules.
No one in the APA leadership present at the DFW roadshow appeared to disagree with his analysis.
With pay most pilots are comparing the pay rates in the Company offer as compared to the MTA. What he said most pilots don’t acknowledge or maybe even don’t realize is that the Company pay proposal is the ceiling. There is no mechanism to have them go any higher. The MTA pay rates are the floor. Under the MTA based on current DAL and UAL pay rates, at a minimum APA pilots will receive a 14.3% pay raise in about eleven months.
John acknowledged that the Company proposed pay rates, as initially compared to the MTA pay rates, are eye watering. However, what no one appears to be calculating is given that the MTA rates are the floor, what’s the ceiling? What’s the risk of getting there and what’s the cost in the rest of the contract to accept the Company proposed pay rates?
He stated that if we ratify the Company proposal we can see in black and white what our pay rates will be. We also know our contract will be extended by a year, at best we get equal value for our work rule exchanges and will get no changes to important items like Calendar Day, LTD, Insurance, etc. In addition, you will have agreed to an item which no one understands the implications of - excise tax.
If the agreement is rejected, we will receive a minimum 14.3% pay raise in January 2016. Our agreement will be one year shorter and negotiations begin two years earlier. Based on comments by APA’s legal counsel and Mr. Parker’s comments on Crew News, neither expects arbitration to result in work rule changes. Additionally, there will be no excise tax exposure moving forward as restricted by our current agreement.
So the million-dollar question of everyone, is what’s next? John stated
no one can accurately predict what will happen. There are only possibilities. What he acknowledged is that if the agreement is rejected you will get a 14.3% pay raise, nego- tiate earlier, and have the ability to negotiate moving forward IF the Company wants any of their items.
What he then described were possibilities. Everyone is free to come up with their own examples or own reason why his or others examples will or will not work, but after lis- tening to John most in the room agreed it was possible. (Doesn’t mean it will happen).
John said once arbitration is done if there are to be any changes to work rules the union and Company must meet to negotiate those changes. Realizing if the Company seeks no changes our current contract remains intact. What John pointed out was that, for the first time since 1991, our negotiating committee will be at the table negotiating without a backstop threat, a 1998-PEB, a 2003-potential BK, a 2012-BK or the 2015-Arbitration. He stated that after arbitration the negotiating committee would then be ne- gotiating on a level playing field without any post-negotiation threats. This will allow
the union to negotiate for those items it believes are important, not just the items the Company is willing to exchange with APA.