Delta rumors......

[MedFlyer]

General, do you know whether or not our MEC would go along with that? I tend to doubt it. Our tabled position is 13.5%, plus some work rule productivity phased in with an increase in block hours and some increases in medical costs, but no where near a 25%-30% paycut. At our last LEC meeting, John Malone said we were willing to go slightly higher, but not too much higher, depending of course on what the company is willing to negotiate in return. I certainly didn't get the impression that we would chase a deal and double our offer. Pilot costs are a factor, but the business model does not revolve around pilot costs. If that were the case Vanguard and US would be profitable and SWA would be looking at BKII, since SWA pilots made more than Vanguard and are more highly compensated than US pilots.

Your MEC may not publicly want to go along with it...but faced with the alternative options they may have no choice.

Outside of BK, DALPA still has a chance to negotiate and get something in return. For example (and this is purely an example), DALPA might give 25-30% in pay and some other benies, but be able to keep the scope clause, keep the no furlough clause, get an equity stake in the company (stock options/profit sharing) and get some snapback clauses.

If DALPA stands firm on the pay at 13.5-15% and DL goes BK, the ability to get anything in return dramatically fades. Under the pressure of a BK judge, it's likely DALPA would still take 25-30% pay cuts (if not more), plus the company would move to void the scope/no furlough clauses.


You are right, the business model doesn't revolve solely around pilot costs. However, your comparison to WN isn't applicable. The business models are completely different and pilot pay comparisons don't work.

The problem for DL is this: DL (of the six traditional legacy carriers) has the lowest unit revenue per passenger (stage length adjusted). Simultaneously, DL is at the top of the industry in unit cost. This is NOT a sustainable business model and it doesn't even take into consideration the LCCs.

In terms of the pilots, every time a DL pilot takes off, he brings in LESS money for the company than a similar AMR pilot. BUT, he costs the the company MORE than a similar AMR pilot. Something's gotta give......

 

[General Lee]

Medflyer,

Your analogy about AMR pilots making less and thus Delta pilots making more and bringing in less--can also be applied to you guys and Mesa. I think that Dalpa will go higher than the 13.5%---and there will be other benies that will be beneficial to the company. Dalpa has the "numbers" and is monitoring this closely.

Bye Bye--General Lee

PS: From an article in a Tennessee paper:

"On Monday, Delta Air Lines warned that it might have to file for
bankruptcy if its pilots' union didn't make certain salary
concessions.

A few months ago, someone related an experience to me.
She was in a meeting with Delta executives discussing
distribution systems. The Delta executives warned that they
would likely issue a bankruptcy warning this summer, but no one
should worry; it was all part of their negotiation strategy with the
pilots' union."

 

[Heavy Set]

"BUT, he costs the the company MORE than a similar AMR pilot. Something's gotta give......"

Great job. Medflyer, if that isn't an invitation to DAL management to cut your wages to Mesa levels then I don't know what is.... Everyone is so focused on the mainline pilots - but don't doubt that management isn't ALREADY considering how to lower your wages to "industry average." Otherwise, they would be leaving money ON THE TABLE and they cetainly don't want a repeat of the Comair strike...

 

[MedFlyer]

"BUT, he costs the the company MORE than a similar AMR pilot. Something's gotta give......"

Great job. Medflyer, if that isn't an invitation to DAL management to cut your wages to Mesa levels then I don't know what is.... Everyone is so focused on the mainline pilots - but don't doubt that management isn't ALREADY considering how to lower your wages to "industry average." Otherwise, they would be leaving money ON THE TABLE and they cetainly don't want a repeat of the Comair strike...

I'm sure DL management is looking at ways to lower Comair wages. That's what management is always doing....

It's funny that whenever someone brings up DL pilot pay, you automatically start crying about Comair pay. Why not provide a reasonable, business-minded argument for why DL pilots should make 40-50% more than their peers? Instead, you immediately jump on Comair....pointing fingers isn't going to solve the problem.

I'm not against DL pilots making industry leading pay. If DL was an industry leader in unit revenues, then by all means the pilots should be industry leaders in pay. Even with DL's lagging revenues, I still think that if both sides negotiate seriously, DL pilots can still come out above AMR, UAL, etc. However, the DL pilots are going to have to get serious about being a more productive group if they want to keep that pay.

 

[michael707767]

General Lee, I too have heard rumors about a deal.

The company is asking for a 34% pay cut, which with work rules changes amounts to about 40-45% of the value of our contract. The rumor I heard is that a deal is in the works that with a combo of pay and work rules amounts to about 30% of the value of our contract. So my guess would be roughly 22% on the pay rates, the rest to come from work rules.

 

[General Lee]

Michael707767,

I don't know about those rumors---even the one I posted on this thread--because since then they have announced new negotiators on the company's side. Why would they just announce new ones? That doesn't make sense.

As far as work rule changes, I think there will be some---but I don't think they will a large amount because they are the hardest thing to get back eventually. Most guys would rather give up a little more pay than more days off. I don't really know---since I am NOT a negotiator----and also I wonder how the recall of the furloughs would play into this? Dalpa has gone public with their intention to have a recall schedule---and the company agreed. I doubt they would rescind that---which would be bad publicity for Dalpa and ALPA in general. Yeah, I hear it all the time---"They don't care about the junior guys...." But those junior guys will eventually turn out to be a large voting block---and Dalpa knows it. I don't see the cap of hours being increased too much--maybe 80 hours etc....and I can still see some sort of recall schedule---atleast to cover retirements. I don't really know, and I want the furloughs back as soon as possible---but that will have to be negotiated too, and the large upswing in early retirements should help with that.

Bye Bye--General Lee

 

[FDJ2]

The problem for DL is this: DL (of the six traditional legacy carriers) has the lowest unit revenue per passenger (stage length adjusted).

Medflyer, the average DAL pilot flies more passengers than any of the other network carriers. So although that passenger may pay less, the DAL pilots fly more of those passengers every year, with fewer pilots, than any of the other network carriers. So your analogy is off the mark.

You might want to consider that DAL has a higher CASM, because DAL is the only carrier with nearly a third of its block hours being flown with high cost RJs, which are factored into the DAL CASM as well as the largest RJ debt, which is also paid by DAL. No other carrier has nearly as many high cost RJs, and they don't incorporate the high RJ CASM into their network CASM.

You suggest that somehow BK is a walk in the park for management, as if all they have to do is move to void contracts and scope language. Luckily it doesn't quite work that way.

BK is corporate failure. The CEO works for the BODs and the BODs work for the shareholders. If Grinstein were to take DAL into BK he will have failed his employer absolutely, since no one loses more in BK than the investor. Entering BK is not a negotiating strategy in order to rid ones self of pesky union contracts.

Somehow I doubt that the determining factor between BK and solvency is a 15% difference in pay between the DALPA position and DAL's.

 

[ATR-DRIVR]

So FD
Your assertion is the RJ's is the main reason that Delta is looking at BK? Somehow I figured that was going to in somewhere....
"BK is Corporate failure"....Ok....Which is it?

 

[michael707767]

Gen Lee,
put me in the group that would rather give pay cuts than change work rules. Changes in work rules by and large sell out the junior pilots. Anything we do should be spread evenly among the entire seniorty list, and the only way to do that is with pay cuts only. I say give em the entire 34% in pay rates, but keep the rest of the contract intact.
Michael

 

[General Lee]

ATR-Drivr,

Man alive, FDJ2 seems to be making you mad. Don't take it personally----I think he means that the RJ strategy born by Leo and Fred was the wrong one---and now Grinstein will have to correct it. Just when Leo and Fred thought RJ frequency was the ticket to heaven----the fares took a dump and a lot of our old lift (727s and L1011s etc) was parked in Arizona. Then Leo and Fred thought we could do ok by waiting for other carriers to die---which none did completely. Those were bad decisions, and Leo then took his medicine and left with $16 million. Sucks for him, right????? Anyways, I think we at mainline can see that we need some sort of a pay cut to help reign in some costs, and then we need a plan that addresses today's problems---which are lower fares---needing more seats per plane to squeeze a profit and spread out the costs. RJs are great planes for certain markets--but not those markets with direct LCC competition----and those LCCs are growing and will compete more and more with us directly. That is what we need to focus on after pay cuts.....

Bye Bye--General Lee

 

[michael707767]

Leo and Fred thought we could do ok by waiting for other carriers to die---which none did completely. Those were bad decisions, and Leo then took his medicine and left with $16 million.

Gen Lee,
I think you are exactly correct. The only strategy Leo and Fred ever had was to try and hold on til one or more other airlines went out of business, then pick up the traffic. Never put all your eggs in one basket.
Michael

 

[General Lee]

true dat! RJs have always been the answer, and we can now see that a strategy like that combined with low fares might hurt us.......

Bye Bye--General Lee

 

[MedFlyer]

Medflyer, the average DAL pilot flies more passengers than any of the other network carriers. So although that passenger may pay less, the DAL pilots fly more of those passengers every year, with fewer pilots, than any of the other network carriers. So your analogy is off the mark.

So DL loses money on every passenger, but then somehow makes it up on volume? I don't care how many passengers a DL pilots flies, if the unit costs are exceeding the unit revenues, your business strategy is failing.

You might want to consider that DAL has a higher CASM, because DAL is the only carrier with nearly a third of its block hours being flown with high cost RJs, which are factored into the DAL CASM as well as the largest RJ debt, which is also paid by DAL. No other carrier has nearly as many high cost RJs, and they don't incorporate the high RJ CASM into their network CASM.

RJ's do increase CASM, but the actual effect is quite small. Take a look at this link with the first quarter stats: http://news.delta.com/article_display.cfm?article_id=9237

DL CASM (regionals included): 10.71
DL CASM (mainline only): 10.38

Either way, DL's CASM is way too high to be competitive. Keep in mind that RJ's also raise RASM as they tend to bring in more revenue on a per seat basis.

You suggest that somehow BK is a walk in the park for management, as if all they have to do is move to void contracts and scope language. Luckily it doesn't quite work that way.

BK is corporate failure. The CEO works for the BODs and the BODs work for the shareholders. If Grinstein were to take DAL into BK he will have failed his employer absolutely, since no one loses more in BK than the investor. Entering BK is not a negotiating strategy in order to rid ones self of pesky union contracts.

You're right, BK is corporate failure and DL is failing. DL is in its 4th straight year of losing money...all of the gains of the late 90's have been wiped out. DL is buried up to its eyeballs in debt. Maybe you call that success, but most people don't.

Are the RJ's part of the problem? Yes. Instead of fixing DL's broken mainline business, Leo and his gang of cronies just substituted in RJ's hoping for better days (read: USAirways collapse). Temporarily this strategy worked, but it has failed in the long run. Mainline is still broken and DL is just buried deeper in debt.

DALPA unwittingly signed off on this strategy. Instead of creating a contract that might encourage mainline growth (or at least prevent massive RJ growth), they gave Leo and his buddies tons of access to cheap (relatively speaking) RJ capacity. All of DL's pilots merrily went along with the strategy...as long as they had top pay no one stopped to think about the ramifications.

Somehow I doubt that the determining factor between BK and solvency is a 15% difference in pay between the DALPA position and DAL's.

Is it the determining factor? No.
Is it the triggering factor? Possibly.

The 15% difference isn't that much in the grand scheme of things. But if DL management can't even manage to get that item in line, then what's the point?

 

[General Lee]

Medflyer,

Wouldn't you like to see a plan that would address those issues? I would, and I bet Dalpa would too. Would you give money to someone with a bad or poor plan? How about one that wants to maybe buy more RJs when you think the LCCs will be buying more mainline aircraft? That would be suicide in today's climate? We know that Jetblue will be buying 100 EMB-190s and going everywhere with them. Our 50 seat and maybe 70 seat RJs won't compete well against those with lower fares. We know that Airtran, a direct competitor in ATL, will be getting more 737-700s and more 717s--and divesting themselves of all of their RJ lift. What do we do? We order 45 more 50 seaters and we get rid of some 738s and some 777s. Sure, that did lower some CAP EX payments due in busy 2005, but what about after we do get pay cuts? What will Grinstein do? Wouldn't you want to know before investing---which is really what we would be doing if we go in early for contract talks? If he had a bad plan, and a better plan was required before coming out of Chap 11---which would you chose? I hope that never happens---but USAir has shown that plundering contracts doesn't really work. Now they have a plan, but it may be too late. We still have a fair amount of cash, will have a great Spring and Summer season, and will start talking soon since they just announced new negotiators at the company. I can't wait to hear about the strategic review and what we may do going forward. I bet a good plan will rally the troops and allow for fair pay cuts that will be accepted by the majority. A bad plan or an "all RJ" plan will not cut the mustard. How about using our own mainline planes more through out the day, instead of the 7 or 8 hours a day currently? That would be a good start....

Bye Bye--General Lee

 

[FDJ2]

So FD
Your assertion is the RJ's is the main reason that Delta is looking at BK? Somehow I figured that was going to in somewhere....
"BK is Corporate failure"....Ok....Which is it?

They're not exclusive comments at all, and it really isn't an assertion, just an argument that could be made.

Corporate failure is brought on by a poor business plan. One could argue that becoming the largest user of high cost RJs on the planet, exhausting billions of dollars in acquiring WO small jet lift in the last few years, when the company could gain the same economic benfit without owning the equity in the companies that provide it and taking a $700M strike from their newly acquired WO has cost DAL a great deal of much needed cash. We might also throw in $2.5B in a stock buy back scheme which also greatly reduced DAL's liquidity.

The argument could than be brought forward that the squadering of $6.2B in stock buy backs, WO acquisitions and a strike by a newly acquired WO has had a significantly greater impact on DAL's liquidity these last few years than pilot pay. If DAL had that cash on hand today would DAL even be remotely close to BK even with our current PWA?

 

[FDJ2]

RJ's do increase CASM, but the actual effect is quite small. Take a look at this link with the first quarter stats: http://news.delta.com/article_display.cfm?article_id=9237

DL CASM (regionals included): 10.71
DL CASM (mainline only): 10.38

If .33 cents has a "quite small" effect on CASM, than how much would the difference between a 13.5% concession vs a 34.5% reduction in pilot costs effect that CASM?

Pilot costs account for approximately 12% of CASM, or approximately 1.25 cents. Math in public is dangerous, but here goes.

13.5% concession reduces CASM by approximately .17 cents.

a 34.5% concession reduces CASM by .43 cents, an amount that is somewhat comparable to the "small" effect of adding RJ costs into the mix.

The difference between the two tabled positions is approximately .26 cents. If the RJ factor increases CASM by .33 cents, and you characterized that as a quite small effect, than certainly .26cents is even less significant.

As far as RJ RASM being higher and thus off setting the higher costs associated with flying RJs, didn't both UAL and NWA report a loss from RJ operations? DAL doesn't publish its RJ gains or losses, IOW DAL made a profit of X dollars or a loss of X dollars from DCI operations, but I wouldn't be surprised if they weren't somewhat consistent with UAL's and NWA's

 

[General Lee]

FDJ2,

You again bring up great arguments and support them with facts. I hope they begin to negotiate again soon and come up with something that is fair and helps the company.


Anyways, I am off for a week and I am going on vacation. Keep defending the fort as best you can. Take care.

Bye Bye--General Lee