FUN WITH NUMBERS 2.0

Math is fun because it don’t lie. It is what it is. I had so much fun with Math 1.0 I just couldn’t resist. Many here won’t like what the math says, but that’s a problem I can’t help with. But for those interested in getting accurate numerical analysis, here we go.

First let’s designate our model so we can compare and cross check this analysis with others’.

1. 7 year effective duration.
2. Utilize historical Fed data for 2020-2022 inflation
3. Utilize a 3 year moving average to forecast inflation for 2023-2026. This is the most conservative and worst case instead of the 4 year moving average that best fits our future duration.
4. Compute a ending compounded pay rate increase, and a annualized compounded pay rate increase
5. Compute an effective total compounded increase and annualized compounded rate increase considering retro payment.

First, the annualized inflation data from the Minneapolis Fed:

2020 - 1.2%

2021 - 4.7%

2022 - 8%

Therefore, the annualized 3 year compounded rate is 4.6%. Out year inflation:

2023 - 4.6%

2024 - 4.6%

2025 - 4.6%

2026 - 4.6%

Total compounded inflation for 7 years is 36.99% or 4.6% annualized.

Now, total unadjusted compounded pay rate increase and unadjusted annualized compounded rate:

2023 - 18%

2024 - 5%

2025 - 4%

2026 - 4%

Total compounded rate 34.01% or a compounded annual rate of 4.27%

Therefore, without retro cash up front, we lag inflation by nearly 3% total and .42% annually.



Now, let’s adjust for retro cash by computing equivalent pay rate increase required to generate annual retro dollar amount plus pay increases for 2023-2026:

2020 - 4%

2021 - 0%

2022 - 9.6%

2023 - 7.66%

2024 - 5%

2025 - 4%

2026 - 4%

Total adjusted compounded rate increase of 39.37% or annual rate of 4.86%

This exceeds total inflation by 2.38% or .34% annually.

We are concerned with money earned during the period starting Jan1 2020 through Dec 31 2026. Therefore it’s immaterial whether the money arrives in our accounts via pay rates, single cash payout, or any combination of the above.

401K is increasing another 2%. Most pilots will see this increase paid in their paychecks because the company will reach the max contribution limit. Effectively this becomes a 2% raise. This makes the total effective pay increase 41.37%.

The union says total contract value increased by 45%. That looks right considering there is substantial money value captured outside of pay rates, retro, and 401K. 45% outpaces inflation by 8%. Not too shabby considering the industry has gone backwards relative to inflation for decades and we were negotiating in a hole 3 years deep.

Now that’s the math. One can quibble about whether there is enough money. That’s everyone’s prerogative. What we can’t quibble about is the two paths we can take. There is only two:

[size=12pt]1.) [/size][size=12pt]We wait for a TA with language, analyze it, and then vote to ratify it.[/size]

2.) We wait for a TA with language, analyze it, and then vote to reject the TA.

Then we live with the consequences of either path and the risks inherent with the two possible outcomes.

Risk of outcome 1 is well appreciated in my view, being that we lag inflation over the next four years.

I’m seeing signs again that risk with outcome 2 is being discounted or not even considered. The result of a rejected TA is not a mystery. The MEC is obliterated, reps are recalled, the NC resigns, the MEC Chairman resigns or is fired (in our case the MEC Chairman is on the way out regardless). A new MEC is reconstituted, a new NC is elected, a new chairman steps up. Then the pilots are surveyed to come up with a new position at the table. All this takes the better part of year. Many very bad things can happen in a year, especially with a looming inflationary driven recession. Just saying.

I find the risk reward ratio far more favorable for outcome 1 and will of course vote accordingly.

Good luck out there folks. Don’t drive yourself or anyone else crazy.

Merry Christmas.

 

Another wrinkle …

There will be no DC for the “retro.”
so divide your equivalent, compounded retro raises by 1.16 to see what the equivalent actual rate raises would have been had we gotten a timely contract.

How do those new numbers compare to inflation ?

 

how is it that we can today claim the financial injustice of a late contract and in the same breath claim we need to have inflation adjusted income? Had the contract been signed in 2019 before inflation decided to show up, the whole pay scale would be under water. Is it not better now to have the realization that inflation is upon us and we can put that knowledge into our financial planning? I’m certain if you added in a new contract signed in 2019 pay scale with DC it wouldn’t close the gap created by inflation not only to pay, but also to 401k. Last I checked my 401 is still lower today then last year.

So is it better to now have the “retro” with better then inflation pay scale and the capacity to invest that in a devalued stock or would it be better to have received the money then invested it at the time and watch it shrink? While our non inflationary foresight pay scales get clobbered?

 

Just no. Not at all. A new contract should have been negotiated and ready to be signed on by the amendable date. Always. If that had happened, the last year of the 4 year contract would not have kept up with the unusually high inflation, but the next contract should have a correction for that. You are saying that it is better to not get any pay raises for almost 4 years, just in case inflation goes up, and then have to fight to get those rates up, but still lose out because of no 100% retro. Not even close.

 

In the above, it appears that inflation is being defined as the CPI. Many credible arguments on how the CPI (purposefully?) understates actual inflation. Now THAT is fun with numbers that affects just about everybody.

A5S

 

Your 2023 number is wrong. It should say 3.5% not 7.66. I dont know what it will do to your number but it certainly brings them down

 

Well said and true.

 

All measures of inflation are flawed in one way or another. The point is to use a common measure so apples can be compared to apples.

 

My view on the compensation and retro is favorable. Retro makes sense within the context of those 3 years enduring a global hysteria. I believe it’s difficult to expect any significant increase in pay rates for 2020 when the industry was on a trajectory straight down into bankruptcy. Yes, Uncle Sugar stepped in to paper over what was going to be an epic ******show. But, I find it difficult to believe that Uncle would have appreciated Delta paying out significant raises to the pilots. 2021 was a stabilizing year and perhaps a modest raise could be justified. 2022 was a return to profitability and I think we are justified in getting whatever we can get.

The retro payout is really equivalent to a bonus for 2020,21, and 22, since the pay rates were unchanged. However, the equivalent pay rates can be generated as I show. The NC could have said we are making “pay rates” retroactive to 2020, along with future increases:

2020: 0%
2021: 4%
2022: 9.6%
2023: 7.7%
2024: 5%
2025: 4%
2026: 4%

I get why both parties in the negotiation would choose not to do it this way. Pilots have been conditioned over the years to look for big numbers without considering time value and inflation implications. In reality, small on time real rate increases over time would yield far better results than swinging from the fences from a deep hole.

While I will support the compensation aspect of the agreement, it isn’t perfect for me. A perfect agreement isn’t possible. I would have liked a little bigger margin on inflation on the out years:

2020: 0%
2021: 4%
2022: 9.6%
2023: 7.7%
2024: 6%
2025: 5%
2026: 5%

I think it’s realistic to seek a sustainable compensation model that preserves our productivity over time, and is achievable. That means a modest real raise over time best case, and worst case remaining at par relative to inflation.

 

a little perspective is needed I suppose. I’m am making an effort to look at this with a very big picture view and now get sucked into a narrow focus “what ifs” that “should have” or “could have” occurred in a world we don’t live in.

the point I’m getting at is we are here now today very specifically because of a biological global event that occurred on a scale and impact on human society and economies that has not been experienced in recorded history. This event directly led to a pause in contract negotiations, by both sides if I’m not mistaken. Had the company or the union choose to push the need to continue during 2020 and 2021, how would things have gone? Be honest please. Im guessing not too great for us. So yes, I am saying in light of the the catastrophe economic impact of a global pandemic, I truly believe we are better off having waited until now to seal this deal. This time. I believe every contract negotiation is unique unto itself solely base on a number of internal and external circumstance’s. There are things we can do to mitigate the the impact of the company dragging their feet, like at least having COLA adjusted pay rates after amendable date, I’m all for those provisions.