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Old 07-14-2016, 05:24 AM   #1  
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Default Reducing capacity

looks like the VA deal is working as expected.
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Old 07-14-2016, 05:31 AM   #2  
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So you think they're lying when they said it's because of Brexit and subsequent alleged weakness of the pound?

Please explain how VA fits into that reality.
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Old 07-14-2016, 06:21 AM   #3  
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We'll see if United pulls UK capacity.

Do you expect Virgin Atlantic to pull capacity???
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Old 07-14-2016, 07:11 AM   #4  
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I think any excuse to use VA metal will be used, just looked at the recent large expansion by them. I actually don't remember one JV or code share where the DL pilots saw a large increase in our flying. Maybe a transfer but not an increase...
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Old 07-14-2016, 08:41 AM   #5  
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December 13, 2014

Letter of Agreement (LOA) #14-07 – Virgin Atlantic Joint Venture Agreement

Yesterday, the MEC unanimously approved LOA #14-07 – Virgin Atlantic Joint Venture Agreement. This LOA addresses Delta’s purchase of 49% of Virgin Atlantic Limited, parent of Virgin Atlantic Airways Limited (VS) and its joint venture (JV) agreement with VS. It provides important protections for the Delta pilots chiefly in the form of an innovative and first of its kind global production balance based on the international widebody flying between Delta and VS under the new Section 1 R. of the PWA.

This LOA assures Delta will maintain its approximately 3-to-1 size advantage over Virgin Atlantic in its international widebody operations. Section 1 E. 3. and 8. of the PWA currently protect some 57,000 annual block hours of Delta flying between the US and the UK. LOA #14-07 replaces this protection with language that protects over ten times this amount of flying worldwide (about 576,750 block hours, assuming no change in VS) and still protects approximately 49,000 block hours of Delta flying between the US and LHR.

It is important to note that this LOA does not give Delta permission to enter into the VS JV. Delta is free to enter into a joint venture with any foreign carrier at any time, so long as it meets the requirements and restrictions of Section 1 E. Instead, this LOA sets forth a number of additional conditions and restrictions that will apply to the VS JV.

Also important to remember is that, absent this agreement, Delta would be able to leverage its ownership level in VS to grow the international operations of VS while maintaining Delta’s current size or even shrinking Delta’s international operations and fleet. This agreement also requires growth at Delta should VS grow beyond a certain point and limits the amount by which Delta may shrink without a proportional decrease of flying by VS.

Background
In June 2013, Delta invested $360 million to acquire a 49% stake in Virgin Atlantic that had formerly been held by Singapore Airlines. In conjunction with this purchase, the two airlines also entered into an agreement to form a joint venture with respect to non-stop routes between the United Kingdom and North America, beginning January 1, 2014.

As shown in Figure 1, Virgin serves 26 destinations mainly from three airports in the U.K. – London Heathrow (LHR), London Gatwick (LGW), and Manchester (MAN). Of these destinations, the vast majority are served from LHR. Virgin currently has a fleet of 38 widebody aircraft, including ten A330s, 15 A340s, 12 B747s, and one B787. VS has orders for 15 additional B787s that are scheduled to enter service over the next three years to replace its A340s and B747s and orders for six A380s that are scheduled to enter into service in 2018 or later. In all, VS expects to have a total fleet of 41 aircraft by the end of 2018.

The purchase of the 49% stake in Virgin and ensuing joint venture gives Delta additional access to one of Europe’s business capitals and to its busiest airport, London Heathrow (LHR). This is important to Delta because LHR is a slot-controlled airport; these slots are expensive and increasingly difficult to obtain. Delta currently only owns two slots and controls another ten through short and long-term leases, leaving Delta at a competitive disadvantage to American and United. Virgin, on the other hand, owns or controls 34 slots at LHR (third-most among all air carriers at LHR). Delta’s partnership with Virgin gives us the ability to meaningfully compete with American and British Airways in the very important New York-London market.

Our Concerns

The PWA provides Delta pilots with important protections in the event that Delta decides to enter into a JV with a foreign carrier, including the requirement to enter into negotiations with the Delta MEC on a balance of flying (production balance) between the JV partners, and incentives for the Company to reach agreement with ALPA on such a production balance. Key among those protections is the language inSection 1 E. 8. In the event no agreement on a production balance is reached, Delta may not reduce the number of block hours it operates between the United States and the home country of the JV partner below the level it flew in the 12 months prior to the JV.

Separately, Section 1 E. 3. of the PWA provides protections in the event that Delta acquires more than 25% of a foreign carrier. This protection is similar to the block hour protection in Section 1 E. 8., except that it is measured on a month-by-month basis. Taken together, Section 1 E. 3. and 8. protect some 57,000 annual block hours of Delta flying between the United States and the United Kingdom.

But what of the remainder of Delta’s international operations? How do we ensure Delta does not grow the bulk of its worldwide flying outside the UK using its new partner/acquisition instead of with Delta aircraft? How do we protect our flying against the potential that Delta and Virgin Atlantic might decide to grow VS at our expense? To your MEC, this was not only a JV concern, it was a critical concern over ownership and its potential for labor arbitrage.
LOA #14-07 provides an industry first global production balance between two air carriers – a provision that requires Delta to maintain no less than a specific percentage of the two carriers’ international widebody operations. This unique arrangement allows a set amount of flexibility for VS to grow, after which Delta must grow to maintain the approximately 3-to-1 size advantage it currently holds over VS in its international widebody operations. The agreement provides Delta pilots with the assurance that any substantial growth at VS will not occur without corresponding growth at Delta. Also, Delta may not shrink below a baseline unless and until VS also shrinks, thereby maintaining Delta’s size advantage. These are protections that we do not have, absent this agreement.

Global Production Balance

Under the terms of LOA #14-07, Delta is now restricted from flying less than 68.02% of both airlines’ combined international widebody Available Seat Kilometers (ASK). VS tends to fly larger aircraft than Delta and the airport out of which it primarily operates, London Heathrow, is slot-controlled. Unless it can acquire additional slots from other airlines, VS would need to increase aircraft gauge in order to increase capacity. Delta would then most likely increase ASKs by adding block hours, thus providing us with even more pilot jobs.

There are two exceptions to the 68.02% rule. The first is that, should Delta experience market conditions that cause it to reduce its international widebody flying by more than 12.5%, Delta’s minimum share of the combined international widebody ASKs increases to no less than 69.46%, larger than the normal percentage. The second is that, should Delta grow by more than 12.5%, Delta’s minimum share of the combined international widebody ASKs can decrease to 66.57%.As a point of comparison, Delta’s share of the combined international widebody flying today is about 73%. So what does this new protection mean to our operation?

Today, Delta pilots fly approximately 662,000 international widebody block hours annually. LOA #14-07 protects a total number of ASKs equivalent to approximately 576,750 block hours, or 87% of our total international widebody block hours, assuming no change in current VS ASKs. With this agreement, assuming VS flying remains constant, Delta cannot reduce its international widebody flying by more than 13%. If VS flying were to grow, any reduction at Delta would then be further restricted.

Expressing this in terms of aircraft, Delta currently operates 141 international widebody aircraft. LOA #14-07 protects 124 aircraft, assuming no change in the level of flying at VS. Additionally, should VS grow by approximately 8 aircraft, 100% of Delta’s international widebody flying would be protected. That is, Delta could not then decrease its flying unless VS also decreased its flying.
London Heathrow (LHR) Minimums

LOA #14-07 provides separate protections on Delta’s LHR flying. Delta currently controls eight long-term daily slots at LHR (expiring around 2030), and operates another four daily slots on a short-term basis (most expiring around 2020). Delta will be required to schedule no fewer than 5,860 flights to or from LHR per year until December 31, 2020. Beginning in 2021, that number will be reduced to 5,550 unless Delta is able to acquire a slot in addition to the eight it will still control at that time.

Expressed in average block hours with Delta’s current LHR operations, this protects about 49,000 LHR block hours, or about 86% of the total US – UK block hours that were protected by Section 1 E. 3. and 8. This equates to about 95% of the US – LHR flying performed by Delta in the 12 months prior to the acquisition. In effect, we are creating a new protection covering a total of about 576,750 global widebody block hours in place of the protection of about 7,700 US – UK block hours which may or may not have been flown on a widebody aircraft.

Measurement Periods

For both the global production balance and the LHR minimums, the measurement periods will each be one calendar year, beginning in 2014. Compliance will be measured on each January 1 for the prior year. If the Company is out of compliance with either minimum, they must return to compliance the following year. Failure to do so will expose them to damages for the contract violation and an expedited arbitration process, if necessary, under Section 1 M.

Conclusion

As Delta continues to enter into various business relationships with foreign carriers to bolster its brand presence around the world, it is vital that we take every opportunity to ensure that Delta pilots are guaranteed an appropriate share of flying in every such relationship. This is even more important when Delta acquires a large equity stake in a partner carrier within a JV. The VS JV is a perfect example of this and one that we may see again as Delta looks for additional equity opportunities in the future. This LOA provides those guarantees, and ensures that the Delta pilots will not have the risk of substantial growth at VS without corresponding growth at Delta.

As always, please feel free to contact us, or your LEC representatives with any questions or concerns.
Delta MEC Negotiating Committee
John Morgado, Matt Coons, and Heiko Kallenbach
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Old 07-14-2016, 11:16 AM   #6  
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Umm, if the Pound is weak, wouldn't that mean more US traffic to the UK?
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Old 07-14-2016, 11:26 AM   #7  
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Quote:
Originally Posted by satchip View Post
Umm, if the Pound is weak, wouldn't that mean more US traffic to the UK?
We do fly both ways ya know. Weak forex hurts us internationally though. Since tickets are priced in dollars and converted from Brazil (for example) it takes more Reals to fly here. Therefore fewer Brazilians coming to the US for vacation. Same with the Pound although the economy in England is stronger than Brazil. Point is that a strong dollar is not necessarily a great thing for an international airline.
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