PART 2:
He then asked the audience once arbitration is done, who is responsible for your pay rates? Mr. Parker? Mr. Kirby? The APA BOD? John’s answer = Mr. Anderson at DAL and Mr. Smisek at UAL will be in charge of AAL’s pilot pay rates. John said that as he has worked through this process he understands that it not only makes sense that Mr. Park- er and Mr. Kirby want an agreement for the obvious reasons, but if he were Mr. Parker and Mr. Kirby, he would not want Mr. Anderson in control of his pilots’ contract. Espe- cially given Mr. Anderson’s recent history of interfering with Mr. Parker’s labor contracts.
At the end of last year the APFA concluded an agreement with the Company. The APFA was telling their membership that the AAL flight attendants now made more than the DAL FAs by 3%. Literally in the middle of the APFA board discussing their new propos- al, DAL announced a 4% pay raise for their FAs. The APFA FA’s hadn’t even voted on their agreement and they already lagged the DAL FA’s by 1%. The President of APFA had to go back across the street and get Mr. Parker to pay more money to get the APFA to accept the deal and send it to their membership.
Was that a mere coincidence that Mr. Anderson gave the DAL FA’s a 4% pay raise in the middle of the APFA agreement vote? Or was it a smart business decision if he was go- ing to give his FA’s a raise at some point anyway? By doing it when he did he just drove up his competitors costs to keep its costs in line with his.
He then said that just recently the Vice President of Flight at DAL has already sent a widely published letter to their pilots stating that they intended to conclude a pilot agreement this year. Was that message meant for the DAL pilots? AAL pilots? Possibly both?
In 2012 the DAL pilots concluded an agreement 7 months early.
Given that the MTA pay raises of 14.3% are the floor, what’s the ceiling? No one knows, but everyone can agree there is some reasonable limit.
So what’s a hypothetical scenario? Mr. Anderson already gave all his other employee groups a 4% pay raise. Is it reasonable to think that the pilots will receive at least the same? But given the cost differential between DAL and AAL pilot costs under the MTA, how can Mr. Anderson afford to give the pilots any more? That’s the quandary the DAL pilots and Mr. Anderson face. They cannot accept a long-term cost disadvantage against their competitors, especially AAL.
So how does Mr. Anderson address the cost disparity with AA? Either his pilot costs need to come down or the AAL pilot costs need to come up. Mr. Anderson would need to approach the DALPA group and let them know he needs to remain competitive with AAL pilot costs. Based on current profit sharing forecast of at least 15% at DAL, and DAL and AAL pay rates being the same in 2016 under the MTA Mr. Anderson would need the DAL pilots to agree to get rid of profit sharing, take pay cuts, or take work rule
concessions or a combination of all three. Or, he would need the DAL pilots to agree to work with him to help drive up pilot costs at AAL to decrease his 15% pilot cost dispari- ty.
John made one point here, he sees DAL as the new SWA. Labor and management understand they need to work together to succeed. The pilot group understands they need to figure out how to work with their CEO to succeed, but the most important part of that equation is that their CEO seems to understand he must work with his labor groups for DAL to succeed.
In 2016 under the MTA, AAL and DAL rates will be the same; DAL pilots are slated to receive at least a 15% profit sharing payout for the foreseeable future. So disregarding work rules, the DAL pilot contract in 2016, based on our current MTA, will cost Mr. An-derson at least 15% more than the AAL contract in 2016.
This gap is not sustainable and the DAL pilots will understand that one way or another. So what can the DAL pilots do?
What John explained as an example (it is purely hypothetical, that anyone could come up with other options and stated it doesn’t mean it will occur) is that Mr. Anderson and DALPA could agree that the DAL pilots would get a 4% pay raise like all the other em- ployees. He would then offer them 15% for their profit sharing and since the AAL pilots had a 16% 401K contribution and DAL pilots had a 15% 401K contribution he would offer the DAL pilots another 1% for a total of a 20% pay raise. For those DAL pilots who would state that they were expecting to get a 20% profit sharing check for 2016, there is no argument they are getting paid in full.
As for DAL management they could explain to their shareholders that the DAL pilots were expecting a 15% plus profit sharing check in 2016. That they intended to give the DAL pilots a 4% pay raise like the other groups so the 20% pay raise at worst cost the shareholders 1% and if DAL has a good financial year that would have paid more than a 15% profit sharing check then the deal with the pilots cost the shareholders potentially nothing.
This could be a win-win for DAL pilots and management. But how would it affect the AAL pilots? A 20% pay raise by the DAL pilots would raise the MTA rates above the proposed rates by the company. In addition the MTA would provide pay raises of 3.5% in 2017 and 2018 instead of the 3% being proposed by the Company. Beginning in 2016, in this scenario, the pilots at AAL would make more each year under the MTA then under the proposed agreement.
But how would that solve Mr. Anderson’s cost disparity? In the first year of the agree- ment (2016) the pay disparity between AAL and DAL between different aircraft would be between 5 to 11%. In the aggregate it would be somewhere around 8%. So Mr. Anderson would be able to close his pay disparity from 15% to around 8%, the DAL pi- lots would receive 20% in fixed pay rates instead of 15 to 20% in potential profit shar-
ing. The pilots at AAL would have higher pay rates than what is being proposed by the Company. A potential win for all.
On the first anniversary (2017), Mr. Anderson could then give the DAL pilots 3% of their profit sharing back based on the last (12-15%) of profit sharing payout and no pay raises. The AAL pilots would receive their 3.5% pay raise scheduled in their MTA.
The cost difference would then consist of fixed pay rate differences of 4.5% (the origi- nal 8% disparity minus the AAL 3.5% pay raise) and 3% of profit sharing payout poten- tial for a total disparity of 7.5% in year two.
On the second anniversary (2018), the DAL pilots would receive another 3% profit shar- ing based on the last 6% (9 -15%) and the AAL pilots would receive their MTA pay raise of 3.5% in their final year. The pay disparity in the final year of the MTA would be 1% higher pay rates for DAL and 6% profit sharing.
Mr. Anderson could then explain to his shareholders he is paying his pilots 1% higher pay rates than AAL pilots for the difference in the 16% vs 15% 401K contribution and the 6% profit sharing is his way of sharing with his employees the successes of the Company.
At the end of the MTA, DAL pilot cost disparity would have dropped from 15% to 7%. The DAL pilots would make 20% more in fixed rates than they did two years earlier and they would have received 6% of their 15% profit sharing potential back. DAL’s com- petitors pilot contract, AAL, would be in negotiations one year earlier, which would likely result in further closure of his cost disparity.
The AAL pilots would make more under the MTA than under the Company proposal in years 2016 until the amendable date, have a contract that is one year shorter, begin negotiations two years earlier, have the ability to have its negotiating committee negoti- ate the enhancements it chooses and not have the potential liability of the excise tax when it is enacted.
The question everyone must answer is, if Mr. Anderson is in charge of AAL pilot costs will he not do anything and leave his Company at a competitive disadvantage? Does he have a responsibility to his shareholders to keep his company competitive? Do his past actions lead you to believe he will do something or that he won’t?
John finished up by discussing risks. He wasn’t implying that his scenario would happen or any other scenario that anyone else came up with would happen. No one can pre- dict with any accuracy what will happen. All decisions involve risk.
He gave examples of Orville and Wilbur Wright, Henry Ford, Steve Jobs and Fred Smith of Fedex. Every one of them took risks to succeed. But for every person who took risks and succeeded there is at least one who failed. Each pilot must determine what
are the risks and what are the rewards of this agreement. Each pilot must also deter- mine what his or her tolerance for risk is?
Voting yes on this agreement has risks. What’s the lost value of extending the contract by a year when you could have negotiated profit sharing a year earlier or improved work rules a year earlier? What’s the risk of the excise tax that has no limitations?
Voting no on this agreement has risks. What are the risks of not getting similar pay rates to the proposed agreement? What are the risks of not getting equivalency in val- ue in the earlier year of the next negotiations to offset the value we would receive in the 2015 proposed pay rates?
Until last week, that appeared to be the only two options. In his Crew News last week in CLT, Mr. Parker stated if the pilots were to reject the agreement and they went to ar- bitration that after arbitration if the pilots decided they wanted the proposal the Com- pany had offered them, he would offer the pilots the same deal he offered the FA’s. The APA could then agree to accept the same deal, but the pay would not be retroac- tive and it would not start until the deal was ratified.
At anytime, the APA could agree to the agreement that is being offered. The risk of re- jecting the contract would then be the loss of monthly pay until the agreement was rati- fied. In the meantime if DAL ratifies an agreement you would be able to determine its effect on our contract.
Each pilot must determine what his or her level of risk is and if they believe Mr. Ander- son and DALPA will come to an agreement during 2015.
John spoke in a very neutral manner at the meeting. I felt that he was being completely unbiased and that he was trying to get a better understanding of the agreement and our options. After hearing him speak most felt that he understood the options of the proposal better than anyone in the room.
John raised many questions that most have/had not thought of. He raised points many were not aware of. I believe that his questions and comments will help everyone to think through this decision differently and in a way that should help everyone reach a much more informed decision, regardless of their ultimate vote.
Here was my personal takeaway about John’s comments; If you vote yes for the agreement:
1. You get the pay rates being proposed by the Company and there is no mecha- nism for them to go any higher beyond the annual pay raises.
2. You get the additional pay increases in 2015.
3. You get some work rule changes, but based on APA’s analysis
the total value to APA is at best cost neutral.
4. The contract is extended by a year.
5. Contract negotiations are delayed by two years to start three years and eleven
months from now.
6. The excise tax agreement becomes part of the contract.
If you vote no on the agreement:
1. You get a minimum 14.3% pay raise in 2016 and there is a mechanism to in- crease rates further based on DAL and UAL pay rates.
2. No further pay increases in 2015.
3. No work rules changes. Any changes will have to be negotiated with APA.
4. The contract is one year shorter than the Company proposal.
5. Contract negotiations begin in one year and eleven months
6. There is no excise tax exposure.