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SWA rumors of class dates..Contract..

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Freedom Fighter
Nov 27, 2001
Hey guys and gals..

Back from the trenches..
The latest rumors with regard to classes are as follows..
A late June class is being discussed..
Ive heard from several different sources that there is a possibility of one possibly two classes in July..I suspect that it may depend on if they have a class in June or not..

I heard from the training department that they are now up to 60 instructors and they arnt doing much these days..There are major changes taking place in the training dept with regards to managment...The old guard is slowly being phased out and several checklist managment items are being changed for safety reasons that have been fought over for years..A very good sign in my book..

As for the contract offer..
In the past the relationship that SWAPA had with SWA was a little too familiar and in most cases contracts were agreeded upon over a beer or fishing rod with Herb..What Herb offered everybody said "heck yeah"..Then went fishing with him or played golf..

The main difference with the "new" SWAPA relationship and the company is that they are using more resources than ever to determine what the best possible course is for both the pilots and the company..And in that order I might add..

As a result ,the relationship has been forced in to becoming more professional..The company is for the first time in its history having to negotiate a contract with a well informed and organized union that is using all of the possible industry resources to research and analize any and all offers..
Some of the best benefit and compensation package analists in the country are right now as we speak going over every detail of the offer..As they review this current offer they do so with full knowledge of all aspects of the companys financial health and position in the industry..
If its crap..they will know it..If its a small step in the right direction..They will know it..

I for one consider myself to be very lucky in having landed the best job in the business..
But..At the end of the day im still under paid to some degree and im still working for the most profitable airline in history..

Some where between where we are now and hurting the long term growth of the company with excessive pay increases is a fair benefit package that will allow us to grow the company and still be able to attract the pilots that we are going to need to grow as we planned..

I for one have decided to let the pros tell me what it all really means...

I cant vote on it..But i can still listen with great interest to those that can as they talk about the good old days..

Here's the official offer-part 1

To: All Pilots
From: Jim Parker
Subject: Contract Proposal

I am enclosing a couple of documents which I thought you would find to be of interest. As you know, we have presented the SWAPA Negotiating Committee with a proposal for a two year extension of your contract, in return for significant pay increases, additional stock options, and other major benefits and scheduling enhancements. (Incidentally, I use the term "extension" because, under the Railway Labor Act, a labor contract never really "expires", it just becomes amendable on its amendable date, which in this case is September 1, 2004.)

First, I am attaching our actual offer, using the same format in which we presented it to your Negotiating Committee. Precise contract language obviously remains to be written, so please regard this as basically a "term sheet," from which that will be accomplished, in conjunction with your Negotiating Committee.

Secondly, I am enclosing a memo I am sending to all of our non-Pilot Employees. Unfortunately, press reports describing the magnitude of your projected compensation increases under the contract proposal have sparked some concern from our fellow Employees, who may not understand the history or context of our current contract, or the offer. I thought it best to address these concerns directly, by giving our People the facts, and helping them understand that our contract proposal is consistent with our basic commitment to fairness in dealing with all of our Employee groups. I apologize for having to discuss your compensation so publicly, but I felt it was necessary under the circumstances.

As I consistently say at every opportunity, publicly and privately, Southwest Airlines has the best group of Pilots in the world, in every respect. Thank you for your continued dedication, commitment, leadership, and flying excellence.


This proposal, for a two year contract extension, is intended to achieve the following objectives:

1) Protect the job security, rapid upgrade, and wealth building opportunities of our Pilots, along with the financial stability, profitability, competitive vitality, and growth of Southwest Airlines;

2) Assure our Pilots of guaranteed hard pay increases on 9/1/04, of at least 19.8%, up to 23.8% over current book rates for 2003-04;

3) As additional compensation, offer our Pilots stock options for approximately 32 million shares of Southwest Airlines stock, granted at the market price as of the Date of Ratification (not later than August 20, 2002), vesting during the 9/1/04 - 8/31/06 service period;

4) Provide for hard pay raises of 4.5% in 2005. On 9/1/06 rates will rise to 5% over the minimum guaranteed rates as of 9/1/05, unless rates already exceed that level as a result of profitability-based increases;

5) Provide our Pilots an industry-leading Rigs package, which would become effective between 9/1/02 and 1/1/03;

6) Provide our Pilots improved schedule quality by maintaining targets for average scheduled work days per month;

7) Provide our Pilots an additional opportunity for health care coverage upon early retirement between the ages of 55 and 60, and for continued health care coverage for younger spouses;

8) Provide our Pilots with no cost medical coverage upon disability;

9) Provide enhanced Loss of License Benefits;

10) Offer New Hire Pilots admission to the existing SWAPA 401(K) Plan, and offer matching contributions on the same basis as for other SWA Pilots, at our industry-leading rate of 7.3%;

11) Increase the cap on our 415 Excess Plan which, combined with new provisions of federal law, will substantially increase the amount of tax-deferred benefits available to our Pilots;

12) As of 1/1/04, include Option Exercise Profits, in the year in which options are exercised, in the definition of compensation on which our industry-leading 7.3% 401(K) match is paid;

13) As of 1/1/04, increase the cap on the 401(K) Company match by providing that the Company will match the Pilots contribution rate (up to 7.3%), and if the Pilots' contributions exceed the 402(g) limit, the Company will continue the contribution at that rate on compensation (including Option Exercise Profits), up to a maximum Company contribution of $25,000 per year;

14) Create a 401(a)(17) plan, if necessary to give Pilots the opportunity to defer taxes on the foregoing 401(K) contribution amounts;

15) Provide for early and expedited negotiations before the amendable date of the contract in 2006;

16) Improve compensation during the remainder of the current contract by granting 7.2 million additional stock options to our Pilots between now and 9/1/04, with the precise allocation and vesting schedules to be negotiated with SWAPA; and

17) Improve compensation during the remainder of the current contract by increasing guaranteed contractual raises on 9/1/02 and 9/1/03, and giving Profitability-based increases in TFP rates of up to 3.6%, on top of contractual pay raises, based on the Company's Adjusted Operating Margin. For 2002, the effect is an increase in TFP rates of 7.6% as of 9/1/02. The 9/1/03 TFP increase will be between 4% and 7.6%, depending on the Company's profitability.



Current Contract


1st Year
$139.44 - $144.04

2nd Year
$141.15 - $145.81

3rd Year
$142.86 - $147.57

4th Year
$144.57 - $149.34

5th Year
$146.17 - $150.99

6th Year
$148.00 - $152.88

7th Year
$149.69 - $154.63

8th Year
$151.41 - $156.40

9th Year
$153.12 - $158.17

10th Year
$154.82 - $159.93

11th Year
$156.53 - $161.69

12th Year and Thereafter
$158.24 - $163.46

* Pay rates on 9/1/04 would be guaranteed at the lower rates described above, and would be increased up to the higher rates described above as of 9/1/04, based on the Company's ability to pay, as judged by its Adjusted Operating Margin (as defined in the current contract). The actual 9/1/04 pay rates will be adjusted upward by 0-3.3% of the minimum 2004 rates, if the Company's Adjusted Operating Margin for the period 7/1/03 - 6/30/04 exceeds 9%, on a straight line, sliding scale basis, up to a maximum upward adjustment which would be achieved with a 15% Adjusted Operating Margin.


Current Contract


1st Year
$41.83 - $43.23

2nd Year
$70.57 - $72.91

3rd Year
$78.57 - $81.18

4th Year
$86.75 - $89.62

5th Year
$95.01 - $98.15

6th Year
$97.68 - $100.91

7th Year
$98.80 - $102.07

8th Year
$99.93 - $103.24

9th Year
$101.06 - $104.40

10th Year
$102.18 - $105.56

11th Year
$103.31 - $106.73

12th Year and Thereafter
$104.43 - $107.88

* Pay rates on 9/1/04 would be guaranteed at the lower rates described above, and would be increased up to the higher rates described above as of 9/1/04, based on the Company's ability to pay, as judged by its Adjusted Operating Margin (as defined in the current contract). The actual 9/1/04 pay rates will be adjusted upward by 0-3.3% of the minimum 2004 rates, if the Company's Adjusted Operating Margin for the period 7/1/03 - 6/30/04 exceeds 9%, on a straight line, sliding scale basis, up to a maximum upward adjustment which would be achieved with a 15% Adjusted Operating Margin.

End of Part 1
Here's the official offer-part 2


As additional compensation, upon the Date of Ratification (DOR), a new grant of stock options would be made to all active Pilots.

2004-06 Stock Options: 32 million shares. Precise grant and vesting schedule to be negotiated. (SWAPA will reimburse us for administrative cost of a more complex vesting schedule.)

Grant Date: Current Pilots - Date of Ratification; Subsequent Hires - 90 days after hire date

Vesting Schedule: Current Pilots and those completing class before 9/1/03 - Monthly increments of 1/12 the annual amount would vest on the last day of each month, beginning September 2004.

Pilots completing class on or after 9/1/03 - Grant would be made 90 days after hire date, and first vesting would occur in the month probation is completed. Number of options would be prorated to reflect period after completion of probation, and monthly increments of 1/12th the annual amount would vest on the last day of each month.

Option Term: 8 years from date of grant (with early termination/death provisions similar to current contract).

Exercise Price: Fair market value as of the grant date.

Pay Rates in 2005 & 2006

9/1/05 All pay rates + 4.5% (If SWAPA prefers, the Company is willing to make this a guaranteed raise of 3.5%, plus a Profitability Bonus of 0-3.6%, using the same formula as in 2002 and 2003. SWAPA must make this choice before the Date of Ratification.)

On 9/1/06, all pay rates will increase to 5% above minimum guaranteed rates for 9/1/05 (based on a calculation assuming SWAPA chooses the 4.5% raise for 9/1/05), unless TFP rates are already there as a result of profitability-based increases.

Pay Rates in 2002 & 2003

Profitability-based pay raises would be granted on all TFP rates as of 9/1/02 and 9/1/03, on top of current contractual 3% raises. The raises would be based on the Company's Adjusted Operating Margin (as presently defined in the contract), for either the immediately preceding calendar year, or the immediately preceding July 1 - June 30, whichever is higher. If the Company's Adjusted Operating Margin exceeds 9%, a Profitability-based pay raise will be granted on the basis of .6% (or any fraction thereof) for every 1% (or any fraction thereof) by which the Adjusted Operating Margin exceeds 9%, up to a maximum Profitability-based raise of 3.6%, which would be achieved at an Adjusted Operating Margin of 15%.

Thus, because the Company's Adjusted Operating Margin for 2001 exceeded 15% (when recalculated to include federal grant money received under the ATSSA), on 9/1/02, Pilots would receive a 3.6% Profitability-based increase in TFP rates. In addition, the current contractual pay raise will be increased from 3% to 4%, for a total pay raise of 7.6% in TFP rates on 9/1/02.

On 9/1/03, the current contractual 3% raise would be increased to 4%, and Pilots would also receive a Profitability-based increase, which could range from 0-3.6%. Of course, in any event 9/1/03 pay rates would be higher than under the current contract because of the 9/1/02 raise.

Additional Stock Option Grant (2002-04): As further compensation between now and 2004, the Company will grant options for up to 7.2 million shares, to be granted on the Date of Ratification, and vesting between now and 9/1/04. Precise allocation and vesting schedules will be negotiated with SWAPA.


We appreciate the tremendous amount of work done by the SWAPA Scheduling Committee, and we are anxious to continue working closely with SWAPA as we move toward our mutual goal of an improved schedule. We are also committed to continuing to work with the SWAPA Scheduling Committee in quality and operational pairing and line construction standards.

A primary factory affecting schedule quality is the number of work days and hard hours flown in a month. SWAPA has proposed targets for reducing average scheduled hard hours in a month. We propose the following targets for average work days:

13.45 work days - 31 day month
13.00 work days - 30 day month
As part of a new extended contract, the Company would be willing to increase the current contractual rigs, to provide the following industry-leading standards:

Duty-Hour Ratio - .74 TFP for each hour on duty or fraction thereof. (Effective 9/1/02)
Duty Period Minimum - 5.0 TFP (no change).
Trip Hour Ratio - 1.0 TFP per three hours (3:00) away from domicile (report to release) or fraction thereof. (Effective 9/1/02)
Average Daily Guarantee - 6.5 TFP per day per pairing. (Effective 1/1/03) (To be split for open time pairings, in accordance with existing practice for THR).
While scheduling will continue to be a dynamic issue, requiring constant communication, we believe these steps will significantly improve our Pilots' quality of life, productivity, and morale.


Retiree Health Care Coverage:

Effective on the date of ratification, a retiring Pilot desiring continued health care coverage could:

Utilize any provision in the current contract for which he is eligible; or
Pilots retiring at or after age 55, but before age 60, with at least 15 years of credited service, could elect to be covered by Medical Plan C and Basic Dental for the entire duration of retirement coverage, in which event the Pilot could trade unused sick leave for continued medical coverage at the following rates:
Age 55-60: One (1) month of coverage for each twelve (12) TFP accrued.
Age 60-65: One (1) month of coverage for each ten (10) TFP accrued.
If the Pilot does not have enough credited sick leave TFP to cover the entire period from retirement to Age 65, the Pilot could purchase continued health care coverage by payment of the age-banded actuarial cost of coverage for Medical Plan C and Basic Dental.

Coverage of younger spouses:

Upon reaching Age 65, a Pilot with remaining credited sick leave TFP could elect to trade unused sick leave for continued coverage under Medical Plan C and Basic Dental for a spouse under Age 65 at the rate of one (1) month's coverage per ten (10) TFP accrued and available. If the Retired Pilot, who retired at Age 60, or after Age 55 with at least 15 years of service, has used all sick leave, coverage may be purchased for the younger spouse at age-banded COBRA rates for Medical Plan C and Basic Dental. Coverage will end on the spouses 65th birthday.

Disabled Pilots:

A disabled Pilot entitled to receive continued health care benefits under Side Letter 3 could elect coverage under Medical Plan C and Basic Dental upon enrollment into the Pilot's Supplemental Medical/Dental Disability Plan ("the Plan"), in which case no premium would be charged during the period of coverage under the Plan. A surviving spouse entitled to receive benefits under the Plan could exercise the same choice. (A similar option could be added under the Pilot's Medical/Dental Disability Plan, which is Pilot funded, if SWAPA desires.)

If a disabled Pilot who would be eligible to enter the Supplemental Plan upon completion of the COBRA period dies during the COBRA period, the surviving spouse may elect to enter the Supplemental Plan and remain in it for as long as coverage would have continued under the Supplemental Plan if the Pilot had lived.


Effective on the date of ratification, the Loss of License Plan would be amended to provide:

Coverage at 60% of base pay, with the maximum monthly benefit increased from $6,500 to $7,500.

Up to 12 months of benefits for loss of license due to Alcohol/Chemical and Mental Health issues.

Elimination of pre-existing condition exclusion.

Continuation of benefits beyond current period, up to Age 60, if the Pilot is ruled disabled (by Social Security standards) at the end of the current plan benefit period and remains Social Security-disabled.

The Company is willing to make the benefit plan either taxable or non-taxable (but not to provide two separate benefit structures), on the terms outlined in Phyllis Adams' letter to Mike Hergenrather dated September 9, 1997.

Effective 9/1/04, the maximum monthly benefit would be increased to 60% of base pay, up to $9,500.


Effective 1/1/03, the Company agrees to allow new hire admission to the existing SWAPA 401k Plan, and to offer matching contributions on the same basis as for other Southwest Pilots.

Effective 1/1/03, the Company will lift the cap on the 415 Excess Plan from $25 million to $50 million.

As of 1/1/04, Option Exercise Profits would be included in the definition of "compensation" on which the 7.3% Company match is paid, in the year in which options are exercised.

As of 1/1/04, the Company will match the Pilots contribution rate, up to 7.3% and if the Pilots' contribution hits the 402(g) limit, the Company will continue to match at the same rate on additional compensation (including Option Exercise Profits in the year in which options are exercised), up to a maximum of $25,000.

If necessary to give Pilots the opportunity to make the foregoing tax-deferred, the Company will create a 401(a)(17) Plan, using current 415 Excess Plan investment options.

end of part 2
Here's the official offer-part 3

SWAPA Proposal for A Seamless Contract

Section 6 opener 10 months before amendable date - OK.

Request for mediation after 6 months of negotiation - OK, unless parties mutually agree otherwise. (At least 45 meetings in the 6 month period.)

Request for release after three months of mediation - OK, provided it is after amendable date, with a provision that the parties may mutually agree not to make such a request if progress is being made. Both parties' agreement is required.

Acceptance of Offer

This offer is a package, with each proposal dependent on all others, and is made subject to approval by the Southwest Airlines Board of Directors (with respect to stock options proposed herein), and to ratification by SWAPA no later than August 20, 2002.

737-200 Program

The 7% override for -200 flying will be canceled. The -200 retirement plan will otherwise proceed as previously agreed.
Mr. Parker's letter to the employees explaining why this is necessary.

**************************************************************************** To: Fellow Employees
From: Jim Parker
Subject: Contract Proposal

Because we have received a number of inquiries about our recent contract proposal to SWAPA, to extend our current Pilot contract by two years, I wanted to take a moment to explain the facts to you, and answer some of your questions.

1) Why are we offering our Pilots "such big pay raises"? In 1994 our Pilots agreed to a 10 year contract, whereby they accepted a freeze in their pay rates from 1993 until September 1999.

Of course, our Pilots' compensation during the 1994-2004 timeframe also includes a substantial number of Southwest Airlines stock options, and the majority of our Pilots have been well rewarded for taking the 1993-99 pay freeze, and tying their financial future to the success of Southwest Airlines. But the stock option portion of their compensation ceases after September 1, 2004. Thus, if we did nothing, our Pilots would effectively be taking a big reduction in compensation in 2004.

We do not wish to penalize our Pilots for their past sacrifices with respect to the "hard pay" portion of their current contract. On the contrary, we should all thank them for putting their own financial positions on the line, and helping us provide the growth, prosperity, and job security we all enjoy.

While the 2004 pay raises which have been proposed for our Pilots seem large, you should bear in mind that these raises basically reinstate the pay status of our Pilots to about where it would have been in 2004, if the Pilots had been receiving regular pay raises during the full term of their contract, as have many of their fellow Employees. Thus, we are basically just restoring our Pilots' pay levels in 2004 to where they have historically been, relative to other Employee groups. This is a matter of fairness and internal equity.

2) Why do it now instead of waiting until 2004? A portion of our Pilots' compensation during the 2004-06 period will again be based on stock options, which will be granted upon ratification of the contract extension, and vest during the 2004-06 contract period. Because "time is money" when it comes to stock options, we have an opportunity to maximize the value of this contract for our Pilots by granting the options this year, at this years price and allowing a couple of years before they begin vesting in 2004. In addition, some Pilots have expressed concern over the Companys intentions with respect to the 2004 contract negotiations. It is not our fashion to use such anxiety in order to try to gain some "negotiating advantage," so we decided to go ahead right now and make the best offer we could.

3) Are the pay raises guaranteed? Significant pay raises are guaranteed, but a portion of the Pilots' pay raises will also be based on the profitability of Southwest Airlines. Thus, if we do well (and have abundant Profitsharing), our Pilots will do well. If we do poorly, our Pilots will still receive good raises, but at a lower level. Either way, if our Pilots accept this contract extension, they will once again have shown themselves to be courageous Leaders of our Company.

4) Will these pay raises destroy our low cost advantage? As you know, any cost increase affects our low cost advantage. By agreeing to spread the effects of this cost increase over several years, with the largest chunk occurring in 2004, our Pilots will help make this more affordable for us, and will give us time to keep our costs low during the years 2002 and 2003, when we will clearly face very challenging times.

Once Pilot salaries are restored in 2004, there will be a cost increase, but we should bear in mind that we are just restoring our Pilots' pay to its historic level relative to our other Employees. We had the lowest cost structure in the airline industry before our Pilots' 1993-99 pay freeze, and we expect to still have the lowest cost structure in the airline industry after their pay rates are restored in 2004. Please be assured our Pilots will continue to be the most productive, and best, in the airline industry.

5) Did the Pilots "jump ahead" of other groups in our negotiating priority? No. On May 2, 2002, after at least 51 separate days of negotiations going back to June of last year, we presented a contract offer to our Mechanics, which they are presently considering, and will vote on. We have begun negotiations with our Flight Attendants, whose contract becomes amendable on June 1, in a timely manner. And we have scheduled the commencement of negotiations for August 21, with our Customer Service and Reservations Agents, whose contract becomes amendable on November 20, 2002. With respect to our Pilots, we had held discussions about possible contract revisions during the spring and summer of last year, but then suspended those discussions after September 11, for obvious reasons, until holding a one-day meeting again with the SWAPA Negotiating Committee in March of this year. After we made our May 2 offer to our Mechanics, we met again with the SWAPA Negotiating Committee on May 13. SWAPA asked for one more meeting that week, in order to negotiate the best offer we could make, and we accommodated that request by canceling our plans to attend the Orlando Spirit Party and meeting with the SWAPA Negotiating Committee for over 13 hours on May 16, at the conclusion of which we presented the offer which is being considered by our Pilots. Thus, the only thing our Pilots "jumped ahead of" was my desire to attend the Orlando Spirit Party.

6) Will this make our Pilots' compensation the highest in the industry? Because a major portion of our Pilots' compensation will depend on the profitability and success of Southwest Airlines (both in the form of stock options and hard pay raises), we certainly hope that this contract makes our Pilots the highest compensated group in the universe and, we believe, there is a good chance this will be the case. In terms of guaranteed "hard pay," however, our Pilots' pay rates will continue to be below the highest in the industry, which presently belong to United and Delta. Those airlines, of course, continue to lose hundreds of millions of dollars, have furloughed and fired tens of thousands of employees, and cannot afford to grow. By agreeing to base a significant portion of their compensation on the success and profitability of Southwest Airlines, our Pilots will help spare us the same fate.

Those of you who were here in 1994, when our Pilots agreed to accept a freeze in pay rates until 1999 in return for stock options, will remember that we hailed our Pilots for their leadership, courage, and entrepreneurship. Should our Pilots accept our recent proposal to extend their contract to September 1, 2006, they will deserve the same accolades.
Some of your group may think this is a company ploy and some will think you will again be on the cutting edge of innovation.

As an Airborne Express pilot, I am jealous of the relationship the pilots have with your management.

Our union has been embattled in negotiations with management for almost a year. Besides refusing to even meet with us, when they do show up they won't even agree to simple no cost issues like maternity uniforms or scheduling software that would save them millions. They would be pleased if they could drag things out for another 2-4 years.

Even if you accept the offer as written you will help the overall contract environment. Which helps every industry pilot. Airborne will eventually has to pay fair market value as will SWA. Southwest pilots will just has an easier time getting there then we will. Count your blessings... continue to kick a$$....continue to keep the other airlines honest on their ticket prices.



Thanks for taking time to post this information. Fly safe.
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