Interesting perspective for Delta pilots

[blzr]

OUR TAKE
Discord at Delta

Email this page
Format for printing
Become a Fool!
Reuse/Reprint

Related Links

• Motley Fool Take Archive

Discussion Boards

• The Motley Fool Take
• Travel & Vacation

By Rich Smith
August 9, 2004

I admit to being of two minds about the ongoing salary dispute between Delta Air Lines (NYSE: DAL) and its pilots. On the one hand, you have a struggling airline whose own CEO says that unless drastic changes are made, the company is headed for bankruptcy. On the other hand, you have hardworking pilots trying to put food on the table for their families and being asked to take a massive 35% salary cut. To add insult to injury, the pilots have already offered what would ordinarily be considered an extraordinary concession -- a 23% salary cut -- and been turned down.



So who's right? It is hard to come down on management's side. These guys are responsible for keeping the airline in business, the employees employed, the shareholders enjoying profits -- and they appear to be failing miserably on every score. Now they say the pilots, the very heart of the company, must take pay cuts to save the company from the damage the executives failed to prevent over years of raking in mid-six-figure (and up) salaries themselves. Since 2001, Delta has lost well more than $5.5 billion.



As for the pilots, I think a lot of newspapers are doing them a disservice by quoting their salaries as ranging from $50,000 to $280,000, making Delta's pilots sound like spoiled millionaires when they complain about proposed salary cuts. But I suspect that "$280,000" number is a red herring, and your average Delta pilot doesn't rake in a quarter mil a year. Still, even if the number is closer to $100,000, that would be an awfully large sum for an "average" salary figure in any healthy company -- and Delta, like competitors United and American Airlines (NYSE: AMR), Continental http://quote.fool.com/uberdata.asp?symbols=CAL(NYSE: CAL) and Northwest http://quote.fool.com/uberdata.asp?symbols=NWAC(Nasdaq: NWAC), are far from "healthy" companies.



In all likelihood, the outcome for Delta's pilots will be one of three. They will accept severe wage cuts; they will leave Delta for a competitor; or they will refuse to accept the wage cuts. In each case, the Delta pilots will end up with roughly the same size paycheck. The only variable will be whether they work for a lower salary at the perpetually struggling Delta; leave for a lower-paying job at a healthier company such as JetBlue (Nasdaq: JBLU), AirTran (NYSE: AAI), or Southwest (NYSE: LUV); or help their executives drive Delta into the ground. In which case, post-layoff, they will eventually find new jobs at whatever airline emerges to take the place of the defunct Delta -- whether that is one of the other companies named above or an airline still to be created.

Fool contributor Rich Smith owns no shares in any company mentioned in this article. The Fool has a disclosure policy.

Email this page Format for printing Become a Fool!

 

[pilotyip]

Remember UAL

Remember the UAL battle cry from the old board "Max pay to the last day", the last came and everyone took big cuts in pay, and increase in live hours, reduction in guarantee. That sure fixed things.

 

[FDJ2]

Remember the UAL battle cry from the old board "Max pay to the last day", the last came and everyone took big cuts in pay, and increase in live hours, reduction in guarantee. That sure fixed things.

Do you remember USAIR pilots taking big pay cuts, then going into BK anyways, then taking more cuts, then gutting their pensions, then outsourcing their jobs etc. Nothing is more costly then highly paid incompetant management. With nearly 50 VPs, DAL has plenty of those.

 

[On Your Six]

Finally a "level headed" response from an analyst. I agree that $280K reflects a minority at DAL and yet it is quoted all of the time. The press, especially USA TODAY (Lowecur's employer), is merciless and tends to portray the DAL pilots in a negative light in every article. That Ray Niedel guy needs to retire with his Eastern and Braniff buddies...

Great article - it shows that DAL management is at least partly (if not fully) to blame for this current situation. Good job Leo with the $2 billion stock buyback a few years back that has since vaporized - I guess that cash could not have been useful now.... Blame the sole union for everything!!!!!!!!!!!!!!!!

 

[DLslug]

On Your Six:


Good comments. I couldn't agree more.

Like I explained earlier, how am I to blame for this mess. Management at ALL airlines need to take the blame for this one.

No new news today, we'll see what's next.

All for now,

DLslug

 

[MedFlyer]

On Your Six:


Good comments. I couldn't agree more.

Like I explained earlier, how am I to blame for this mess. Management at ALL airlines need to take the blame for this one.


DLslug

You, or your union, demanded a wage & benefit package that the company could never sustain. DL was already hemorraghing money before your contract was even signed. Your contract was based on a temporary bubble and had no grounding in reality.

I'm not blaming the pilots for all DL's ills. Most of DL's problems certainly have nothing to do with pilots. However, it is laughable to say that DL pilots aren't at least a small part of the problem.

 

[SoBeFlyer]

How does pointing the finger at past management help the current players (management/labor/creditors/etc.) plug the hole that's sinking the ship?

I'm not defending anyone, and agree that MANY dismal business decisions have been made in the past, but the most important business decision now is the one on the table.

If someone inadvertently pulls one of your T-handles in flight, do you yell and scream and jump up and down and point the finger, or do you set best drifdown and try to re-light it when able?

It sounds like alot of folks on these boards don't want GG or any other management types to say something they don't want to hear. If you don't want to hear something you don't like, vote Demmocrat. They always tell you what you want to hear.

 

[Freebrd]

How does pointing the finger at past management help the current players (management/labor/creditors/etc.) plug the hole that's sinking the ship?

Well, they're not really PAST management now are they. Wasn't Greenjeans on the board that approved all that guaranteed money for management's retirement
to keep them at delta? And wasn't Greenjeans the one who approved all those bonuses for ASA mangement such as $700K+ for their CEO? One wonders what the COMAIR executives received too....

 

[Falconjet]

Not too bad

Not too bad an article, except for the three outcomes. I like the middle one. Yea, I'll just leave and go fly for another carrier, just like that. Can't be too hard.

Although the Motley Fool has enlightened some on the fact that not all airline pilots are pulling down $250K, he has left the impression that if a pilot is unhappy with the way things are going at his current airline he can just up and go get a job with a competitor. Man, if it were only that easy.

As usual, the media, in their effort to dumb down the story to the 5th grade level, can only get about half the story right.

Oh well. Off to my $250K FE job. Wonder where the valet went with the keys to my Bentley.

FJ

 

[DL_Infidel]

You, or your union, demanded a wage & benefit package that the company could never sustain. DL was already hemorraghing money before your contract was even signed. Your contract was based on a temporary bubble and had no grounding in reality.

I'm not blaming the pilots for all DL's ills. Most of DL's problems certainly have nothing to do with pilots. However, it is laughable to say that DL pilots aren't at least a small part of the problem.

So, IF you were a DL pilot voting on C2K, you would have voted NO because of your above reasons and because you are grounded in "reality"...unlikely. We didn't demand anything...we voted on a contract that management and 70% of the pilot group approved of.

Here's another interesting article (my apologies if it has been posted):

Delta ratchets up bankruptcy warning
By Caroline Daniel in Chicago
Published: August 9 2004 18:21 | Last updated: August 9 2004 18:21

Delta on Monday added to fears that without cost reductions it could
be forced to file for bankruptcy later this year after it warned it expected
to use up far more of its cash reserves in the second half than it had
forecast six months ago.


In December, Delta said it expected that its annual cash flows from
operations would be sufficient to fund its daily operations and its
non-fleet capital expenditures in 2004. However, the first-half drop in
domestic passenger yields and soaring fuel prices, which drove up its annual
fuel costs by $680m from a year ago, have lead it to warn that its actual
cash flows would fall below expectations.

"We plan to use a portion of our cash reserves to pay certain
obligations that we previously anticipated would be paid from cash flows
from operations," Delta explained. "Accordingly, we expect our cash and cash
equivalents to decline during the remainder of 2004 at a level consistent
with the decline during the first half of the year."

Delta's cash balances fell from $2.7bn at the end of December to $2bn
at the end of June. If it does use up a further $700m in cash in the second
half, that could trigger a liquidity crisis as Delta has few unencumbered
assets it could use to raise financing.

"Except for our existing commitments to finance our purchase of
regional jet aircraft, we have no available lines of credit," it said.

The airline has demanded a minimum of $1bn in cost concessions from
its pilots, but the talks have become increasingly hostile. Last week John
Malone, head of Delta's Air Line Pilots Association, called the demands
excessive, and offered $655m to $705m in concessions in return for an equity
stake in the airline.

In its first quarter filing with the Securities and Exchange
Commission, Delta said: "If we cannot make substantial progress in the near
term toward achieving a competitive cost structure that will permit us to
regain sustained profitability and access the capital markets on acceptable
terms, we will need to seek to restructure our costs under Chapter 11."

Delta, like American Airlines a year ago, is seeking to use the threat
of bankruptcy to secure concessions from all its stakeholders.

Mark Streeter, credit analyst at JP Morgan, said: "The biggest wild
card is not if and when the pilots come to the table ready to deal but
rather how Delta will approach creditors ... the Delta 'game of chicken'
hinges on creditors, not labour."

Mr Streeter estimated that Delta had $20bn in debt, including $4.7bn
in unsecured bonds and $8bn to $9bn in aircraft leases.

==========================================
==========================================


DL_Infidel

 

[Turbojet]

Remember the UAL battle cry from the old board "Max pay to the last day", the last came and everyone took big cuts in pay, and increase in live hours, reduction in guarantee. That sure fixed things.

Pilotyip, as a furloughed UAL pilot I don't ever remember that saying. In fact If you knew anything about the United pilots you would know that they voted to accept both ERP 1 which was proposed almost a year before chapter 11 and ERP 2, just prior to CH11. Both recovery plans had HUGE paycuts and givebacks in work rules and scope language. So I again say you have no idea what you are talking about...."max pay to the last day"...just not so.

Now stop talking from where nobody can see your lips move.

Turbojet

 

[Full of LUV]

Wow how the times have changed!

After a very short time as a commercial pilot, it amazes me to see the change in the winds from fellow pilots. There used to be a time where the whole industry looked up to the pilots at the majors as the torch bearers / bar setters for industry pay. Now all the pilots seem to complain about who is over paid here and who is overpaid there. For all the soothsayers at the LCC's who think they are untouchable because of their low cost structure, stand by. There appears to be ample supply of pilots willing to work for an upstart for 30% less than you. Lets recap what the future holds for the profession for the generation Xers.

Real Pensions - Gone
Time away from home - More
Earning Potential - Less
Ability to serve your country without pay loss - Gone
Scope Protection / Job Security - Gone
Medical Insurance for Retirees - Gone
Retirement at age 60 - Gone
Real Vacation time - Gone

For all that equate 401K with pension, a little secret, all the companies that had pensions had 410K's also. Giving up a pension for just a 401K is a major step backward, one that a lot of corporate america is going, but is a step back.

Before you accuse me of crying in my beer, I am fortunate that the industry revealed it's direction before I was too committed to a "legacy" carrier. I feel for the mid 40 yr old to 50 yr old guys who have devoted quite a bit of years to feel as if the industry has devoured them and then to read the pilots on these boards saying "oh, you should have worked for less pay and no bennies so your company would stay solvent" What comes around.....

I'm sure the bus drivers of the 50's would have had the same discussions if they had the internet. When those greedy bastard Greyhoud bus drivers started getting paid too much, there were plenty of upstart (trailways etc) companies to nibble at the edges and eventually decimate the profession.

Bottom line is that no one can save this ship, in fact the longer the ship stays upright, the more potential there is for new upstarts to emerge. Eventually, when even the LCC wages are too high, cabotage will be history and well all wonder what happened when Juan and Rawjeesh fly us back home.

Let's just stop taking glee in other's demise, there is really not a more reprehensible trait.

Oh well, at least there will always be beer.
CHEERS

 

[Freebrd]

OnYourSix writes:
Let's just stop taking glee in other's demise, there is really not a more reprehensible trait.

Yeah, right! Like you with all your Rj ASA/CMR bashing posts huh?

 

[Full of LUV]

OnYourSix writes:
Let's just stop taking glee in other's demise, there is really not a more reprehensible trait.

Yeah, right! Like you with all your Rj ASA/CMR bashing posts huh?

I can hardly see one bit of demise that ASA/CMR has suffered since 9-11. In fact I have witnessed unprecedented growth and opportunities for those companies. So I do not equate my prior posts that commented on CMR's policy of not hiring furloughed DAL pilots like ASA with taking glee. A CMR or ASA new hire of circa 2001 must have seen complete prosperity through this point.

If DAL were to outsource more RJ flying to other companies and actually furlough at CMR/ASA, then I would object to that, as that would be taking glee in your demise.

Ultimately, it is one big industry and noone operates in a vaccum. I hope you enjoy your position, as I don't see any movement in the DAL family for quite some time. It appears as though even the RJ party might be drawing to a close.

 

[enigma]

You, or your union, demanded a wage & benefit package that the company could never sustain. DL was already hemorraghing money before your contract was even signed. Your contract was based on a temporary bubble and had no grounding in reality.

I'm not blaming the pilots for all DL's ills. Most of DL's problems certainly have nothing to do with pilots. However, it is laughable to say that DL pilots aren't at least a small part of the problem.

MedFlyer, using your logic, I can make a million dollars a year by just asking for it in my next contract.

Let me let you in on a little known fact; contracts are negotiated between labor AND MANAGEMENT.

Labor doesn't have the economic, nor governmental, power to impose it's will on an employer. Period. Labor asks for what it wants, management asks for what it wants. They end up meeting somewhere in the middle, and then sign the AGREEMENT when BOTH parties AGREE.

From what little I know of the situation, it would be fair to say that UAL's pilots could be held somewhat responsible for UAL's financial state, because they held an ownership position in the company. I'm not aware of the Delta pilot group having any such position. As such, I can't agree that the Delta pilot group is part of the problem.

Management, and only management, is responsible for the outcome of any business venture. They get paid well, darn well, to MANAGE the business in such a way as to produce sustainable profit. They have failed, and now want labor to shoulder the cost of recovering from their failure.

Obviously, DALPA will take a pay cut, because the market can't sustain their current rates. That, however, would be the fault of the market, the customers, the competing pilots, not DALPA.

If you insist upon blaming pilots for the state of business, you should at least conceed that they are only 50% at blame.

regards,
enigma

 

[MedFlyer]

MedFlyer, using your logic, I can make a million dollars a year by just asking for it in my next contract.

Let me let you in on a little known fact; contracts are negotiated between labor AND MANAGEMENT.

Labor doesn't have the economic, nor governmental, power to impose it's will on an employer. Period. Labor asks for what it wants, management asks for what it wants. They end up meeting somewhere in the middle, and then sign the AGREEMENT when BOTH parties AGREE.

From what little I know of the situation, it would be fair to say that UAL's pilots could be held somewhat responsible for UAL's financial state, because they held an ownership position in the company. I'm not aware of the Delta pilot group having any such position. As such, I can't agree that the Delta pilot group is part of the problem.

Management, and only management, is responsible for the outcome of any business venture. They get paid well, darn well, to MANAGE the business in such a way as to produce sustainable profit. They have failed, and now want labor to shoulder the cost of recovering from their failure.

Obviously, DALPA will take a pay cut, because the market can't sustain their current rates. That, however, would be the fault of the market, the customers, the competing pilots, not DALPA.

If you insist upon blaming pilots for the state of business, you should at least conceed that they are only 50% at blame.

regards,
enigma

I don't blame the DL pilots for most of DL's problems. At most, I would assign them about 20% of the blame.

During the last contract negotiation, DALPA demanded industry leading pay. DALPA made it clear to management that they would either get industry leading pay or face an eventual strike. Even if a strike didn't happen (the feds would probably have intervened), it's likely that DALPA would have used other methods (slowdown/sickout) to force managements hand. Management couldn't afford a strike/sickout (DL was already hemorraghing cash), so management was forced to give in.

Negotiations are supposed to be a mutual agreement, but depending upon external conditions both sides have the ability to poison the negotiations.

 

[General Lee]

So, with all of the finacial mess in the last 4-5 years, how about assigning blame to the Comair strike and the $1 billion in losses occured? Sure, it wasn't your fault--rather Leo's---but the losses didn't help our overall situation. I give it 6% of the blame. (this blame game is fun! ??????)


Bye Bye--General Lee

 

[surplus1]

General,

You just added $300 millions to the losses generated by the strike that YOUR management caused.

How about geting the numbers right before you calculate percentages?

PS. Be sure to include a rider to cover the cost of all the money the Delta pilots "gave" us during the strike,

 

[General Lee]

Surplus1,


I was just making fun of the stupid % blame game Medflyer is playing. You need to relax! I really don't know the full numbers--although I have heard it cost the corporation $1 billion. Yes, our Dalpa contributions helped you guys a lot no doubt--unlike your NONEXISTANT help to our furloughs. There is a difference between "some help" and NO HELP.

Bye Bye--General Lee

 

[On Your Six]

GL hit the nail on the head. Some effort on the ALPA membership is considered support. Sounds like Comair's MEC wanted it for a price...