ATR72

Fellow Pilots,

In February of 2012 Scott Kirby met with Captain Bates, then President of the APA, about winning the unions support for a takeover of American Airlines from then CEO Tom Horton. During the secret talks that ensued over the next few months, the LUS senior management team convinced the APA leadership that they were the team that could change labor/management relations for the better and bring the New American Airlines out of bankruptcy with a new management ethic and shared wealth. Although the APA was leery at first, management convinced them to go along partly because of their extreme dislike of Mr. Horton, but mostly because the LUS management team was actually treating them with some respect. Negotiating sessions were cooperative and productive. There appeared to be real effort to address the pilots’ concerns not just lip service. At least that is what they thought. To set the stage for the environment at that time, the United/Continental merger was not going well. They had labor/management problems and were losing money. The Company needed to show the Unsecured Creditors Committee, regulators, investors and government agencies that they would not have labor issues. It was key to pulling off the deal! Without our support, the merger would not have happened!

Mr. Parker needed this deal. It was the last merger of any significance that was to be had in the industry. He had failed at Delta (the employees wanted nothing to do with USAirways management). He had failed at United. American was it; or he would have to continue to run USAirways and deal with the eventual merger of the East and West seniority list and release by the NMB for self-help. Both pilot groups were years past their amendable dates. He wanted it badly and so did the creditors and bankers. The APA recognized this to some degree and were able to salvage a lot of their contract from the 1113 bankruptcy process. During that time, management did not even try to win over the LUS side. The treatment of the LUS pilots during this process should have sent a strong message to the APA of just what kind of people they were dealing with. They are now learning that the hard way.

In April of 2012 when USAirways and APA agreed to and executed Conditional Labor Agreement and Plan of Reorganization Agreement- (CLAII) oil was at a multi-year high. Furthermore, the pricing power and synergies of industry consolidation had not taken effect since the AA-US merger was the last piece of the puzzle. The industry landscape was totally different then. Management did what they always do. They locked in bankruptcy era working conditions and cost structure while they had the opportunity, all the while playing the role of the white knight. Remember, this was all done under the threat of the 1113 bankruptcy process alternative and the LUS pilots were dragged along with them. To highlight the lack of input afforded the LUS pilots, the APA (different BOD) negotiated away our profit sharing for a mere $12 million value. That is the equivalent of when the Dutch bought Manhattan Island from the Indians for $24 and a bunch of beads. The most appalling part was that the media was comparing Mr. Parker to Herb Kelleher!

Fast forward to today. Consolidation is complete. Oil is at a five year low and forecast to go lower. Jet fuel prices are down almost 30% since August. Many analysts are modeling this trend to last at least through 2015 and represents an unexpected boost to earnings going forward in the billions of dollars. In fact, Wolfe Research's airline analyst Hunter Keay has just forecast a full year 2015 drop in fuel expense for AAL mainline of more than $2.2 billion, with an 2015 pre-tax profit estimate of $6.6 billion and $7.1 billion in 2016. (2014 est.= $4.4 billion). This is a sustained recovery and the industry is the most profitable in its history. The fall in oil prices has helped the airline industry twofold - most notably by reducing its number one cost of fuel and secondly, by the effect of lower energy costs on the overall economy thereby putting billions of dollars back into the pockets of consumers to spend on things like airline tickets. Earnings estimates are being raise significantly throughout the industry. JP Morgan just raised AAL (American Airlines) target price to over $80.00 from a recently revised $64.00. That represents a $59 billion market capitalization! American Airlines will be swimming in money. It simply does not get any better than this for the industry and it is certainly not the time to be locking in a bankruptcy imposed contract.

Throughout the JCBA process the company has essentially not engaged us in negotiations. While we have spent months attempting to get costing from the company for various contract items, the company has essentially left that to the union. When the 30 day MOU mandated JCBA timeline started, the company asked for an extension to allow for the Flight Attendants to vote on their contract. During that time the company did nothing to move our contract along. They waited until four days before the 30 day extension ended and handed us a mere notepad list of (7) concessions that they want for an hourly wage increase. They put absolutely no effort in any of our concerns or even to cost their own concerns! Although they color their pay proposal as “Industry leading” it is only salary and it’s only temporary, since both Delta and United will be negotiating new contracts. In addition, almost every other section of the contract is below our peers. Also, while both Delta and United have profit sharing, Parker has steadfastly refused to talk about it saying that he thinks we should get that in salary. We find this interesting considering that the value management gave to our profit sharing during the MTA negotiations with APA was only $12 million!

What is profit sharing really worth?

While management plays down the value of profit sharing to all the employees, let’s see what the Delta pilots get. This year Delta pilots will get 15% of W-2 earnings. That is $30,000 for a group 2 Captain and that number is expected to be significantly higher next year with the increased earnings from the collapse in oil prices. So just what have they offered us? Well for starters, ZERO for profit sharing and that puts us at a yearly deficit of $30K to $50K to Delta. They have offered us a pay bump to Delta’s current rate plus approximately 3%, but we lose the parity review in 2016. Doug says that he is paying us above Delta and that “it is the right thing to do” and that “he feels good about that” but refuses to insure that we stay above Delta with a parity provision. Since he is looking out for our best interests by not making us risk our earnings to things like Ebola and terrorism by giving the value in salary, he needs to back it up with a pay scale that reflects it. When considering the profit sharing W-2 formula, the most senior pilots are losing the most on this deal and it is a loss that continues year after year in contrast to a one time pay bump. With the recent analyst earnings upgrades, a Delta style profit sharing plan could potentially have a 787/350 Captain making in excess of $60K in 2015 alone. Now you know why they don't want us to have it.

The rest of the story

Management is smart. They know that employee costs are more than just salary. They are playing a shell game with you. They want you to focus on the salary while they gut the other sections of the contract. They all cost you money. If you are paying more for your health benefits, working an extra day or two because of the duty rigs, or find yourself injured an on LTD unable to work, it costs you money. When you fly an airplane that carries the same amount of people as a 757, and generates as much revenue as a 757, it should pay as much as a 757. When your salary goes up, your LTD benefit should go up proportionally to cover the percentage of your wages. If you are a professional pilot, you should not have your LTD reduced because you’re qualified to perform non-flying type work. If you die, your family should get more than $70K in company paid life insurance benefits when they have been used to your $200K salary. Delta pilots get $650,000. If you are gone from your family for 3 days, you should receive 3 days of pay. If you are a reserve and have vacation, you should not lose your days off. If you live in a metropolitan area, you should not have to risk an auto accident to get to work within 2 hours. And if you have sacrificed your life for the company’s survival under furlough (some with multiple furloughs) you should get some consideration for this sacrifice. These are just some of the highlights that Delta pilots do not have to deal with. You should not either.

So what do we do about it?

We have a choice before us. Admit defeat and bow to the company’s extortion, or say no more giving to a company that does not appreciate what we have done for them over the last decade and a half. For 15 years we have sacrificed to keep our respective companies alive. If not for the employees, and in particular the pilots, there would be no company for Doug to run or the investors to profit from. Doug would not have made $20 million this year. We made that possible; and what do we get in return? An industry bottom contract offer and an ultimatum. Legally the Company can proffer cost neutral arbitration. We would like to remind them that legally our respective heritage companies (American, USAirways & America West) did not have to open our contracts mid-cycle to give billions of dollars in contract relief when times were hard. In total hypocrisy, look what the company did to Envoy. Less than a month after agreeing to a horrendous contract during the American bankruptcy, the company said they want even more concessions from them! What we are witnessing is the beginnings of what we believe will be remembered as the most anti-labor management in airline history.

We are representing the entire spectrum of our pilots. Let’s not be short sighted. Look what happened when the APA thought short sighted and sold our profit sharing for fractions of pennies on the dollar for a very small pay raise that is meaningless now. We’re looking at not just today, but tomorrow and five to ten years into the future.

What the company is trying to do to us will bring down the entire industry. Voting for a concessionary contact will send a message to both the company and the investors that we support our management. All they will see is that it passed, not that it passed but we don’t like it or them. There is a danger to simply sending out the company’s proposal to the membership to vote on. First, they will never improve the current offer if they know they can bypass the BOD. Secondly, if it fails there will not be a second shot at it. We feel it is much wiser for the Company and the Union to come to an agreement that we can both live with that also gets the unions endorsement. There are some BOD members that have the “take the money and continue to fight the company” attitude. Ron and I think it is better to have our fight now and support the company going forward. With that said we are prepared to fight another five years if we are forced into a bankruptcy negotiated contract. It is time to take a stand and demand to be treated like our peers. We are ready to stand up for you and the profession. Do we have your support?