I read a couple of pages back your thought on SWA and the differences they have to Delta. To paraphrase, you alleged in a response to Land Green that they can not be compared to Delta as their business model is different. You went on to make the same claim between Delta and cargo airlines.

I disagree. Remind us again how much Delta made in bag fees alone last year? Last time I checked over the weekend, those bags actually go into the cargo compartment. The same cargo compartment that Delta is aggressively seeking to fill with other cargo shipments in addition to the bags we carry at a fee now.

Before you respond, read the next two entries, then tell us again why we should lower our expectations to yours.




This is the second in a series of articles that we are putting out in an effort to elicit constructive discussion and debate on the topic of pilot compensation. The first article was on scope. This article is a discussion of pay rates.

The past decade has seen the highs in legacy pay rates and the collapse of those rates. The pain was inflicted in the courtrooms during the 1113c bankruptcy process. The financial destruction that took place affected each of us directly. The company’s reorganization plan coupled with the stroke of a judge’s pen was all that was required to inflict the financial suffering that we all experienced.

In this environment, Delta CEO Richard Anderson made the decision in late 2007 to merge with Northwest Airlines. The financial meltdown coupled with oil at $147 a barrel necessitated a survival move for both airlines. In order to sell this merger to Wall Street, promises were made of financial synergies, which when fully integrated that would add $2 BILLION to the bottom line.

We have now just passed the one-year anniversary of the receipt of our single operation certificate. While Delta has not yet achieved the full $2 billion in synergies envisioned for this merger, we have reported near-record profits. It is noteworthy that our improving profitability occurred during a time that was financially more challenging than the period following the 9/11 terrorist attacks.

Delta’s leadership team went to Wall Street with their vision of the Delta–Northwest merger: that it would deliver a profitable enterprise with double-digit rates of return. Listening to our CEO on CNBC extol the success, synergies, and benefits of this merger in the most challenging time for business since the Great Depression gives us all the opportunity for a thorough discussion of expectations prior to our upcoming contract negotiations. Our takeaway from the last 12 months is this:

·Delta was profitable in 2010 during the worst economic environment since the Great Depression.
·Delta paid down $2 billion in debt in 2010.
·Delta is looking at a future narrow-body order of between 100 and 200 airframes.
·Delta is attempting to obtain a consistent 10–12 percent profit margin on a $35 billion enterprise.
·Delta management has told Wall Street that the Air Tran–Southwest merger is “good” for Delta, since it removes a lower-cost carrier (Air Tran) from Atlanta and replaces it with a higher-cost carrier (Southwest), and Wall Street analysts agree.
·Delta wants “stability in our workforce and to take away labor disruption risk.”
·Delta wants our stock to be an outperformer in the airline group.
·The industry is expected to limit expansion preserve profits.

The Delta-Northwest merger was the ground-breaking event that would fulfill management’s vision of a consistently profitable legacy airline that would rival the margins that Southwest has shown over the last 38 years. Delta achieved this profit in the first year of the single operating certificate, while our fleet of aircraft had not yet been fully optimized. We achieved this profit during the worst recession since the Great Depression. Any comparison of pay rates with our competitors other than Southwest would appear disingenuous and counterproductive:

· American . . . Still losing money and without a successful model of profitability to draw from. Increasing debt load. Only legacy to not go through bankruptcy. Less-developed mainline network in Asia.
·US Airways . . . Not able to gain synergies from the merger in 2005. No single operating certificate. Not enough international exposure. Marginally profitable, but weak alliance.
·CAL-UAL . . . This airline shows the potential to create a global powerhouse, but the joint contract is not finished. The full projected synergies of $1.2 billion are about two and a half years behind Delta.

During the last 10 years, the pilots of Southwest Airlines have had steady pay raises in their 737 aircraft. Their rates now almost mirror the rates of our largest equipment (747 and 777) at Delta. Southwest has also enjoyed profits during this decade while growing the airline and pilot compensation. Southwest recognizes a maturating domestic market and is developing new strategies for growth by merging with Air Tran. After this merger is complete, Southwest will have a fleet of over 680 aircraft flying over 100 million passengers a year.

We believe that Delta Air Lines should be compared to the airlines that have shown that they have a proven, successful business model. Until now, the only airline in this industry that had a track record of consistent profitability was Southwest. Delta now has a proven, recession-tested, profitable business model by virtue of a $1.4 billion profit in 2010.

Are Southwest pay rates the new industry standard for the 737? Should Delta pay the same for our 737s? No, not in our opinion, based on the difference in number of seats, average stage length, and different mission.

Southwest’s 737 rates have historically been below all those of the legacy airlines. Legacy Chapter 11 filings reset the 737 pay rate far below Southwest. It is apparent to each pilot at Delta that the pendulum was heavily weighted in management’s favor during bankruptcy. The economic analysis indicates that Delta pilots are lagging the new industry model of profitability. Southwest has a proven business model that works in both good economic times and bad. It just reported its 38th consecutive year of profitability. It is now time for us, as pilots, to look at the economic realities of the new airline business model in the 21st century.

Why not match the rate? Same plane, same rate, right? Again, no, this comparison requires a more complex analysis. We know that the 737s that Delta operates do not fly the same mission that Southwest uses their 737s for. Therefore, examine the chart to better understand our concern that the Delta pilots would be selling ourselves short if we compared our 737rate to the SWA 737 rate. We believe a comparison between our MD-88 and the SWA 737s is more appropriate (12-year captain pay at DL and SW):





The 2011 pay rates for Delta pilots compared to Southwest rates are approximately 31.478% under the Southwest 737 rate when you compare the MD-88, its most equivalent competitor.

As you can see in the chart, the aircraft that most matches up to Southwest’s 737s is the MD-88. Both aircraft seat a similar number of passengers and fly a similar stage length. Delta, however, has a first-class product that allows a revenue premium mix compared to the straight coach-class product of Southwest. Some might think that we should compare Delta’s 737-700s to Southwest’s 737-700s. The fallacy of that argument is that a comparison of 10 aircraft is not a statically significant sample size. A 31.5% increase would restore the legacy rate of the Delta 737 versus Southwest’s rate with a 7.5% premium.


This article and the pay rates and examples shown are just for your information and discussion purposes only. We are not speaking for the MEC or staking out a negotiating position. However, we find ourselves compelled in the current environment to deliver our observations and analysis directly to our membership. The clear message from us to you is that raises for our pilots are warranted and economically justified now.

• <LI style="COLOR: black; mso-margin-top-alt: auto; mso-list: l2 level1 lfo3; mso-margin-bottom-alt: auto" class=MsoNormal>Proven Delta Business Plan <LI style="COLOR: black; mso-margin-top-alt: auto; mso-list: l2 level1 lfo3; mso-margin-bottom-alt: auto" class=MsoNormal>Profitable during the Great Recession
• $2 billion in debt retired in 2010

Delta pilots are still living under a post-bankruptcy contract in many if not all areas. After listening to our CEO speaking to the business plan on CNBC, ponder Delta Air Lines - a $35 billion enterprise - obtaining a 10% profit margin. How does a $3 billion profit look to you, as unemployment shrinks and the economy improves?

As always, we look forward to your comments.

Fly Safe,

Capt. Jim Stuart
Chairman
(425) 985-0095
[email protected]
[email protected]
F/O Jeff Panioto
Vice Chairman
(253) 219-6834
[email protected]
[email protected]
F/O Art Aaron
Secretary-Treasurer
(425) 677-5096
[email protected]
[email protected]