General Lee
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A letter from the NWA MEC Officers to the pilots of ALPA Councils 1, 20, 54, 55 & 74
TO: All Northwest Pilots
FROM: MEC Officers
DATE: March 18, 2008
At the December MEC meeting, your MEC officers presented a cooperative merger concept for consideration by the NWA MEC. Pursuant to this plan, the pilot stakeholders would be compensated for the added value the two pilot groups brought to a merger by negotiating a combined contract and integrated seniority list in advance. Since pilot cooperation would remove the uncertainty of potential pilot group opposition to the merger and would allow the new merged entity to begin to benefit from the efficiencies/synergies of the merger earlier than in a traditional merger, the pilot groups would share in the value added by this cooperation.
At a Special MEC meeting in January, the MEC authorized the MEC Officers to form a committee to explore the cooperative merger concept. At different times, the exploratory committee has included up to 23 members. The purpose of the exploratory committee was to engage another pilot group and management on the subject of a potential merged entity. The goal of the discussions would be to achieve, on an expedited timeline, both a combined collective bargaining agreement with economic incentives for both pilot groups and an integrated seniority list. This process could only work if neither group would seek advantage over the other pilot group. At first, the negotiating progress was difficult due to process issues and cultural differences. Ultimately, due to perseverance of the pilot groups, a successful economic package was obtained, contingent on the pilot groups agreeing on an integrat ed seniority list in the near term.
There were, of course, many issues to be resolved in the seniority list discussions. These issues were expected. However, an unexpected issue came to undermine the process. The other group felt that our economic increases in the merged company collective bargaining agreement were greater than theirs and should be offset with a seniority list more favorable to their group.
We all determine fairness through our own prism, so we see little value in disputing who started or ended closer to a compromise position, or who had a more reasonable position on any issue. Both groups worked very hard and did their best to represent their respective pilot groups and find compromise. The fundamental issue was the ratio or ratios to be used to combine the lists. Complicating this issue was the disparate stand alone business plans at the two carriers, the greater amount of premium wide-body flying at NWA and the older ages of NWA pilots.
While our joint efforts have not produced a complete solution to the seniority list issues, we were able to find compromise with regard to the different demographics of the two groups. We are an older group that is about to experience significant attrition due to retirements. In spite of the change to the age 65, we believe many of our pilots, whether out of choice or medical necessity, will need to retire over the next five years. The other group is significantly younger and has their retirement bubble at a later time. As a result, we needed to find a way for each pilot group to benefit from their attrition as they would as a stand-alone airline. Otherwise, for example, as Northwest pilots retired, the other group would take the positions we brought, rather than those positions being extended down through our seniority list. On the other hand, when the other group’s retirements acc elerated, our group would have already moved ahead so their group should benefit from their attrition.
We were able to work together and resolve this issue with a slotted list. Under this approach, both pre-merger groups would have moved up independently through slots allocated by ratio to each pre-merger group. The net result would have been for each group to maintain their relationship as per the original ratio and benefit from each pre-merger group’s attrition/retirements, as it would have occurred at their pre-merger airline.
Unfortunately, from the unanimous perspective of our team, including the merger committee and alternates, the ratio envisioned by the other group was too favorable to them. Even with the early benefit of the slotted list to us, the favorable ratio to them negated the benefit and disproportionately harmed the Northwest pilots. The MEC offered their unanimous support after being briefed last week.
As you know, a couple of weeks ago the price of oil started its climb. Oil at a $113 a barrel puts things into sharper perspective. What if the other management’s aggressive business plan isn’t workable at oil above $110 and the crack spread above $17? Will they even take delivery of the many aircraft on option, especially the less fuel efficient ones? So, do we include options which may never materialize to get a deal done? Why would we include options for them that are far less likely to be exercised than our 787 options? Do we agree to an unfavorable ratio that would expose our junior pilots to layoff at the merged entity, while they are unlikely to be furloughed at Northwest due to our attrition? In short, do we base a seniority list which will affect NWA pilots for the next 30 years on an aggressive business plan and aircraft options over the next few years which may never be i mplemented? At the same time these questions were being considered, we started hearing that the other management would seek to renegotiate the economic package and no furlough provisions previously agreed to due to the changing economic picture. It was our unanimous conclusion that a seniority list integration ratio based on future growth was too risky to undertake. Instead, we offered to discuss other ways to account for the business plan growth of the other carrier if it ever actually occurred. Our suggestion was summarily rejected.
What does this mean for the Northwest pilots? If you believe the hedge funds (they are making themselves heard, and they will get louder as the shareholder meetings approach), consolidation is inevitable. The two managements may respond to this pressure and commence a traditional merger process. This approach will have many negatives for the merged company, even if such a merger can be completed. If, instead, managements are smart and value pilot cooperation, they will encourage us to go back to the table with realistic business plans. Finally, if management feels the time is now for consolidation, they would be wise to encourage both pilot groups to accept expedited arbitration. While not perfect, with the right economic incentive, this approach could get the job done in time for the merged entity to reap the benefits of the efficiencies much earlier than with two frustrated pilot groups engaged in a traditional merger.
As we write this Ziplines, we do not know what the managements and Boards of Directors will decide to do. However, the MEC, its leadership and its committees are prepared to respond as necessary. We will continue to provide as much information as we are able to given the constraints of confidentiality agreements and SEC laws and regulations.
Fraternally and in Unity,
Dave Stevens Monty Montgomery Mark Young
MEC Chairman MEC Vice Chairman MEC Secretary / Treasurer
THAT WAS THEN, THIS IS NOW. SAY IT, or QUIT CALLING US. "Hey, where have you guys been? Don't you miss us? What are you doing this Summer? Wanna go to the lake?" Quit it.
Bye Bye--General Lee
TO: All Northwest Pilots
FROM: MEC Officers
DATE: March 18, 2008
At the December MEC meeting, your MEC officers presented a cooperative merger concept for consideration by the NWA MEC. Pursuant to this plan, the pilot stakeholders would be compensated for the added value the two pilot groups brought to a merger by negotiating a combined contract and integrated seniority list in advance. Since pilot cooperation would remove the uncertainty of potential pilot group opposition to the merger and would allow the new merged entity to begin to benefit from the efficiencies/synergies of the merger earlier than in a traditional merger, the pilot groups would share in the value added by this cooperation.
At a Special MEC meeting in January, the MEC authorized the MEC Officers to form a committee to explore the cooperative merger concept. At different times, the exploratory committee has included up to 23 members. The purpose of the exploratory committee was to engage another pilot group and management on the subject of a potential merged entity. The goal of the discussions would be to achieve, on an expedited timeline, both a combined collective bargaining agreement with economic incentives for both pilot groups and an integrated seniority list. This process could only work if neither group would seek advantage over the other pilot group. At first, the negotiating progress was difficult due to process issues and cultural differences. Ultimately, due to perseverance of the pilot groups, a successful economic package was obtained, contingent on the pilot groups agreeing on an integrat ed seniority list in the near term.
There were, of course, many issues to be resolved in the seniority list discussions. These issues were expected. However, an unexpected issue came to undermine the process. The other group felt that our economic increases in the merged company collective bargaining agreement were greater than theirs and should be offset with a seniority list more favorable to their group.
We all determine fairness through our own prism, so we see little value in disputing who started or ended closer to a compromise position, or who had a more reasonable position on any issue. Both groups worked very hard and did their best to represent their respective pilot groups and find compromise. The fundamental issue was the ratio or ratios to be used to combine the lists. Complicating this issue was the disparate stand alone business plans at the two carriers, the greater amount of premium wide-body flying at NWA and the older ages of NWA pilots.
While our joint efforts have not produced a complete solution to the seniority list issues, we were able to find compromise with regard to the different demographics of the two groups. We are an older group that is about to experience significant attrition due to retirements. In spite of the change to the age 65, we believe many of our pilots, whether out of choice or medical necessity, will need to retire over the next five years. The other group is significantly younger and has their retirement bubble at a later time. As a result, we needed to find a way for each pilot group to benefit from their attrition as they would as a stand-alone airline. Otherwise, for example, as Northwest pilots retired, the other group would take the positions we brought, rather than those positions being extended down through our seniority list. On the other hand, when the other group’s retirements acc elerated, our group would have already moved ahead so their group should benefit from their attrition.
We were able to work together and resolve this issue with a slotted list. Under this approach, both pre-merger groups would have moved up independently through slots allocated by ratio to each pre-merger group. The net result would have been for each group to maintain their relationship as per the original ratio and benefit from each pre-merger group’s attrition/retirements, as it would have occurred at their pre-merger airline.
Unfortunately, from the unanimous perspective of our team, including the merger committee and alternates, the ratio envisioned by the other group was too favorable to them. Even with the early benefit of the slotted list to us, the favorable ratio to them negated the benefit and disproportionately harmed the Northwest pilots. The MEC offered their unanimous support after being briefed last week.
As you know, a couple of weeks ago the price of oil started its climb. Oil at a $113 a barrel puts things into sharper perspective. What if the other management’s aggressive business plan isn’t workable at oil above $110 and the crack spread above $17? Will they even take delivery of the many aircraft on option, especially the less fuel efficient ones? So, do we include options which may never materialize to get a deal done? Why would we include options for them that are far less likely to be exercised than our 787 options? Do we agree to an unfavorable ratio that would expose our junior pilots to layoff at the merged entity, while they are unlikely to be furloughed at Northwest due to our attrition? In short, do we base a seniority list which will affect NWA pilots for the next 30 years on an aggressive business plan and aircraft options over the next few years which may never be i mplemented? At the same time these questions were being considered, we started hearing that the other management would seek to renegotiate the economic package and no furlough provisions previously agreed to due to the changing economic picture. It was our unanimous conclusion that a seniority list integration ratio based on future growth was too risky to undertake. Instead, we offered to discuss other ways to account for the business plan growth of the other carrier if it ever actually occurred. Our suggestion was summarily rejected.
What does this mean for the Northwest pilots? If you believe the hedge funds (they are making themselves heard, and they will get louder as the shareholder meetings approach), consolidation is inevitable. The two managements may respond to this pressure and commence a traditional merger process. This approach will have many negatives for the merged company, even if such a merger can be completed. If, instead, managements are smart and value pilot cooperation, they will encourage us to go back to the table with realistic business plans. Finally, if management feels the time is now for consolidation, they would be wise to encourage both pilot groups to accept expedited arbitration. While not perfect, with the right economic incentive, this approach could get the job done in time for the merged entity to reap the benefits of the efficiencies much earlier than with two frustrated pilot groups engaged in a traditional merger.
As we write this Ziplines, we do not know what the managements and Boards of Directors will decide to do. However, the MEC, its leadership and its committees are prepared to respond as necessary. We will continue to provide as much information as we are able to given the constraints of confidentiality agreements and SEC laws and regulations.
Fraternally and in Unity,
Dave Stevens Monty Montgomery Mark Young
MEC Chairman MEC Vice Chairman MEC Secretary / Treasurer
THAT WAS THEN, THIS IS NOW. SAY IT, or QUIT CALLING US. "Hey, where have you guys been? Don't you miss us? What are you doing this Summer? Wanna go to the lake?" Quit it.
Bye Bye--General Lee
