notEnuf

Pre-tax income Q1 2018 $718M, 2017 $849M (this is what profit sharing is based on)
Down $131M on primarily higher salaries and fuel.

Denny Crane

A one time amount of stock options traded for Profit Sharing that continues on year after year? Don't think I'd take that deal....

Denny

JamesBond

And they will be extra quiet if we monitize it and wait for 2 or 3 contract cycles while our peers pattern up to our payrates.

I get the monitizing argument. On a certain level it makes tons of sense. But when you factor pattern bargaining into it, it is the wrong idea. If we could time it to go into effect right before the company started losing money I would be all for it, but we can't. And even then, those pay rates we would have just traded it for would be cut and gone forever.

PS is a bonus. From the beginning, I have viewed it as such and with the real potential to not exist at all. Based on my personal study of this company and this industry, it is a risk I am willing to continue taking because I believe DAL management is (was?) the best in the industry and are making the right moves for the company to position it in the event of a downturn. Time will tell.

I also fervently believe that if we convert it to payrates, we will get nowhere near the value it is currently generating, nor has the potential to generate, and furthermore because management will not give us payraises that far above our peers, and if they do we will not see any significant pay increases for quite some time until those peers catch up. Time/value of money will be lost.

m3113n1a1

Sailingfun is correct. Our share of PTIX doesn't change, however our share of the TOTAL profit sharing pool decreases because that pool gets bigger.

For example: (these are just random numbers to make it easy)

Let's say in 2017 pilots receive a total of 20% of pre-tax income (which is what our profit sharing is calculated from) and non-cons receive 10% pre-tax income. Let's say that Delta made 1 billion profit in 2017. The company would set aside 300 million (30%) for profit sharing.

Pilots share: 200 million dollars
Non-cons share: 100 million dollars

In 2018 the pilots still receive 20% of pre-tax income, however now the non-cons receive 20% of pre-tax income too. Let's say Delta makes the same pre-tax profit of 1 billion dollars in 2018. The company would set aside 400 million dollars (40%) for profit sharing. Note the bigger profit sharing pool.

Pilots share: 200 million dollars
Non-cons share: 200 million dollars

Notice how YOY the amount the pilots receive, and the percentage of pre-tax income the pilots receive for profit sharing, is unchanged. However, the percentage the pilots receive of the total amount of money SET ASIDE for profit sharing declines. That is why sailing is saying it is hard to determine how our profit sharing stands YOY because the amount the company is setting aside now is higher due to the non-cons raise.

The real numbers for Q1 YOY:

Pre-Tax Income (this matters the most to our profit sharing and is down):
2017: 849 million
2018: 718 million

Money set aside for profit sharing:
2017: 151 million
2018: 183 million

JamesBond

I know that it would not be something everyone would be interested in, but I trade options (not DAL, and I really wish El Presidente would **** on AMZN). I would be looking for a methodology to leverage DAL stock with the company's OK. DAL would be a great stock to play options on because it has nice volatility and not a ton of movement. But were we to receive options that we could immediately trade, one could make good money on that.If they were immediately vested, those that didn't want to play with them could simply exercise them and take the cash. DAL would never go for it though because it would be injecting a bunch of shares back into the secondary market that they have spent lots on to recapture. It's just a hypothetical.

sailingfun

I don’t know what is so hard about basic math and accounting. Not once have I said we are getting a dime less. In fact I said our payout is unchanged. What I did say was that 183 million this year may not pay us more than 151 million last year. We will get a smaller percentage of the pot.
To make it as simple as possible. Company A offers profit sharing to all employees. Half the employees are on a negotiated plan. Half are not. The plan is the same for both. In 2016 the profit sharing pays 1 million dollars. Each group of employees gets 500,000 dollars from the 1 million dollar pool. In 2017 the company announces a 50% reduction in profit sharing for the non contract employees. Profits stay the same. The pool will now only be 750,000. 500 to the union employees and 250 to the non union. In 2018 the company restores the profit sharing back to 2016 levels. With the same profit the pool will once again increase to 1 million dollars. The union side is however not going to see a dime more than they did with the pool at 750,000.
In our case 183 million in the pool does not mean more cash to the pilots than 151 million and could actually be less. It all depends on how much additional funding the company had to put into the pool for the increase in profit sharing to the non contract employees.

Edit: Seeing the actual profit numbers posted above our profit sharing will be 15% less for the first quarter this year than last year assuming the numbers are correct.

Scoop

I generally agree with your thinking but disagree with the bolded part.
Lets assume that we know DAL will lose money for two years 5 years from now. Would monetizing PS benefit Pilots in this case. The answer is it depends on your career timeline and other factors that we cannot know such as future section 6 negotiations.

For the sake of discussion lets assume section 6 is static and not a factor. Sure Pilots with short career horizons will benefit from monetizing but what about guys with 20 or 30 years left? Probably a losing proposition.

Another point - If monetizing PS will actually benefit the Pilots why did/does management want is so bad? Answer - becasue over the long run any monetization will return the Pilot group less and management clearly knows this.

Remember once profits return, PS returns instantly with no concessions required. How many section 6 cycles would it take us to claw back any pay cuts or years of stagnation if we did lose money for 2 years - and at what cost concession wise?

PS resets to zero with a loss, so no reason for PS concessions ever.

Scoop

notEnuf

Its not a fixed percentage for either group YOY. The total amount is set, 10% below 2.5B and 20% above. The pilots portion is based on their individual salaries. It fluctuated around 40% of the total for pilots (17% of the total employees) because of their higher salaries. I think it will balance out at about the same amount again. 15% this year was less than last but the higher salaries are partially what causes that along with slightly lower profit YOY because in 2016 fuel was about $30-35/bbl. Its double that now at $70/bbl and we are only down slightly.

This company is structured to return value to share(stake)holders. Buybacks, dividends, MIP and profit sharing all align. I will take my first cut profit sharing, thank you. The company has a structure they claim is durable, they back it up by continued stock repurchasing and continued dividend increases. The entire focus of this management is to get industrial valuation by positioning us for profitability throughout the economic cycle.

My bet is we make money in a down turn, maybe not as much but we will still have a PS check. Ask Ed (and Paul) if they see cyclicality helping us or hurting us relative to the rest of the industry.

m3113n1a1

Agreed. I just used round, non variable numbers as an example to make it easier for people to understand. I think you are correct though.

JamesBond

No argument whatsoever on my part. I was just making the point that if management wants PS to go away, the cost will be way to yuge for them to seriously consider. It is great leverage for us.