Must read letter on leverage
 

Don't assume his math is wrong. Vet and verify before casting this off as nonsense. Personally, I don't think it is. It explains the why a mgmt team would come early to the table and get a contract done in record time where the usual time frame is in YEARS. There is a reason why they did and if this isn't it, logically ascertaining that reason before deciding which way to vote is paramount.



THE LEVERAGE EXPOSED

Up to now we have been arguing the merits of a YES or NO vote to the TA.

The arguments for the TA were mostly centering around a "Bird-in-the-Hand" premise, being that one shouldn't exchange an unknown for a known. This premise was supported by beliefs that those closest to the deal knew the most, a trust issue. Also there have been focus on the mathematical model of the time value of money. These and possibly the larger narrow body footprint are the basic reasons for voting YES.

These are logical arguments, but I propose they are in the micro view. Not to diminish the importance of any kind of "raise", or a diminishing 50 seat footprint, but I will illustrate, now with the data I have received from a company insider, how these are "micro view conditions" that are overshadowed, and overpowered by more important and more forceful arguments.

Pilots move to safety. Industrial psychologists know this. I am going to show you where the real safety is. Because I believe real safety is in the most truthful information, and the most honest assessments, I implore you, each of you, for your family, for your profession, your company, to listen carefully and make your decision based upon sound, sober judgement, without emotion or pretense.

The details are:

1. The company has Capacity Purchase Agreements (CPA) with "contract carriers".
These agreements extend well past 2020.

2. Delta has to honor these agreements as they are contractual.

3. Delta has to absorb the costs of these contracts, and if the aircraft operating or maintenance costs increase, Delta has to absorb these costs in addition.

4. The 50 seat aircraft are operating at a loss.

5. The 50 seat aircraft are coming up for mandatory engine maintenance/replacement costs very soon.

6. The costs to re-engine these 50 seat aircraft is between 2-2 1/2 BILLION dollars over the next 3 to 4 years. Unavoidable costs. (there are statements of 1billion on this web, those are wrong. The company has stated to me, through a person who knows, that the actual cost is 2-2 1/2 BILLION)

7. The company can replace these aircraft and avoid the 2-2 1/2 BILLION by letting the "contract carriers" fly 76 seat aircraft. These "contract carriers" would then allow the CPA agreements to be unhinged. The total deal is a deal between the Canadair and the "contract carriers", and Delta.

8. The 50 seat -76 seat agreement gives the company a one time savings of the hundreds of millions of dollars.

9. Canadair only has 11 76 seat aircraft to build and it closes down the line. There is a time crunch on Delta to get this deal done before that line is closed. This was a Canadair corporate decision.

10. The profit sharing cost savings to the company (going from 15% to 10%) was equal to a 2 1/2% pay "raise".

11. Efficiencies included in the contract were equal to a 3 1/2% pay "raise".

(are you seeing how Vice President of Labor Relations and Human Resources Mike Campbell might have been being very conservative when he said the pilot TA was cost neutral?)


12. AFTER re-engining the 50 seat aircraft, they still would operate at a revenue loss.

I can state emphatically that if the TA passes, we lose ALL LEVERAGE.

Points to be made:

For those of you who think we are hurting the company by voting NO.

The company used absolutely every ounce of leverage it has in Bankruptcy court to cut our contracts to the bone. This was after promising to "Do it once and do it right." Trust was given and then abused. This was a purely business decision by our management team. Moak did the best he could do, I presume, but was up against a management team that was willing to use every facet of coercion to diminish our careers under a paper Bankruptcy. It wasn't personal. It was a balance sheet decision leaving emotion and ramifications out of it.

If we doubled our contract to 8-17-6-6, we are still saving the company money by agreeing to this 8-17-6-6 agreement. Be assured you are still helping the company in this example. Remember the 400 million Tim O'Malley has cited is cost neutral to the company, there's 2-2 1/2 BILLION and we really don't know what the final costing of the "hundreds of millions" for the one time savings is.

Do not worry. A 8-17-6-6 is getting the company out of a bind they put their own selves in, we has nothing to do with that awful decision. We are neither responsible, nor required to help management for their erroneous decisions. These are the problems of a management with a lack of foresight. We can see this in how they deal with us also. But the point is that we only help them because we are going to be with this company for decades, they may be gone next year, and it is in our interest to help the company dispose of their bad business decisions. But in doing so, we will make the same business-only decisions in regard to what we get out of this agreement. It will cost them, not dearly, but fairly. This is the attitude of a professional, and a sober observer of the facts. I implore you who faithfully serve the company to reject this TA so as to make this a win/win for management and for the professional pilot.

For those of you who think a "Bird-in-the-Hand" should be the only factor.

A "Bird-in-the-Hand" premise is based upon grabbing and holding known values, contrasting with holding values that are unknown and estimated.

We know we have 4-8.5-3-3. We know 3 1/2 are efficiencies and 2 1/2 are profit sharing. We know that after real estate and automobiles are taken out of the government inflation numbers our 2012 inflation rate is amounting to an annual 8.1%. We also know that the Fed has increased the money supply at historically unprecedented levels. (portends inflation)

So lets do the math:

4-8.5-3-3

First, focus on 8.5%. Let's take out the known company savings, which could also be classified as concessions. This is 3 1/2% for efficiencies and 2 1/2% for profit sharing. This is 6%.

8.5%-6%=2.5%

now our agreement is this:

4%-2.5%-3%-3%

This is hardly a good agreement when the company is losing money. It certainly is way under real inflation. Considering leverage, the financial state of the company, and the good-will sacrifices we have made, this is not representative of reality.

But we are talking about "Bird-in-the-Hand".

The "Bird-in-the-Hand" is the company under our leverage. That is the "Bird-in-the-Hand" we want to focus upon. This "Bird-in-the-Hand" leverage goes away, with any chance of real gains, the second this TA passes muster. Vanished. Three and one half more years under draconian wages and complaining pilots. This is after 7 1/2 years since the first per-bankruptcy "Do it once, do it right" promise. By the way, where are they now? Gone, just like this management team will likely be in a few short years.

The real "Bird-in-the-Hand" is the leverage we hold over the company this very day. Today you can make a decision that tells management that they need to balance the cost savings more fairly. If they will not do it out of good moral principles, we will do so out of good moral principles and the power, thank God, we have been given by their relying too heavily of 50 seat contract flying of our passengers.

The "Bird-in-the-Hand" is a downed TA. The "Bird-in-the-Hand" is the current leverage we have this very day.

I was wondering why I heard over a year and a half ago, several times through Line Check Airman, that RA wanted to get an early agreement for us, unlike the other carriers with bad relations. Many thought he was being paternal and gracious. Now we know it was all about covering management mistakes, burdensome costs on an over-reliance on 50 seat aircraft, and we were the ones that he wanted to carry the water. Shame on him.

For those of you who said it the TA did not pass the "smell test"

All I can say is thank you for the guts to say what you thought was right for your professional brothers and sisters, without pandering to pressure. Continue with facts and reasoned thinking.



What to do now?




First and foremost is to look at the facts and make a decision. Definitely vote. Make your voice heard. I still run into busy family guys and girls who still haven't seen the TA! I ran into an old friend yesterday! That's June 5th!

So don't assume everyone knows. One guy said. "18% over 3 1/2 years! I'm voting YES!". We can laugh or pity those who are not acquainted with the facts, but they affect your career and mine! Engage in conversations in a congenial and calm manner. Present the facts, the arguments are overwhelming. ''

A key point to all of this discussion is that the leverage is a one time event.

As far as who does the duties after a failed TA? This is a tough one. For me I think every NC member and MEC member acted in good faith. I believe Tim O'Malley is a hard working, honest and dedicated leader. But I also believe that there have been egregious errors in the assessment of the TA landscape, the knowledge of the intentions and Achilles's heel of management's predicament, and egregious errors in the proper representative character of the pilots-especially in light of the effort of the contract survey and it's being apparently discarded by the leadership, in principle, the rates.

There is not one person who says the rates are GOOD. Not one. Even Tim O'Malley openly admits this.

With all this leverage. The company's financial state. The pricing power and new revenue streams and the moral obligation to repay past sacrifices, with "Bird-in-the-Hand" safety, why would anyone vote YES to this TA?

Only the most uninformed and reckless character would.

Fraternally,

Captain G**** M******

I want to see his proof of his $2-$2.5 billion cost to re-engine and maintain the 50s.. not more third hand blather. It does seem to me that that figure would define the term "total" as in what it would do to your car if you wrecked it and ran up a certain bill. Naaaah I think this is more propaganda BS.

T capt GM is a tool who would vote no for anything except the day he was born. I know him, not a bad guy, but has voted no for every contract we have had. I have 2 no votes the rest were yeses. So there is my disclaimer.

Who the heck cares how much it costs to maintain the 50 seaters? That has absolutely nothing to do with a pilot contract. That is managements problem, not ours. Your so worried about managements problems... reminds me of DALPA.

Ummmmm.......the entire basis of the OP argument is that our leverage is how much $$$$ management has to spend on the 50 seaters if we turn this down. He wants to call their bluff on the fact that they would.

There is way, way too much of that goes on with folks around here, I guess it's a wannabe thing.

BS..Maybe...then maybe not.

2.5B or maybe its 1.5B. Would that change your mind about whether leverage on the company exists?

You want proof? Perform some due diligence and vet his information out. The most informed vote is the best vote.

If you're so skepitcal Then what's your hypothesis as to why mgmt is SO eager for a TA? Oh..your answer should be related to dollars and not some hypothetical "position us to better compete" fluff. Mgmt lives in a concrete world.

The MEC was given the same brief as the Delta Board of Directors. The net cost saved is not even close to $2.5 B. In fact it is not even a 1/10 of that. I can't believe some guy posts on the internet that he knows a guy that knows a guy that says this is $2.5 B and anyone even puts a grain of confidence behind that. Next, we are getting into the space aliens theories.

If you can get one MEC member, even one who voted no, to back up that number then let me know. They are going to keep about 1/3 of the 50 seaters that they have now, so the costs of that engine maintenance is not saved. By the way, $2.5 billion spread out over 218 50 seaters comes to over $11 million per jet for engine overhauls. Are they putting gold plated turbine blades on those things? You can buy an entire used CRJ-200 for about $3 million now.

In this context I absolutely care, because GM spewed it as fact.

And you remind me of a pastry school inductee. Of course since GM wrote it it is gospel, and unquestioningly true. I know someone that knows someone who was once married to a Flight Attendant, and he said that.... Kind of like an old EF Hutton commercial without the intelligence. (yeah I'm old.. so what?)

You know that the negotiators tubed the process don't ya? On purpose.:rolleyes:

Yeah.. I wanna be in a DALPA leadership position. And take the kind of abuse you keyboard kommandos throw at them.. no, thank you not a chance. With the kind of support I see on these boards on a daily basis, it is a wonder anybody would want that job. Easy to throw mud when you have no concept of the work that goes into the product. And since golf is a 2 shot game, I am guessing your handicap is somewhere near that of Tiger Woods...

child please.

From LEC 66:

PQC: How do you know this is the best we could get? We can get more if we simply go back to the table.

R: Delta management has two paths. We’ll call them paths “A” and “B.” Path A includes shifting a great deal of capacity from DCI to mainline. We have been begging them to do so for years. We prefer (but are not married to) path A. Path B is to more slowly park the 50-seat jets as soon as their contracts allow, hence a much slower drawdown of DCI capacity and, therefore, a much slower corresponding increase of mainline-capacity growth.

Plan A and plan B both represent financial implications to management. They would prefer plan A because they believe it will make Delta more profitable. The trick, and the fleeting opportunity that we had, was to extract the most value possible for the Delta pilots for plan A. The rub? That number is finite. At some point, plan A becomes more expensive than plan B, and management (because they are not stupid) will almost certainly choose the less expensive option. At that point, we believe that we will lose the opportunity to extract financial gains from something that also benefits us—the shifting of capacity (jobs) from DCI to mainline.

We were recently briefed by Linda Pachula, the head of the National Mediation Board. During her brief, she discussed common mistakes that she has seen unions make. Most common was: “They didn’t listen to their experts.” We have experts working for us. Despite allegations to the contrary, we have professional negotiators—lawyers who collectively have assisted in more aviation labor negotiations for more years than perhaps anyone else in the country. We have financial analysts, accountants, and subject-matter experts on every section of the contract. And we have our Negotiating Committee, men the entire MEC trusted enough to unanimously reelect. They studied the plans and financials extensively. They negotiated fiercely (the idea from some that they just accepted management’s first offer is simply laughable). They extracted significant value. And they firmly believe two things: 1) we got every penny of value we could at this time, and 2) if we reject this deal, the company will revert to plan B and pursue traditional (and usually lengthy) Section 6 negotiations.

This is what the experts we hired told us. They saw the books and were in the room. And we trust them. The people who assert that we could do better if we send this back are basing that opinion on a hunch or a hope. We chose not to risk hundreds of millions of dollars for the Delta pilots on a hunch. We chose to heed the lessons of other unions’ failures. We chose to listen to our experts.

Actually, it wasn't a DALPA leadership position I was referring to.

There is a lot of talk about what constitutes leverage, but the fact is that the only leverage any group has is the market value of the asset they are trying to sell. This applies to the airline as well as the pilot group.

The market value has been going down for the last ten years or so. You don't need a lawyer, an accountant or a union "expert" to tell you that though.

It doesn't help when the rest of your competition can't get their own new contracts because of thier infighting. So, when you are the only one trying to raise the bar, it makes it tougher.

This is one of the dumbest threads I have read on APC. You wonder if any pilots took a single econ course in college. It may well cost 2.5 billion dollars to overhaul the 50 seaters over time. The overhauls actually span a 7 year time frame I am told which makes sense based on the purchase schedules. The problem with the logic in this tread is the 2.5 billion dollars then is paid by the revenue the aircraft generates and additional money the aircraft command when sold or lease returned. In virtually every aircraft ad you will ever see the first thing mentioned is time on the engines and airframes and time since the last overhauls. This occurs on all our aircraft. You invest money in them to get a return on that money. If you manage your business well your return exceeds your cost.
What makes the thread even stranger is that the posters imply that the cost of the overhauls is a credit against the contract but never mention the cost to acquire additional aircraft as replacement if they decide not to do the overhauls. Lets say they return the jets to the lessors with run out engines. They lease penalties will be large in that situation. Lets say the return the fleet and the cost is 1 billion for 200 aircraft. Delta gets a credit for buy more 78 seaters and only pays .5 billion. Then they have to buy 70 new aircraft at 30 million a piece. Thats 2.1 billion. And wait there is more! Delta now has to lease or purchase the 717's. Lets call that a 1.5 billion dollar deal. Now you have 4.1 billion dollars i costs to save the 2.5 for new engines. Does that mean we get credit for the extra 1.6 billion this deal costs the company and instead of the TA being valued at 1.2. billion its really 2.8 billion. Of course not. That just as inane as the original argument. Delta decided their fleet plan and how to execute it and if they do a good job it covers all the costs and produces a profit. We as a union try to take a big a piece of the profit pie as we can negotiate while handcuffed to the RLA.
Fleet makeup and fleet costs have nothing to do with the value in a contract period. Fleet profit or loss however has everything to do with the value of a contract.
The company has never stated this is a cost neutral contract. What they have stated is that having a better fleet right sized to our markets will allow them to pay the increased pilot costs which will be around 1.2 billion over the life of the contract.
If Delta management made a smart move and hedged 5 billion dollars in fuel and we were able to negotiate a raise based on that profit would you again say its no cost?
Strange Strange thread

While a NO guy, I'll agree with sailing here and say some of the figures here are suspect. Also would they really mean anything anyway given the business plan. There are other holes in this TA that could make this chump change. Hey if you're trying to justify a bigger raise though...go for it:) $$$$