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Mar172010

« Continental Makes a Most Interesting Proposal to Its Pilots: Delta plus $1 »

Happy St. Patrick’s Day to all.  The pattern on this holiday is all things green.  And maybe the luck of the Irish will make this St. Patrick’s Day a lucky one for Continental pilots as the company presented the Air Line Pilots Association (ALPA) with a new contract proposal. The pattern for collective bargaining in the airline industry is to secure all things deemed as best in class.  As I see it, Continental made an offer to its pilots that actually addresses pattern bargaining.  Not quite sure if I love it, but it is interesting.  Most interesting.  

The two sides have been in discussions for more than two and one-half years.  The amendable date has come and gone, yet the parties have not filed for mediation.  There’s been some movement on the non-economic issues, but little progress has been made on the economic ones. 

Sounds familiar doesn’t it?  This week, that’s what much of the talk from American Airlines’ flight attendants centered on as they asked for release from the National Mediation Board.  Several unions at American and United increasingly point to the long periods of time it is taking to reach an agreement. 

In its letter to Capt. Jay Pierce, President of the Continental ALPA Master Executive Council, Continental Airlines addresses how long it might take to negotiate an agreement:  “We have weighed the fact that it has taken ALPA two and a half years to compile and propose an exceptionally complex and comprehensive opening economic proposal that nonetheless still has a number of substantive items open. Despite its complexity, that proposal remains only conceptual, lacking specific contractual language. We have also considered the considerable period of time it would take to negotiate and craft specific contractual language that is fair to the pilots and fair to the Company. Even if we had no significant disagreements over terms of that opening proposal (a highly unlikely circumstance given the excessive increase in costs it contains), negotiating and refining ALPA's current proposal into to a final executable agreement is a task that would clearly take a very long time.”

Given that the Delta pilot agreement had become a template for the Continental pilots in their negotiation of a new agreement, Continental simply said that they would offer their pilots the Delta pilot contract except for a seat on the Board of Directors and by adding $1 to the pay rates included in the Delta Pilot Working Agreement (PWA).  The offering includes the Delta pension and benefits section as well.  This is important – very important – because benefit costs go into the calculation of the cost of an agreement.  We are finally at the point where we talk about the all-in cost – not just hourly rates of pay.

Capt. Pierce responded:  “the proposal is no surprise and much of the bargaining agenda that we have already presented is based on the Delta PWA. Hence, our Negotiating Committee is very familiar with that agreement and has referred to it often. Notwithstanding this fact, any such transition would be a very complex matter and there is much to consider before we commit ourselves to such a process. We will be carefully reviewing the ramifications of this proposal with respect to our bargaining objectives over the coming days. However, while we must proceed with caution and based on a complete understanding of the Delta contract, we are obviously interested in any process by which we can legitimately avoid extended negotiations during which a concession agreement will remain in place.”

Pattern Bargaining

This is the second time this week where I’ve see pattern bargaining embraced by management. First, it was American and how it structured pay increases for flight attendants in the last offer.  Now it is Continental adding $1 to the pay rates included in the Delta pilot agreement.  I hate pattern bargaining.  I think it is counter-productive as no one airline is the same.  Just because Delta negotiates an agreement with rates and working conditions it believes it can afford, that does not mean Continental’s network can afford the same. But this pattern is a little different than pattern bargaining of the past – and deserves a closer look.

Pattern bargaining typically resulted in best-in-class provisions being included in the union’s opening proposal.  It was/is a cherry picking exercise. Whether the unions want to believe it or not, the cherry-picking of agreements also contributes to negotiations taking longer than a party might wish.  Why?  Because each and every collective bargaining agreement has sections that work in tandem with another section.  As one section was made more complex, other sections of the agreement were impacted.  Simply, the interdependencies within a collective bargaining agreement must be analyzed, understanding a change in Section 7 affects Sections 11 and 14 and so on.  It’s a process that has become increasingly complex over the years.  Circular logic can be hard to avoid for you excel users.

What is interesting about Continental’s offer is the idea of a single collective bargaining agreement – one where the interdependencies are understood and identified – avoids many of the pitfalls of traditional pattern bargaining.  What the company points out in its submission letter is the Delta PWA “is a post-merger, post-concessionary pilot agreement at a legacy carrier that is also the world's largest airline, it will likely set the pilot contract standard for years to come.”   

For me, what the company seems to be saying, is if we are going to engage in pattern bargaining, then no more picking what you want from that agreement and from this agreement.  The same agreement produces no need to distinguish between pilot rates of pay; rules governing work; and benefits (to be determined).  Presumably, the work rules when applied across a respective network would yield the same hours of productivity except for structural seniority differences.  Differences in pension plans and retiree health insurance are company specific and therefore may be or may not addressed by this type of a proposal exchange.  Talk about a way to speed the process.

The Delta Nuance

The Delta PWA was negotiated under the watchful eye and focused leadership of Captain Lee Moak.  I have written about Capt. Moak many times. What seems to set Moak apart is an understanding the industry has undergone significant structural change and the Delta agreement needs to embrace that change.  For example, because Delta serves many small and medium-sized markets in the U.S., there are few limits on the use of regional jets 76 seats and smaller.  Continental is the only legacy carrier that does not permit use of regional jets with more than 50 seats.  This line in the sand keeps Continental at a domestic competitive disadvantage relative to the industry.      

Mainline pilot scope has been quite the topic here at www.swelblog.com over the past week.  Some have suggested I drew the line – or heard what they wanted to hear - at 50 seats.  I did not.  To me the line begins with the next generation of small jets that are bigger than the current aircraft platforms doing 76 seat-and-less flying within networks.  The domestic scope issue is but one scope concern at Continental.  The real issue of significance is that Continental cannot implement the joint venture with United, Air Canada and Lufthansa without the relaxation of language contained in the existing Continental pilot agreement.  There is a regulatory deadline to complete aspects of the joint venture and anti-trust immunity agreements.  Scope is not just domestic.

This is where the Continental situation gets a little murky.  Moak understands that the globalization of the airline industry will drive his carrier’s success.  Further, he demonstrated his understanding of such when he negotiated a new collective bargaining agreement for the merged Delta and Northwest pilots.  Moak accomplished something extraordinary in the history of merger negotiations in the U.S. airline industry. 

Ted Reed of TheStreet.com wrote about the Continental situation last month.  Reed wrote and quoted Continental’s pilot leader Jay Pierce, “Among the network carriers, two models exist for pilot relations. Pilots at Continental and Delta have generally enjoyed positive relationships with the carriers. Pierce said he is an admirer of Lee Moak, chairman of the Delta ALPA chapter; the two talk frequently. "We both recognize that our airlines need to be profitable," he said.”

Depending on how you look at it, the Continental pilots are searching for leverage and public pronouncements seem to suggest they have found the leverage in their scope section.  Now the company counters by offering pilots the agreement they have held out as "industry leading".  The difference being the Delta contract negotiated by Moak allows 76 seat-and-less flying and embraces the direction of international joint ventures.  [All sections of an agreement have interdependencies with other parts of the agreement]

In his interview with Ted Reed, Pierce says he recognizes the need for his company to be profitable.  The pilots also say their current proposal would only cost the company $500 million. [Note:  the $500 million is an ALPA cost estimate, and not a company estimate.] When was the last time Continental reported net income in a year of more than $500 million?  But the ask is not just $500 million.  The $500 million would compound in perpetuity.  And that is before contractual improvements are offered to other Continental employees.

Why I Like the Continental Approach 

  • What I like about this offer from Continental is it does some tearing down of the cancerous practice in the airline industry of pattern bargaining. 
  • It challenges both sides to come to terms in a more expedient manner than the current construct produces. 
  • It embraces Delta’s long-time approach to pay commensurately well in return for operational flexibility and productivity. 
  • Most of why I like the approach is that it is different.  As I say too much for some on this blog, the old way just does not work. 

As I wrote in the last piece on pilot scope, my real fear is for management to again overpay for scope.  That makes me nervous this time.

The more I think about it though, I am starting to like it because it addresses the real issue of how long it takes to get a deal done under the Railway Labor Act.  Whereas I have defended the RLA in the past, maybe the time issue does need to be discussed.  But to do that, we would have to limit the number of issues that require mediator expertise?

And another reason I like it -- maybe this will build the stage where the legacy carriers can compete on service and price and not on a labor cost differential?

References (5)

References allow you to track sources for this article, as well as articles that were written in response to this article.
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    Continental Makes a Most Interesting Proposal to Its Pilots: Delta plus $1 - Aviation Articles and Commentary - Swelblog / Swelbar on Airlines
  • Response
    Continental Makes a Most Interesting Proposal to Its Pilots: Delta plus $1 - Aviation Articles and Commentary - Swelblog / Swelbar on Airlines
  • Response
    Continental Makes a Most Interesting Proposal to Its Pilots: Delta plus $1 - Aviation Articles and Commentary - Swelblog / Swelbar on Airlines
  • Response
    Continental Makes a Most Interesting Proposal to Its Pilots: Delta plus $1 - Aviation Articles and Commentary - Swelblog / Swelbar on Airlines
  • Response
    Continental Makes a Most Interesting Proposal to Its Pilots: Delta plus $1 - Aviation Articles and Commentary - Swelblog / Swelbar on Airlines

Reader Comments (9)

My advice to the CAL pilots is to hurry up and wait. It's amazing how quick a deal can get done when an airline wants a deal. Concessions, when needed, get implemented at lightening speed. Now you have the JV being threatened and scope relief as the magic dust that will somehow give CAL "competitive costs" and bring the company back to profitability.

With the economy starting to improve, next year might be a better bargaining environment. Take your time. If CAL and UAL merge creating the world's largest airline, the way forward might be clearer. What's the value of JV/SCOPE if CAL and UAL merge?

The world's largest airline's pilot agreement, plus a buck, for the worlds ninth largest airline's pilots? Help me out Swelly. Does CAL management strike you as the type to overpay for JV/SCOPE? No way . . . .

03.18.2010 | Unregistered CommenterAM

the cal pilots have a huge chip, scope. i would be very cautious cashing it in. once the cal pilots give up scope it is gone forever. we gave up scope for pay, went ch11 and then were left without the pay and without the seats. if cal wants to fly 70/90 seats jets work out a competitive deal with the cal pilots.

hang tough cal pilots and don't give up scope.

03.18.2010 | Unregistered Commenterairwolf

There may not be a clear answer to this, but wouldn't playing the scope chip too hard put the CO pilots at risk? If the JV's are threatened and CO is forced to merge w/UA, it would no longer be a merger of "equals" (w/respect to market cap & balance sheet). If CO is the lesser partner in the merger (read: acquisition), doesn't that basically throw out everything the ALPA is pushing for? If CO as a separate entity no longer exists, what happens to the CBAs? Are they null & void?

03.18.2010 | Unregistered CommenterBrad

not even close to an expert in labor law, but i believe if cal is bought by ual, ual has to deal with the cal contracts. ual mgt could wind up with 2 pilot groups with different rates and work rules. reference the mess at usairways. i urge the cal pilots to keep scope and set up pay rates that allow cal to fly 70/90 seat jets.

03.18.2010 | Unregistered Commenterairwolf

Does the existing scope agreement for CO pilots preclude all codeshare/JV's? or does it grant ALPA veto authority on a case by case basis?

03.18.2010 | Unregistered CommenterBrad

Brad

No, Continental is not precluded from all codeshares or JVs. As I understand it, the agreement says that Continental can’t enter into a revenue or profit sharing arrangement with a domestic carrier. The ATI agreement calls for a revenue sharing relationship in order to do the JV.

Swelbar

03.18.2010 | Unregistered Commenterswelbar

my assumption could be invalid (consolidation needed among network carrriers), but if the CO pilots retain the scope clause in the new CBA as Airwolf has advocated, wouldn't they be dooming the company to either Ch. 11 or acquisition by UA? I say this because I don't see how CO can survive without being able to revenue share with a domestic partner, and by law cannot be acquired by an int'l cxr

03.18.2010 | Unregistered CommenterBrad

Brad

I was having this same conversation with another very bright person today. I do not see Chapter 11 as desired, nor do I think the sale of the company should be required to address language in any collective bargaining agreement. Scope is nothing but protectionism, but one must ask: what are they protecting? 14,000 legacy carrier pilot jobs lost and nearly 800 narrowbody aircraft parked.

I know some of the CO pilot leadership. I do think they understand that CO needs the alliance relationship and JV as well. This language is valuable but there are scenarios like you paint that could seriously devalue the terms of the contract. We will see where it ends up. Whereas there will be some sabre rattling from the pilots, I am also confident that the company is not going to just roll over and allow language to derail a critical and necessary component of their business model.

03.18.2010 | Unregistered Commenterswelbar

Ah, an old trick! I remember "Parity Plus 1%" at US Airways in the early 2000s. It was a disaster. Don't fall for it!

03.31.2010 | Unregistered CommenterKevin

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