DELTA'S SCOPE RELIEF AND THE 717's?

[Dan Roman]

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Delta Deal Could Change The Equation On Scope
By Andrew Compart [email protected]
Source: AWIN First
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June 07, 2012
Delta Air Lines’ tentative collective bargaining agreement with its pilots union is worded to ensure that the carrier will have to cut its regional airline services if it reduces domestic mainline services, under a formula that could spread to union contracts at other carriers.

The tentative deal also could set other precedents. For example, the contract includes language to automatically ensure that Delta pilots retain an “appropriate percentage” of the flying in any new joint-venture agreement—an issue that the Delta Master Executive Council for the Air Line Pilots Association (ALPA) is referring to as “big scope” because it deals with international widebody flying, rather than “small scope” regional aircraft operations.

On “small scope” issues, some union contracts used to include limits on how much mainline operations could be cut, and sometimes those limits were not linked to the size of the regional operations. These airlines, however, usually negotiated elimination or loosening of these restrictions during Chapter 11 restructuring.

The proposed deal with Delta establishes a ratio between domestic mainline and regional flying block hours that Delta must maintain. The national ALPA office says some other agreements also include ratios—based on block hours or hulls—but adds that the Delta deal is “unique” because the ratio would change if Delta revises the composition of its regional fleet to include larger aircraft. The Delta ALPA unit says it initiated the ratio concept.

The agreement lets Delta add 70 more 76-seat aircraft to its regional fleet, if it adds 88 mainline narrowbody aircraft and cuts its 50-seat fleet by more than 200 aircraft. But as Delta adds more 76-seat aircraft, the minimum ratio rises.

For example, when Delta adds its first 76-seat aircraft, the ratio starts out as a requirement for Delta to provide 1.1 block hours of flying for every hour of block flying outsourced to Delta Connection carriers. But the ratio increases for every 10 additional 76-seaters that Delta adds to Delta Connection service, ending at a mandate for 1.56 hours of mainline block hours for every hour at Delta Connection if Delta adds at least 61 new 76-seaters to regional carrier operations. Once a new ratio is established, Delta cannot reduce it under most circumstances.

That guarantees mainline pilots at least 60.9% of the domestic block hours if Delta adds 61-70 of the 76-seaters, the Delta ALPA leadership says.

That means—unlike the big shift that U.S. airlines implemented during and after the recession in the early 2000s—Delta would not be able to move domestic services from mainline to regional. That has meaning, Delta union spokesman Buzz Hazzard says, because it would ensure “fairness through proportionality” if Delta were to downsize, and because “how we get paid and how we get employed is block hours.”

The contract includes a provision that allows Delta to go lower than the ratio for a “circumstance over which the company does not have control.” But the contract explicitly states that those allowable circumstances do not include the price of fuel or aircraft, the state of the economy, the company’s financial state or “the relative profitability or unprofitability of the company’s then-current operations.”

On the “big scope” issue, Delta and the union will try to reach individually tailored production accords on the pilot share of flying in any future joint venture (JV), such as the one Delta already has with Air France-KLM and Alitalia for sharing revenue and coordinating schedules across the Atlantic. But if management and the union cannot reach consensus on any particular joint venture, Delta’s share of revenue block hours flown will be at least 75% of the airline’s share of revenue.

“This makes sure that Delta has ‘skin in the game,’ that Delta must be an active operator in the JV, and the block hours it operates must be proportional to the revenue it derives from the JV,” says a union official.

In another notable provision, the tentative contract would require Delta to remove six seats from the 76-seat aircraft being operated by its regional partners if the carrier furloughs any mainline pilots currently on the seniority list—and forbid the carrier from reinstalling the seats until all the furloughed pilots have been offered recall. There are no “force majeure” provisions that would let Delta change this requirement, ALPA says.

Delta is declining comment on the tentative deal. The pilots union members will vote on the tentative agreement later this month.

Doesn't look like sellouts to me. It just looks like they have started the pendulum swinging in the other direction.

 

[waveflyer]

70 brand new -900's, Dan. When delta is the only big 3 carrier to outsource that big, and it took a judge with the "gun to the head" to get it done.

This legitimizes that BK move at a time when all carriers are trying to get rid of 50 seaters and replace them with large RJs. UniCal and AA are fighting like hell to keep -900's off the property- and delta flashes a bit of money at DALPA and they're willing.

Yeah- sellouts is the only word I have.

They are giving away this time of natural economic pressure and letting mgmt reload the whipsaw market with larger more efficient planes.

DALPA has a responsibility to not do this.

 

[jetflier]

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.

 

[bmpilot2003]

Just vote no!!!!!!!!

 

[General Lee]

Jetflier,

So, you're thinking we could have leverage for more MONEY, or do you not want 70 76 seaters to go to DCI? Which is it? The leverage would be used for what? 10% more pay? Ok. But, you still feel it is ok for 70 additional 76 seaters to go to DCI, but just if we get more pay for the deal? Just want to get that straight from you. What is your stance?


Bye Bye---General Lee

 

[waveflyer]

How about creating 700+ new mainline jobs with those -900's?

 

[General Lee]

How about creating 700+ new mainline jobs with those -900's?

No, it's 700+ new jobs with your 717s. We can't compete on the lower costs of the Regionals, so they will fly a capped number of 76 seaters and 70 seaters, filling in for 50 seaters going to the desert. You probably know this by now. Add in a ratio to keep it better for mainline, and that's a great plan.


Bye Bye--General Lee

 

[jynxyjericho]

Delta can't compete on the lower costs of the Regionals, so they will fly a capped number of 76 seaters and 70 seaters, filling in for 50 seaters going to the desert...

Until the company needs more regional flying to help offset costs, at which point we will up the capped numbers. Really this is all a farce, and I am doing my best to back away from my earlier prognostications that Delta would hold scope. Instead I will vote for a TA that allows way more 70-76 jets in exchange for pay close to what Southwest makes... kinda.

Bye Bye--General Jynx

Just get the vote over with so we all get back to talking about stuff that matters, like the proper pronunciation of 'potable'.

 

[General Lee]

Delta can't compete on the lower costs of the Regionals, so they will fly a capped number of 76 seaters and 70 seaters, filling in for 50 seaters going to the desert...

Until the company needs more regional flying to help offset costs, at which point we will up the capped numbers. Really this is all a farce, and I am doing my best to back away from my earlier prognostications that Delta would hold scope. Instead I will vote for a TA that allows way more 70-76 jets in exchange for pay close to what Southwest makes... kinda.

Bye Bye--General Jynx

Just get the vote over with so we all get back to talking about stuff that matters, like the proper pronunciation of 'potable'.

Yeah you won't. The scope is actually improved, and the outsourcing is shrunk. That's AWESOME. And the pay raise is MORE than SWA's pay, because they have to take out there own pay to get any match for their 401K, whereas DL pilots get 14% (15% on Jan 1st 2014) of whatever they make for the month put into a seperate account. You can contribute also, but that is 14% regardless of whether you do or do not. Additionally, the widebodies at DL will pay more than SWA easily per hour. You may be talking about the MD88 or 737, which with that DC addition does surpass SWA. Don't worry Jynx, you probably won't ever have to understand. Also, watch out for the 717s passing up your "Surge 9."


Bye Bye---General Lee

 

[waveflyer]

Give me profitability numbers general?