In industry news,
December 3, 2012
To: United Pilots
From: United MEC Communications Committee
This Update presents eight questions asked and answered at recent Town Hall meetings. This document will be posted with all other reference material at www.unitedpilotagreement.com. Please make an effort to attend an upcoming Town Hall meeting if you are able.
1) Why are our pay rates less than DAL?
· Overall total contract value in 2013 matches DAL, then surpasses DAL in 2014
· We could have matched DAL pay rates in 2013 but we put the money in other areas of the contract
o 2013 our B/C fund defined contribution is 2% greater than DAL
o 2013 profit sharing percentage is greater than DAL
o Vacation value is greater than DAL
o Health care plans are better than DAL
o M5D rig will increase our W-2 compared to DAL despite lower pay rates
Ultimately the money was spent on items which are typically harder to bargain for than pay rates and we wanted to use the leverage we had now to lock these down. Although retro can never be considered as anything other than money unjustly withheld by the Company’s delay tactics, the 2013 Retro installment will close the gap in our take-home pay when compared to DAL.
2) Is there a loophole in SCOPE that will allow the Company to replace 737s or Airbus jets with New Small Narrow Bodies (NSNB)?
· No loophole; the company can do it today and no agreement can restrict company’s selection of aircraft or fleet composition
· The cost argument floating around virally on the internet makes no sense:
o A320 has 150 seats, so parking two takes three 100-seaters to replace
o This eliminates the savings in crew costs claimed in the internet post
o Also ignores the fact that the CASM is much higher in smaller jet
o Direct CASM at JetBlue for A320 is 6 cents vs. 10 cents for EMB 190
o Ignores loss of seats if there is a 1-1 replacement and current load factors
· If company were to do this so they can get the 154th 76 seater the protections in 1-C-1-f and g would kick in reducing UAX block hours and causing the parking of 50 seaters
Ultimately, the TA creates a dis-incentive to do this when tied to 76 seat growth, and the TA provides protections we don’t have in the current book
3) An MEC Rep at a recent Town Hall stated that he voted NO because, “I want to push it further.” Have we pushed it all the way?
· We agree it feels good to say, “NO” to this management….and we have done that repeatedly.
· Your MEC and the JNC have said NO for the last 2.5 years to get us here today, we said “NO” in:
o NYC despite the NMB saying this was the end game;
o DC in second week of July despite NMB saying this was end game;
o All through next night on Aug 1 and until 7:45 AM Aug 2 when we squeezed last drops out of company and NMB for AIP on the major economic sections
o Had to say NO again in Chicago when language blew up with 19 open items
o Had to keep saying NO to get final moving parts right up until last week in Phoenix in November (pushed up pay effective date to Nov 30th).
· We pushed the NMB to their breaking point; they were DONE squeezing the Company
Both MEC Chairmen, the JNC, and a strong majority of your elected reps on the MEC agreed that continuing to say “NO” at this point would not increase value and would delay locking in these improvements.
4) What happens in a post-NO world (aka-“This TA is not enough”)?
· There are high barriers to achieving increased value in a post-NO world
· JNC and the two MEC Chairmen considered this before we brought TA to MEC; MEC considered this before they brought TA to you
· There is uncertainty and a question of risk/reward compared
o Company has no obligation to meet unless directed to do so by NMB
o NMB will require ALPA to determine reason for NO vote
o If difference is minor, NMB or company itself may call for meeting
o If difference is great NMB may park us for an undetermined time
o Pilots lose more than $50M/month of value as this goes on; If the process takes six additional months, the Company would have to add at least $300M more just to cover this lost value, plus the increased value sought
o Weigh against unknown external events such as fuel spike, fiscal cliff, SARS, versus possibility of positive events such as oil dropping down to record lows.
If there is a NO vote we will do everything possible and pull every lever we can to increase value but everyone must look at the risks of being able to do so without some outside event that tilts the scales in one direction or another, and that tilt has to exceed $50M/month to make that risk pay off.
At some point there comes a business decision point where one measures the rate of return on investment and marks diminishing returns.
5) What is the Reserve Reset and $30M we have to pay the company?
· This is $30 million in value that we received up-front from management as a result of a costing battle with the company on reserve utilization
o Company believes it will take 20% RSVs to cover flying
o We believe new rules will allow company to run at 16% RSV (vice 9%-22% today)
o We did not want to leave this money on the table and let Company undervalue work rules
· First test won’t be for about 3 years because the rules must be allowed to mature
o Significant adjustments allowed or “get out of jail free” cards for ALPA
o If disagreement on valuations it goes to arbitration
o These procedural steps take time which is in our favor
· If we are wrong, this means company carried more pilots - so we still win
o The $30M at risk is not all-or-nothing; if we were slightly wrong we pay a slight portion
o Important to know it is not necessarily a Cash payment; the result could be a contractual change instead of cash
In this case we put our money where our mouth was to prevent the company from undervaluing the work rules. We trust our SME’s and E&FA’s estimations and believe we will prevail, but if not, the result is that more pilots were in higher paying equipment, more jobs were preserved, and we got $100M per year in value for putting $30M in cash or contractual provision adjustments at risk.
6) Why didn’t we make the L-UAL furloughees whole for their lost time on furlough?
· The JNCs goal was immediate full restoration of longevity; we were able to achieve a two-step process that got an initial credit and preserved the ability for full longevity credit for pay and also avoided interfering with SLI
· First step @ DOS: all furloughed pilots credited for longevity for pay as if active since 5/6/08
o Pay goes from red-circle (previous pay from when furloughed from UAL) to 5th year TA pay, whichever is greater; on 5/13 jumps to 6th year TA pay if greater
o This is a significant pay raise for junior UAL furloughs flying at CAL to ~$115/hour
o With improved pay, bypass furloughs may now want positions at CAL
· Second step after ISL:
o Longevity jumps to equal sum of all active time at UAL plus active time at CAL
o Based on SLI, apply additional credit to longevity for pay for time on furlough
o Credit for time on furlough can be given to match the next-most senior CAL pilot
o For example, if the ISL is based on date of hire all UAL furloughs will receive full longevity credit for pay
o If the ISL is based on something other than date of hire, all UAL furloughed pilots will have their credit for time on furlough pulled up to equal the longevity for pay of the first CAL pilot immediately senior to him on the list. If he already has more active longevity than that CAL pilot he will retain 100% of that active longevity and in no case will any actual longevity be decreased.
-It is extremely difficult to get full longevity credit if there are pilots on furlough during negotiations and in the company’s eyes it makes it more expensive to bring them back.
-We achieved Section 3-B-3 in the TA which solves this problem for the future. If Contract 2000 had the language we now have in the TA requiring longevity for time on furlough we would not be discussing it here today. But the reality is it was not negotiated then; in this TA we solved for the future and for the first time ever at UAL we obtained longevity credit for pay for time spent on furlough for our current furloughed pilots.
7) Why did we remove the minimum block hour protections in 1-F-1?
· 1-F-1 provides no practical limits on the company because 1-F-2 immediately below it allows the company to reduce the 1-F-1 block hours drastically unless profits are a “home run” each year (>8.1 operating margin). Consider that the “protection” of 1-F-1 did nothing to prevent the grounding of the entire 737 fleet at UAL in 2008.
· This reduction has been invoked four times in the last 6 years, and will be applicable again this year. The 1.6M block hour number currently in the book has already been reduced to 1.3M via the provisions in 1-F2.
· Instead, the TA strengthened language to prevent outsourcing, and in Section 1-E, Other Labor Protections, added tighter restrictions to the company if they transfer assets.
CAL and DAL have no 1-F-1 type provision. The value of a block hour restriction like 1-F-1 is dubious because in an economic downturn, as we have seen, force majeure language makes these protections worthless. The JCBA attacks the problem differently: Instead of mandating minimum block hours we increase career security by restricting the outsourcing of pilot jobs from the mainline with block hour ratios, code share restrictions, and revenue share restrictions.
Insulating pilots from drastic economic cycles has proven to be nearly impossible; protecting pilots from outsourcing is a more valuable approach and more likely to sustain economic downturns. The TA Scope provides much greater protections than current UAL book.
8) How did we get pay banding in this TA and how did the 767-400 get banded with the 777 and 747-400?
· The TA pay banding was a compromise of two different experiences and was one issue the JNC could not resolve internally. The MECs ultimately gave direction to their respective Negotiating Committees in 2010:
o Prior to commencing joint negotiations, the top CAL pay band already included the 767-400
o CAL MEC was for maintaining banding because their bands pulled pay up through the captured value of reduced training costs
o UAL MEC was against banding because their bands pulled pay down in BK
· MECs had to resolve this issue before the JNC could pass a comprehensive proposal to the Company
o JNC sought direction from their respective MECs but the MECs could not agree
o JNC continued to explore ways to pay aircraft based on seat capacity, flight range, weight, thrust, seat and cargo capacity, etc. but could not find a solution that was satisfactory to both MECs.
o October 2010 the JNC came up with pay scales to present to their respective MECs as a starting point for pay discussions. Neither MEC found an acceptable solution and further discussions were needed
· UAL Merger Council was brought in for a Special MEC meeting in Denver on November 11-12, 2010
o Merger Committee and Merger Counsel briefed United MEC and provided clarity on the issue
o UAL MEC passed direction to the United MEC Negotiating Committee regarding pay bands based on the clear input of our Merger Council and Merger Committee
o TA pay bands were crafted per this direction, and with close consideration of the current and planned fleet composition, with special attention given to ensuring value would be directed in the proper direction
December 3, 2012
To: United Pilots
From: United MEC Communications Committee
Although the UAL MEC sought to unband the pay rates, both the Company and the CAL MEC wanted to maintain bands albeit for different reasons; the Company enjoyed the reduced training costs, and the CAL MEC was driven by their experience of using bands to pull lower-paying equipment up to a higher rate. As evidence of this, notice that the CAL 737 pay raise in the TA is only 12%, the lowest of any fleet, confirming that the 737 benefited from being banded-up previously. Additionally, the banding increased the 320 pay well above the industry comparison.
