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Monday
Nov222010

The United and Continental Pilots Engage In MISInformational Picketing

Today in Newark; tomorrow in Houston; and on December 1 in front of UAL Headquarters in downtown Chicago the United and Continental pilots have announced they will engage in “informational picketing” regarding the new company’s decision to redeploy certain United 70-seat regional jet flying into former Continental hubs Newark, Cleveland and Houston.  In return for that redeployment, certain Continental 50-seat jets will replace the United 70-seat jets flying out of certain former United hubs.  Note the tradeoff:  no one loses flying; no one loses a job; no mainline flying is impacted; and everyone benefits from a network made stronger by matching the right-sized aircraft to routes that either need a larger or smaller aircraft.

Yet the message from the "informational picketing" will deflect what has been going on between the United and Continental pilots of late and make the company the villain.

Seems so simple.  Just like the combined Delta and Northwest networks moved quickly to best match aircraft size to markets with commensurate demand, Continental and United are moving to do the same. 

Part of the Continental and United pilots message to the public will be that the combined company is violating their respective collective bargaining agreements, in particular the section called scope that swelblog has covered so extensively..    In a November 12, 2010 Continental pilot communiqué, the call to arms read as follows:  “It’s time to get serious and stand united against outsourcing. In response to management’s attack on our current scope provisions, and their clear leveraging of it in negotiations for a new JCBA, the CAL SPSC, in cooperation with the UAL SPSC, will jointly organize informational picketing at both Newark and Houston airports as well as United world headquarters in downtown Chicago. It is time to show the new United management and the public that ideas and plans to violate our contract and outsource our jobs to the lowest bidder will NOT be tolerated by pilots.”

OUTSOURCING

The pilots first fallacy is ‘outsourcing”.  The fact is that the pilots’ union, ALPA, has played a major role in creating the labor Ponzi scheme that survives at the legacy airlines. Over the past 15 years, how did ALPA find a way to pay mainline pilots more?  By agreeing to allow another group of pilots to fly where mainline flying is no longer economic and to be paid less to do so in order to buy “better” contracts for the mainline pilots they represent. 

What the Continental and United pilots fail to share is ALPA’s dirty little secret: that the wage rates, working conditions, training provisions and other particulars they criticize at the regional carriers were negotiated by their very own union. ALPA represents the majority of regional pilots flying in the US today.  So maybe ALPA needs to step up and take some responsibility for its contribution to building the regional sector of the industry that they now deprecate.  Only by agreeing to lower rates of pay and more flying time at the regional carriers can ALPA justify and sustain the generous pay, benefits and work rules that benefit pilots at the mainline airlines. 

Look at any significant relaxation of the scope clause at the mainline carrier that allows the airline to increase its use of jets 70 seats or less. In just about every case the mainline pilots received a significant pay boost – or were able reduce the level of concession - in return for that “concession” as they were given economic credit for allowing the deployment of regional jet flying by regional partners.

Stop calling it outsourcing.  It is not.  It is a convenient word to use given the disdain for the practice by the now lame duck Chairman of the House Transportation and Infrastructure Committee.  The practice of relaxing scope to permit regional partners to perform uneconomic flying has kept more mainline pilots on the payrolls than it has cost jobs as the network has been kept largely intact when routes would have needed to have been cut because it was not economic for 100+ seat aircraft to perform the flying.

SOME FACTS

This redeployment, or better said a swap of one-sized regional jet for another, has gone so far that an expedited grievance has been filed by the joint Continental and United pilots.  On November 15, 2010 the union filed grievance:  File 11.10.041CG.  “Pursuant to the Collective Bargaining Agreement (CBA) between Continental Airlines, Inc. and the airline pilots in its service, as represented by the Air Line Pilots Association, International, (ALPA) the undersigned hereby files this grievance, on behalf of all affected pilots, protesting the Company’s violation of Section 1 (Scope) and all related sections of the CBA by placing and planning to place the CO code on United Express flights using jet aircraft with an FAA certification of fifty-one or greater seats to and from CLE, EWR and IAH.  As a remedy, ALPA requests that the Company cease and desist advertising and placing the CO code on such flights, and all other relief that may be appropriate.”

The union’s position “is that Section 1, Part 3-A of the CBA clearly prohibits the Company action, unless it is authorized by some other Part of Section 1. No other Part of Section 1 authorizes the Company course of action, as none of the express carriers performing the work is a Company affiliate; only 50-seat and turboprop flying, not 70-seat jet flying, is permitted by Part 4; and flying to a Company hub (if not to or from a hub of the other carrier) is not permitted by Part 5.”

The union says that the Company’s position relies on Part 7, arguing that it is flying by another air carrier while participating in a Complete Transaction in accordance with Part 7. The union suggests, however, that while Part 7 specifies rules for separation and merger of mainline operations, Part 7 does not change the rules in Parts 4 or 5 for operation of Express carriers or Complementary Carriers. Nor does Part 7 license Continental to permit United Express carriers SkyWest or Shuttle America to carry the CO code without observing the limits in Parts 4 or 5, because neither of them is a "participant" in a Complete Transaction. Neither express carrier is acquiring any part of Continental, nor is it becoming a Parent of the Company. Nor is Continental acquiring Control of assets of either carrier. Further, if either of these air carriers were participating in a Complete Transaction with the Company, that participation would trigger a series of obligations that the Company has not applied.

Note to self:  Then what comprised the United network at the time the combination was contemplated?  and the transaction closed?  Mainline flying only?  I think not.

The union says the Company also argues that following the merger closing, United and Continental will each continue to operate as an air carrier, but they are not prohibited from integrating their marketing, reservations systems and livery, ultimately marketing and operating their service under a blend of the United name and Continental livery. But this argument relies on general actions associated with a merger to dissolve specific protections at the heart of the CBA, as well as mixing those actions which the Company can undertake now with those that must wait until after a JCBA (and integrated seniority list) are reached.

Note to self:  Why should the company wait to maximize revenue when it can do so today?

The union concludes, their [the company’s] actions are not an effort to transition Continental and Continental Express operations to the single UA code, but to replace 50-seat jets in Continental hubs with 70-seat jets and to connect them with Continental flights, branded as Continental flights under the CO code, strictly as a way of carrying more passengers and thus making more money.

A Paper Tiger

A paper tiger is seemingly dangerous and powerful but is in fact timid, or as Frederick Forsyth put it: "They are paper tigers, weak and indecisive."

Sometimes the actions of pilots and scope are like that of a paper tiger – a mighty roar but no real threat. I thought the pilots of the combined carrier were looking to share in the synergies of the combined carrier.  In this instance, they talk about the company redeploying regional lift – remember no loss of jobs – as a way of carrying more passengers and thus making more money.  If the carrier makes more money, then don’t the UA and CO pilots potentially make more money?

The pilots claim that this is about the company trying to gain leverage in negotiations.  Let’s not forget that on August 27, 2010, the United and Continental pilots made a proposal to management to end outsourcing to regional airlines.  This is the issue pure and simple.  The joint UA and CO pilots are fishing for ways to block the carrier from finding the most economic way to serve cities of all sizes all the while somehow making the case that the same network economics can be achieved at the mainline level for performing tomorrow the regional flying of today.  It cannot be done absent significant concessions at the mainline level.

Finally, the joint bargaining teams have been publicly lobbing grenades at one another over compensation proposals that might favor one group over another during the seniority list integration process.  This is a group that has said publicly that they will first negotiate a joint collective bargaining agreement before engaging in the seniority list integration process, just like the Northwest and Delta pilots did so successfully.  If memory serves me, the Delta – Northwest negotiation was not without its disagreements and wrinkles.  That said, the Delta – Northwest agreement ultimately paved the way for sufficient numbers of 70+ seat flying to be performed by a number of regional partners. 

At least in Delta’s case, the union recognized that the regional flying being performed today was critical to supporting mainline jobs.  Regional carriers were contracted to perform domestic flying in markets where the poor underlying domestic economics remain.  The Continental and United pilots should be looking at the very same thing.  The unintended consequence of undoing the regional relationships today will be a smaller mainline tomorrow.  Smaller network architecture does not produce the synergies promised by a combined United and Continental.

Less in generated synergies means less to be shared among the pilots of the combined company.  Less in generated synergies means that the collective bargaining agreement ultimately reached will have less upside and will look more like the agreements that would have been ultimately reached if the companies remained as standalone entities. Less in generated synergies means that the combined entity will likely not attain its status as the world’s best airline.

There is a financial concept lost on union leaders today:  Net Present Value or NPV.   It means simply that cash flows realized in the short term have more value to the firm (or individual) than cash flows generated years down the road.  Captain Jay Pierce, the head of the Continental ALPA unit, argues rightly that the company’s action of swapping five 70 seat jets in Continental’s hubs for five 50 seat jets is strictly a way of carrying more passengers and thus making more money.  It is what companies should be doing - maximizing the revenue earning power of the network.

The benefits to the new United’s actions in this limited case are obvious.  The risks are, well,  timid and weak as no jobs are being lost.  Energy spent during one of the most traveled weeks of the year should be spent negotiating a joint collective bargaining agreement and not preparing for an arbitration that in reality is nothing more than a desperate grab of leverage that - if the pilots prevail - will result in fewer jobs, less mainline flying, fewer synergies to be shared among pilots and a degradation of the combined carrier’s status within the STAR Alliance.

Wednesday
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?