TailDraggerTed
Well-known member
- Joined
- Feb 3, 2004
- Posts
- 45
I was told today that the existing NetJets Pilot Agreement (from the previous but still in force contract) has built in annual wage increases that average 7 percent per year (is this true?).
7 percent doesn’t sound so bad to me.
The pilot salary surveys I have seen appear to be more of a history lesson than an honest look at what is really happening out there.
The article below offers some perspective. I bet the Delta pilots would love 7 percent right now.
Pilots Saying Yes to Less Money May Save Delta Air
Nov. 11 (Bloomberg) -- The labor cost and productivity problems of major airlines have been intractable for a couple of decades, which makes imminent pay concessions by Delta pilots a hopeful event for the airline, lenders, investors and the industry.
About 6,800 Delta Air Lines Inc. pilots are expected to ratify a new contract today that will reduce their salaries 32.5 percent. Without the contract the airline almost certainly would be declaring bankruptcy at once, and even with the concessions financial health is no guarantee.
In the regulated environment of the 1970s and before, entry barriers for new and low-cost airlines were immense. Employee unions, especially pilots, had all the leverage in wage talks.
The pilots and other unions managed to maintain their bargaining leverage until almost the present day -- at the price of making airline stocks a miserable investment, and while helping to drive more than a few airlines into bankruptcy.
Delta shares, for example, have averaged a negative 14.1 percent annual return for the last 15 years, a period when the S&P 500 index increased an average 10.4 percent annual return. Northwest Airlines Corp. has posted a similar return since 1995, when it was recapitalized.
As Warren Buffett has been inspired to observe: If one were to aggregate the cumulative financial results of every airline incorporated since the Wright brothers, they have yet to show a profit.
Labor's High Cost
Labor represents the biggest component of an airline's overall costs -- about 40 percent -- and pilot salaries account for the biggest chunk of labor costs. Furthermore, the pilots lead the way for wage demands by other airline groups.
Ray Neidl, airline analyst for Calyon Securities (USA) Inc., said the impetus for Delta's concessionary agreement came from the rank-and-file among the pilots, not from the union leadership. Evidently the pilots understand that the well has run dry, that shareholders are unlikely to recapitalize Delta, since low-cost competitors like JetBlue Airways and Southwest might rush into the void.
In other words: Liquidation is a real danger.
``The (Delta) employees looked at their counterparts at other airlines and they see that sacrifices have been greater, pensions are in danger, and they realized they can do this themselves, rather than have a bankruptcy court dictate to them,'' Neidl said.
United's Problems
Other airline employees, facing the need to lower wages and benefits in order to stay in business, didn't reach the same conclusion as Delta's pilots. UAL Corp., parent of United Air Lines, filed for bankruptcy in December 2002, following the U.S. government's denial of a $1.8 billion loan guarantee.
Indeed, United's difficulty in lowering costs -- including employee costs -- may have been a deciding factor in the government saying no.
UAL shares, which sold at high as $93 in early 1998, now trade for about $1 a share. (Employees, owners of 55 percent of the company, stand to be the biggest losers as a result of the equity eventually being wiped out.) The airline also defaulted on about $6.5 billion of publicly traded debt when it filed for bankruptcy.
Late last month, when Delta and its pilots union indicated publicly they were on the verge of a tentative agreement on wage concessions, investor interest in the airline's equity and its debt was rekindled. Since Oct. 22, Delta shares have doubled in value to their current level of about $6.25 each.
Neidl upgraded his recommendation on Delta stock to buy from neutral on Oct. 25.
Cuts vs Bankruptcy
Appetite to buy Delta bonds also was whetted. The price of the airline's 8.3 percent bonds due Dec. 29, 2029, rose from about $240 per $1,000 face value to about $380, while the yield on the bonds fell to 22 percent from about 35 percent.
Delta pilots' current wage scale made them the best paid in the U.S. industry, according to AIR Inc. in Atlanta, an aviation information consulting company.
Under the proposed concessionary contract, a co-pilot on the company's smallest aircraft would earn $34,020 annually, compared with the current $50,400. A captain on a Boeing 777 would earn $194,160, down from the current $287,652.
No one likes a cut in pay, even relatively well-paid workers like pilots. There may be some comfort in the fact that cuts almost certainly would have been more drastic in bankruptcy.
Delta pilots, moreover, still have an operating pension fund. Their counterparts at United face the likelihood that their pension fund will be terminated with a significant shortfall.
The simple truth is that the marketplace long ago decided that airline labor is worth less. Trying to avoid that truth is a temporary strategy at best.
7 percent doesn’t sound so bad to me.
The pilot salary surveys I have seen appear to be more of a history lesson than an honest look at what is really happening out there.
The article below offers some perspective. I bet the Delta pilots would love 7 percent right now.
Pilots Saying Yes to Less Money May Save Delta Air
Nov. 11 (Bloomberg) -- The labor cost and productivity problems of major airlines have been intractable for a couple of decades, which makes imminent pay concessions by Delta pilots a hopeful event for the airline, lenders, investors and the industry.
About 6,800 Delta Air Lines Inc. pilots are expected to ratify a new contract today that will reduce their salaries 32.5 percent. Without the contract the airline almost certainly would be declaring bankruptcy at once, and even with the concessions financial health is no guarantee.
In the regulated environment of the 1970s and before, entry barriers for new and low-cost airlines were immense. Employee unions, especially pilots, had all the leverage in wage talks.
The pilots and other unions managed to maintain their bargaining leverage until almost the present day -- at the price of making airline stocks a miserable investment, and while helping to drive more than a few airlines into bankruptcy.
Delta shares, for example, have averaged a negative 14.1 percent annual return for the last 15 years, a period when the S&P 500 index increased an average 10.4 percent annual return. Northwest Airlines Corp. has posted a similar return since 1995, when it was recapitalized.
As Warren Buffett has been inspired to observe: If one were to aggregate the cumulative financial results of every airline incorporated since the Wright brothers, they have yet to show a profit.
Labor's High Cost
Labor represents the biggest component of an airline's overall costs -- about 40 percent -- and pilot salaries account for the biggest chunk of labor costs. Furthermore, the pilots lead the way for wage demands by other airline groups.
Ray Neidl, airline analyst for Calyon Securities (USA) Inc., said the impetus for Delta's concessionary agreement came from the rank-and-file among the pilots, not from the union leadership. Evidently the pilots understand that the well has run dry, that shareholders are unlikely to recapitalize Delta, since low-cost competitors like JetBlue Airways and Southwest might rush into the void.
In other words: Liquidation is a real danger.
``The (Delta) employees looked at their counterparts at other airlines and they see that sacrifices have been greater, pensions are in danger, and they realized they can do this themselves, rather than have a bankruptcy court dictate to them,'' Neidl said.
United's Problems
Other airline employees, facing the need to lower wages and benefits in order to stay in business, didn't reach the same conclusion as Delta's pilots. UAL Corp., parent of United Air Lines, filed for bankruptcy in December 2002, following the U.S. government's denial of a $1.8 billion loan guarantee.
Indeed, United's difficulty in lowering costs -- including employee costs -- may have been a deciding factor in the government saying no.
UAL shares, which sold at high as $93 in early 1998, now trade for about $1 a share. (Employees, owners of 55 percent of the company, stand to be the biggest losers as a result of the equity eventually being wiped out.) The airline also defaulted on about $6.5 billion of publicly traded debt when it filed for bankruptcy.
Late last month, when Delta and its pilots union indicated publicly they were on the verge of a tentative agreement on wage concessions, investor interest in the airline's equity and its debt was rekindled. Since Oct. 22, Delta shares have doubled in value to their current level of about $6.25 each.
Neidl upgraded his recommendation on Delta stock to buy from neutral on Oct. 25.
Cuts vs Bankruptcy
Appetite to buy Delta bonds also was whetted. The price of the airline's 8.3 percent bonds due Dec. 29, 2029, rose from about $240 per $1,000 face value to about $380, while the yield on the bonds fell to 22 percent from about 35 percent.
Delta pilots' current wage scale made them the best paid in the U.S. industry, according to AIR Inc. in Atlanta, an aviation information consulting company.
Under the proposed concessionary contract, a co-pilot on the company's smallest aircraft would earn $34,020 annually, compared with the current $50,400. A captain on a Boeing 777 would earn $194,160, down from the current $287,652.
No one likes a cut in pay, even relatively well-paid workers like pilots. There may be some comfort in the fact that cuts almost certainly would have been more drastic in bankruptcy.
Delta pilots, moreover, still have an operating pension fund. Their counterparts at United face the likelihood that their pension fund will be terminated with a significant shortfall.
The simple truth is that the marketplace long ago decided that airline labor is worth less. Trying to avoid that truth is a temporary strategy at best.
