Council 81 Update

June 19, 2012



Perspective and Opinion: C2012 TA
– Overview
– Perspective
– Looking Back
– Context
– Looking Forward: Leading the Industry

Overview
Timing is everything in an airline career, and it’s a critical element in our support for this TA. Pilots work to maintain situational awareness in the cockpit, and we need to do the same in this decision process. To that end, we will offer our perspective and opinion on the agreement and negotiating environment.

From a strictly analytical viewpoint, the TA improves our contract and mitigates risk going forward. It strengthens our position in a changing industry and economic environment. The scope provisions and short term of the agreement are key elements of this stronger position. Current events dictate that these assets should not be discounted, nor should the advantage of having a closed contract in uncertain times.

As you consider the TA, keep current events in mind: Delta’s publicly declared interest in more JVs and consolidation, the American bankruptcy (exiting by the end of the year?), US Airways’ merger attempt with AMR, United-Continental’s ongoing merger and negotiations, Alaska’s transcontinental expansion, JetBlue’s new interest in wide-bodies, GE’s “Passport” next-gen RJ engine, and the escalating threats from the Mideast carriers to our wide-body flying.

This TA does not achieve all we’d hoped for, nor will it satisfy emotional criteria that we be compensated for our sacrifices, receive justice, or revenge our losses. But hope and emotion have no place at a negotiating table, before a mediator or Presidential Emergency Board, or in a bankruptcy court. Anger, frustration, and disappointment are not bargaining chips.

Some question whether we fully capitalized our leverage. This issue seems to come up after every negotiation. The speed at which we were able to achieve this comprehensive agreement adds to the concern. While we reached an agreement quickly, it’s only because the two negotiating teams met over 100 times and exchanged over 300 proposals. Under a traditional time line, this pace would have taken many months or even years. In any negotiation, you need to know when to “close the deal.” We believe the most credible opinions by far on that issue come from the pilots and professionals at the table.

The MEC elected this Negotiating Committee not once but twice—the second time unanimously. Those pilots’ and their staff’s unanimous judgment is that we reached the limit of the Company’s negotiating envelope. They say to a man that this is the deal.

Each of us must calculate a risk/reward balance and vote based on that personal equation. Each also has a unique tolerance for risk and a unique perspective on reward. This council update attempts to provide our analysis of this agreement in those terms of risk and reward.

We wrote “show me the money” in an update as we neared the negotiations endgame. We admit when we first saw the pay rates we regretted having put that particular update out. After we’d made the effort to view the entire deal in context, however, we were comfortable with what we’d gained.

There is substantial value for the Delta pilots in this agreement. Not all of it lends itself to metrics or spreadsheet analysis, but that which does has been analyzed in detail. The TA is measurably valuable. The raises lead to industry-leading pay rates in most categories. The enhancements to reserve, rigs, training, and vacation and sick leave put money in our pockets now. Most pilots will also recognize value in potential for faster growth, decreased stagnation, enhanced stability, and new protections for emerging threats and tightened restrictions on older ones.

We said it at the start: timing is everything. In this situation, the timing is right for this deal because it paves the way to our next strategic step. With an improving economy, a profitable company, and higher industry compensation for pattern bargaining, the timing will be right for us once again. If an opportunity presents itself before the amendable date, we will be ready. If not, April 2015 is on our calendar.

Perspective
It’s said that to understand another’s perspective you must first walk in his shoes. Before we discuss where the Delta pilots have been, where we are, and where the MEC proposes to go, you should know where your reps are coming from.

This is why: In the lounge, some pilots explain that “it’s nothing personal, but it’s my career.” We acknowledge and appreciate that it’s not personal. We would, however, like to point out that as Delta pilots we will be working under this contract as well. It’s our careers, too.

You’ve elected LEC officers representative of the pilot group, even if we only represent the SLC pilots. Our backgrounds range from Embry-Riddle to the Air Force Academy, pure military to all civilian, and regional flying to corporate. We are 43 to 55 years old and have seniorities from 3000 to 9300. One of us has been furloughed. We fly domestic and international. None currently commute, but we all have before—and we know we may again. We have families and bills to pay. None of us are independently wealthy; all three rely on Delta for our primary income and retirement. We want the best compensation, quality of life, and job security we can achieve. We have suffered loss of income and retirement, stagnation, uncertainty, etc. We believe our profession is honorable, valuable, and undercompensated.

We have represented you for over two years. In that time we’ve had hundreds of conversations and exchanges with you. We have also spent literally hundreds of hours in meetings, briefings, and discussions with industry and government officials, experts, and decision makers, with our company executives, and with reps from other bases and airlines. We have studied the surveys and polling data from the Delta pilots and find it confirms our impressions about the pilot group.

We believe we have a sort of “Everyman’s” perspective on the MEC. That is, we think that if you “walked in our shoes,” the majority of you would share our opinions.

In fact, we think it would be the sort of 14 to 5 supermajority that voted to send this TA to the pilots. (It may be of interest that the former MEM reps spoke in favor of the TA, although they were no longer seated. If MEM were still open, it would have been 16 to 5. In fact, if every elected pilot [status and nonstatus rep] involved in the process had voted, the vote would have been 24 to 7.)

Our point is that, although the clear majority supported the TA, there were no “party lines” or “block votes” on this agreement, only people reaching different conclusions from the same information, each informed by their experience and circumstance. Fourteen voted in favor. Five voted against. Decision made.

It’s rare that a large group of people is unanimous on anything; in fact, only two recent MEC votes on issues of real consequence were undivided. These were the unanimous vote of confidence and reelection of the Negotiating Committee last fall and the unanimous decision to pursue an expedited negotiating path this year.

The negotiators’ and MEC’s decisions on the TA were no easier than yours. The discussion and debate during a week of intense briefings and Q&A reflected the diversity of a large group of people considering a weighty issue. The emotions some of you have expressed were on show in our deliberations as well.

There is a bit of “like it or not” to this perspective. Some of you are going to protest that we are managing expectations. We will have to live with the accusation. Reality, history, and experience have a way of managing expectations.

We will provide you with facts, our informed and deliberate opinion, and our outlook as related to this decision and our profession. We are not going to analyze the TA in detail; there are ample resources for that. Please avail yourselves of them. We’ve said all along that this agreement should be considered as a whole—and that includes the timing and duration, the interplay of the various scope elements, the industry, the government, and the economy. If you hear something that doesn’t sound right, or doesn’t seem like something a line pilot would agree to, please check into it.

Looking Back
Our contracts are governed by the Railway Labor Act, which preserves stability in our industry to protect national commerce. It was enacted during labor’s heyday and was intended to encourage labor and management to solve problems consensually in frequent agreements. Over time, labor’s strategy evolved to focus on using massive disruptions to achieve massive gains. Management strategy evolved as well, as did that of the RLA’s primary enforcer, the National Mediation Board. The NMB evolved further over the last decade as our industry consolidated and the economy stalled. It did not evolve in our favor.

In many ways, the NMB strives for the status quo, whether it is in commerce or bargaining. They will not reward management lowball proposals, but neither will they entertain labor demands far above industry average. They simply “park” the groups they deem unreasonable. The American pilots saw this as they went through five years of unproductive negotiations without gains. The AirTran pilots lost seven years while in negotiations.

Nonetheless, positive pattern bargaining has historically resulted in contractual gains in our industry. These “up” patterns followed periods of sustained profits and were actually “reasonable” in the context of their day.

Here’s a fairly recent example we’re all familiar with to some degree: The Delta pilots achieved pay rate increases between 8.6 and 21.6 percent by category in our C2K contract by patterning just above United’s rates at the time. Those UAL rates had in turn been built on the “Delta Dot” 777 rates we negotiated midcontract.

That bargaining phase culminated after five years of Delta profits during a concessionary contract. Specifically, we opened negotiations just months after Delta’s record 1998 profits were reported. (1998 was Delta’s best year so far by far—pretax income of $1.68B on revenues of $14B. Contrast that with Delta’s most recent performance of $1.1B pretax income on revenues of $35B. The point? Delta’s recent returns are not “record profits.”) Again, 1998 was Delta’s most profitable year ever.

Leading up to those C2K negotiations, Delta’s pretax margin topped 8 percent for five years in a row. Last year, our margin was 3.1 percent. We’ve made positive pretax margins in only the last two sequential years after bankruptcy, and only three of the last 11. The three “good” years average 3.7 percent.

The C2K negotiations took 19 months and concluded 13 months after the amendable date. There were four dissenting votes on the MEC and the TA was supported by less than 70 percent of the pilots.

Again: C2K was the most valuable contract in airline history, with industry-leading pay rates in every category, and was negotiated following a sustained period of profit and in a positive pattern bargaining environment. One more time: Four dissenting votes on the MEC, over 30 percent of the pilots voted against it, and it took 19 months to negotiate. This may add some perspective to your considerations.

Context
Delta has been profitable for two years and appears set to repeat. That the business environment would not seem to be profit-conducive is of note. Our stagnation is to some extent a result of the capacity discipline Delta has used to make a profit. The global industry, with a few notable exceptions, seems to be following suit in controlling capacity. Delta is moving to accelerate its lead on the industry in a measured and sustainable way. This plan involves moderate growth, however, plans can change. Past performance is not a guarantee of future results, but Delta is executing better than its peers and seems to have a vision for success they lack. Our management shows the ability to execute its plan.

We’ve reported over the last two years that we are cautiously optimistic about the U.S. and global economy, although we remain concerned about the slow rate of recovery and the weak overall job market. Given the economic environment in Europe, we are also mindful of the possibility that a decline in Europe’s fortunes will likely have a negative impact on the U.S. economy.

In the meanwhile, we’ve negotiated our first comprehensive contract after bankruptcy and the merger—during what is likely the onset of more industry consolidation. Most of our peer set is in disarray and works under what are legitimately termed “bankruptcy contracts.” American is, of course, actually in bankruptcy, and the timing and circumstance of their exit will be critical to Delta Air Lines.

The contracts we were able to “up” pattern on are not traditionally considered our peers in business circles because their business models differ significantly from Delta’s. Nonetheless, we insisted they be included in our comparisons because we feel the industry is both consolidating and homogenizing. SWA is becoming a “legacy” carrier. The cargo “duopoly” of FedEx and UPS is mature and stable for now.

The C2012 TA is above industry average or at the top in most metrics. However, it takes 2½ years to produce industry-leading rates in some cases, and it left other pilot priorities incomplete. Doubtless new priorities will surface as well. It was reached in negotiations, not “demand sessions,” so accommodations were made by both parties. There is more to be done, but we have a proven model for producing results outside of traditional negotiations.

Our model uses business concepts such as exploiting leverage and creating value. We create value for the corporation in familiar ways. Leverage is situational and merits discussion.

The Company wants to accelerate fleet changes to more quickly adopt a strategy of up gauging. This is mutually beneficial. Having our agreement in place also offers financial certainties the Company could use to prepare to take advantage of potential opportunities in the near future. We held the key to their accelerated refleeting, but there was and is a limit to that leverage. As soon as option “A” becomes more expensive than “B” (or “C,” or “D”), their choice is made. It is simply a business decision for the Company.

They also have a clear disincentive to reward us for “coming back for more.”

Consider also that Delta does not negotiate with us in a vacuum. They are continuously at the table with every “partner” in the operation: Boeing, Wall Street, caterers, fuel vendors, and employees. Importantly, these negotiations take place in offices but also in the press and on DeltaNet. We are not always the audience they address, and similarly, when they negotiate with us, they must consider their other dealings as well.

Do we have remaining leverage? What might we expect from Delta if we send the TA back? Is it feasible that management held money in reserve, just in case? Or do they have a budget for pilots, no matter how large their account? Perhaps they would abandon some other element of their business plan to further invest in the pilot group? Might they discover there is more value in our semi-timely cooperation than they’d expected, or perhaps their situation has improved and they can justify increasing our share?

In each of these unlikely scenarios, they would then have to justify the increase to the Board of Directors, Wall Street, the shareholders, the creditors, and the other employees. Delta would then suffer a weaker bargaining position going forward. Many among us say these are not our problems, but they are part of the overall negotiating landscape. To ignore the realities would be irresponsible.

Finally, ask yourself how you would answer if Delta came back on June 29 and said they needed to give us just a little less or wanted to talk about just a few more seats in the RJs?

The list of pilot groups that have rejected a TA and gained substantial improvements is virtually nonexistent. Something has always been traded away in the rejection road back to the negotiating table, even in those very few cases where gains appear to have been made.

We believe it is also prudent to take a realistic look at Delta’s labor stance. During the merger, the value of our combined pilot agreement dropped when the two MECs could not reach an agreement. The second JCBA was simply worth less.

Does Delta have a desire to get this agreement with us at this point in time? Absolutely. They also obviously have a back-up plan, and layers of contingency for that one as well. Our negotiating team reports that they are quite confident the deal is perishable and that Delta would move ahead with its nonpilot alternative if we reject the TA.

In our view, the risk simply outweighs the potential for reward.

No likely alternative outcome will be significantly more valuable than what we have in hand. Remember: Should our negotiations come under the control of the NMB, they will consider only whether our positions are “reasonable,” and they get to define reasonable. Using the NMB’s logic, our current working contract may likely be reasonable relative to the average of where our peers are. The TA, however, is well above average.

Looking Forward: Leading the Industry
An honest appraisal shows that while some pilot groups are still working under bankruptcy contracts and fighting over mergers, the Delta pilots have begun to claw their way up, escaping the dysfunction of some properties and rebuilding our careers.

Historical RLA bargaining strategies have become all but ineffective for the Delta pilot due to changes in government and industry. The RLA strongly favors management and needs to be fixed, but in the meanwhile, our strategy has proven to yield the best returns for the pilot: Engaging. Being proactive. Seeking mutually acceptable solutions. Negotiating consistent incremental gains that have proven to add up significantly over time and avoiding long intervals without improvement that our peers throughout the industry continue to be saddled with.

With this contract the Delta pilots once again raise the bar for the industry. With any luck, we will be helping the other pilot groups move quickly into positive pattern bargaining and the sooner the better. If the economy improves and other groups make gains, we will be ready to open no later than April 2015, and that’s only if no opportunities present themselves before then. Should an opportunity present itself in the interim, we will have improved our negotiating position and seize it. Should the economy or industry decline, we will have locked in improvements by seizing this moment and setting the floor for our next negotiation.

This is what we mean by “Leading the Industry.”

Your profession, your union, and your contract. Your decision.


Fraternally,
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Mike Spain
Pete Strople
Shannon O’Neal
Chairman, Captain Rep
Vice Chairman, F/O Rep
Secretary-Treasurer
[email protected]
[email protected]
[email protected]
801-755-4611/cell
435-640-6925/cell
435-659-1338/cell


Delta MEC mission: To improve the pay, working conditions, retirement, benefits, and job security of the Delta pilots; to always be mindful of safety and security.

The Pilot Assistance Network (PAN) for pilots seeking physiological, psychological, and/or medical assistance can be reached at 1-800-USA-ALPA (1-800-872-2572). If calling after business hours or on the weekend, press 7.
To e-mail all three reps:[email protected]

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use the [email protected] e-mail address to send us your comments.


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