Update: Bankruptcy Is Fun

17 10 2012
For all my non-airline friends the 1113c hearings have started. This is the process where the company, Pinnacle Airlines presents their case to a bankruptcy judge asking him to throw out our contract. I thought I would pass on to you the information I get from the court hearings.
John Spanjers, Pinnacle CEO: Mr. Spanjers testified about the development of the company’s business plan and the May and August term sheets, the negotiations with Delta and aspects of the revised airline services agreements signed in March, and the increased costs generated by the training bubble following the integration. Mr. Spanjers testified that the inflated pilot costs since 2011 are due to the integration of our three carriers rather than the particulars of the JCBA, as Mr. Glass contended, and that the integration costs should be gone by the end of 2013.
Jerry Glass, F&H Solutions: Mr. Glass is the company’s lead negotiator. His testimony covered the progress of negotiations thus far and his analysis of Pinnacle’s work rules and cost competitiveness in the industry. During cross examination, Mr. Glass conceded that the vast majority of the workrules the company cited in their brief as limitations on pilot productivity have already been addressed i

n bargaining by the Association. He also repeatedly acknowledged that the Negotiating Committee has been reasonable and flexible in the negotiations thus far.

Mr. Glass also discussed at length the proposal made to the Association late yesterday. Though he emphasized the change the company made to the pay proposals for displaced Captains (no longer requiring them to go to Step 1 of the proposed Captain pay scale, a concept not found anywhere else in the industry) would have saved $2.1 million, he could not say how many pilots would be affected the remaining proposal to cap the Captain pay scale at 12 years or the amount of savings that would be generated implementing the 12 year cap.





As Greedy As A Pig

2 10 2012

While taking a break from Scraping paint and sealing the cracks in my exterior siding I sat down to catch up on the headlines in the days news. Just as I clicked on this article (70-year-old Oregon farmer eaten by his hogs – U.S. News.) my iTunes started to play Nemesis Dialogue From the Film Snatch (Do you know what ‘Nemesis’ means? – YouTube.) Talk about a LOL moment. I think I will be giving any pig farm I happen across a very wide birth. Skip forward in this video to about the 5 minute mark. This will give you some context to what happened to this unfortunate farmer. (Alan Ford is Brick Top (Snatch) – YouTube.)





Flight attendants gun goes off at airport security in Philadelphia – Overhead Bin

24 09 2012

The airline industry is Amazing!!!!!!

Flight attendants gun goes off at airport security in Philadelphia – Overhead Bin.





Back 2 Basics

19 09 2012

Originally posted on Bandwagen:


Do you know where Birdingbury is? Well, neither did I until I paid a visit to the Back 2 Basics Vee Dub Show on Sunday 16th September. Birdingbury is a small village right in the centre between Coventry, Rugby and Royal Leamington Spa and it just happens to have its own show ground with mains water, showers and plumbed in (proper) toilets! What more could you want for a weekend’s camp-out with fellow Volkswagen fans?

I’d spent Saturday at Silverstone race circuit photographing Ferraris in bright sunshine and Sunday was just about as far removed from the previous day as as you could get. Grey stormy skies and what started life as cheap, affordable transport – ‘the peoples car’! This was my first visit to the Back 2 Basics VW show which is now in its fourth year and the first time at Birdingbury. Only a forty minute drive for…

View original 329 more words





Unions and Airlines Is APLA Serving My Best Interest?

13 09 2012

As Pinnacle Airlines files their motion to throw out our contract and impose their terms on the pilot group one has to step back and ask; is my Union, ALPA, looking out for my interests? Would I be better off if the airlines industry was largely nonunion?

Check out the article by Philip Greenspun, a former Comair First Officer who was laid off in 2008. I have to ask: Does seniority-based pay really lead to industry instability? Does my contract lead to long pilot commutes, fatigue and safety issues? Would the industry be more stable if  airlines were not bound by silly contracts? No I don’t think so, however I would be interested in what you think.

Leave your thoughts below.

Unions and Airlines.

This article explores the effects that pilot unionization has on the U.S. airline industry. During 2008, the author flew 50-seat regional jets for a subsidiary of a major airline.

Why airlines tend to be unionized

In a country where the Bureau of Labor Statistics says that only 7 percent of private industry workers are unionized (source), how is it possible that nearly every U.S. airline operates with unionized pilots?

The explanation lies in the interaction of labor laws and aviation regulations. Let’s consider labor laws first. The law compels a company to negotiate with a labor union. If it cannot reach an agreement, however, and the union goes out on strike, the company is able to hire replacement workers and continue its operations.

Federal aviation regulations, on the other hand, require an airline to operate with pilots who have specific training for and experience at that airline. Suppose an airline operates Boeing 737s, for example, and its pilots go out on strike. You might think that the airline could operate legally and safely by hiring trained Boeing 737 pilots from some airline. However, the FAA will not allow this because those replacement pilots, though competent with the airplane, do not have experience with the specific operating rules of the airline whose pilots are out on strike.

An airline whose pilots go out on strike is therefore shut down. This makes the rewards to pilot unionization at an airline much greater than the rewards to unionizing a group of manufacturing workers, for example.

Airline/pilot negotiations: effect on corporate sustainability and investors

A competent pilot union negotiator will present the airline with a plan to transfer essentially all expected future profits into the paychecks of pilots. It does not make sense to accept less because the pilots always have the power to strike and shut the airline down. The only real point of discussion would concern the best estimate of what the airline’s profits are likely to be during the term of the contract.

During periods of economic growth, the negotiators peering in the future will tend to see a picture of increasing profits and therefore the airline will agree to substantial pay and benefits increases for the pilots. Should the economy turn down during the contract period, the pilots, having expected to collect 95 percent of the airline’s profits, will in fact be entitled to 115 percent of the airline’s profits. As the airlines tend to operate with fairly small reserves, paying out 115 percent of profits results in the airline seeking Chapter 11 bankruptcy protection and a federal judge adjusts the pilot union contract so that the pilots are back to collecting 95 percent of the new estimated profit figure.

This cycle of union contract negotiation and Chapter 11 bankruptcy is one reason that the airlines lease rather than own airplanes. By having the main assets in the hands of third parties, it turns out to be a reasonably efficient way of allocating airline profits. The stakeholders who suffer the most are public equity shareholders (the “widows and orphans”), who get wiped out with every bankruptcy filing. The leasing companies get paid, the airline executives get paid, the unionized workers get paid as much as possible, lawyers and Wall Street banks get fees from every bankruptcy, and the public shareholders get 5 cents back for each dollar that they invested.

Why some pilots earn $16,000 per year

All jet pilots are held to the same stick-and-rudder standards of the FAA Airline Transport Pilot practical test (see faa.gov). A 70-seat jet presents the same flying challenge as a 150-seat jet. The captain and first officer trade “pilot flying” and “pilot monitoring” roles on each leg of a trip. When the actual jobs are so similar, how is it possible that some airline pilots earn $16,000 per year and others earn close to $300,000? The captains, of course, do have more experience and that experience has value to the employer, which is why non-unionized air carriers may establish a 2:1 or 3:1 difference in pay between their most senior and most junior pilots. But how can we explain a 19:1 pay differential for workers with similar training and tasks?

The answer is to look at who controls the pilot’s union: very senior pilots. The airline management is mostly interested in what percentage of its revenues are paid out to pilots; the distribution of the money among the pilots does not affect profitability. The very senior pilots on the other side of the table say “We need the most senior pilots to get $300,000 in pay and benefits.” The airline’s response is “The only way that could work is if we pay the new pilots $16,000 per year.” The group of senior pilots responds “We can live with that.”

Note that being classified as “junior” or “senior” has nothing to do with flying skills or experience. If Captain Sully were to start work today at a regional airline, he would earn between $16,000 and $20,000 per year, depending on the carrier, and fly as first officer. He was “senior” at US Airways, but is “junior” at the new carrier.

[Note: the author was on track to earn approximately $19,000 per year, but was furloughed during the Collapse of 2008.]

Why some flight crews are fatigued

After the pay discussion is concluded, the union negotiation will turn to schedule. Keep in mind that pilots are paid by the hour and only for those hours when the airplane is “off the gate”. I.e., if there is a three-hour wait in the airport between legs, the pilot is not paid for that time. The senior pilots may say “We need senior pilots to work no more than 10 days per month, about 8 hours per day, with all of the flying neatly compressed so that there is almost no waiting time.” The airline representatives say “The only way that can work is if the junior pilots work 22 days per month and nearly 16 hours per day.” The senior pilots negotiating for the union respond “We can live with that.”

Scheduling at a typical unionized airline is done in order of seniority, with the senior captains and first officers picking the best routes first. The most junior pilots and newly upgraded captains are “on reserve” and have no idea where or when they’ll be flying.

How does this affect safety? As a passenger, you might get on a plane with a senior crew. Your pilots have slept a full 8 hours every night for the last week and are fresh from spending a four-day weekend with their families. The captain has been with the airline for 20 years. The first officer has been flying this type of airplane for 10 years and could do the entire flight by him or herself if necessary.

Alternatively, you might get onto a plane with a junior crew. Your pilots are exhausted from being on the last day of a four-day trip. Each night they’ve gotten a 9-11-hour “rest period”, but that includes waiting for a shuttle to the hotel, riding the shuttle to and from the hotel, showering, eating, and possibly trying to sleep at an unusual hour. Perhaps they’ve slept 5 hours each night. The first officer joined the airline a few months ago. He or she has some simulator training, but is struggling to stay ahead, mentally, of the airplane. The captain knows how to fly the airplane, but he or she was just upgraded to captain and has no idea how to manage a first officer, particularly one who might make a lot of mistakes. Until a few months ago, the captain of this flight was a very senior first officer and all of his or her flying was with very senior captains.

From the point of view of safety, common sense would argue against pairing up a company’s least experienced pilots with the company’s least experienced captains and then driving them both to exhaustion. But that’s how nearly all unionized U.S. airlines do it.

[Note: there are exceptions to this rule. Warren Buffett's NetJets private jet service, for example, gives all pilots the same schedule of one week on, one week off.]

Union agreements lead to long pilot commutes

Captain Sully lived in the exurbs of San Francisco and commuted to his home base of Charlotte, North Carolina where he started the trip that ended with a landing on the Hudson River. I.e., before Captain Sully welcomed passengers and took the controls of the Airbus A320 he had endured a coast-to-coast flight in the back of an airliner. Consider your own state of alertness and fatigue at the end of a coast-to-coast flight. Do you feel ready to start a full work day?

Why couldn’t Captain Sully have switched to United Airlines, which has a base in San Francisco, and let a United pilot living in North Carolina takes his US Airways job? By swapping jobs like that, both would have started on the bottom seniority rung at their respective new airlines. Despite the fact that their skills and experience hadn’t changed, they’d suffer at least a 50 percent hourly pay rate cut and, because they’d be on reserve for several years, their effective rate of pay per hour at work would be only about 25 percent of their former pay.

If airlines paid workers according to personal experience and skill rather than seniority within their particular airline, pilots would be more likely to live near where they worked. This would have a positive effect on safety since flight crews would tend to be better rested.

Seniority-based pay leads to industry instability

Earlier in this article I addressed the near-guaranteed cycle of union-negotiated pay raises and Chapter 11 bankruptcy. This was a result of the pilot union seeking to extract 100 percent of an airline’s profits. There is another aspect of seniority-based pay that leads to industry instability that is independent of the percentage of revenue paid to pilots.

Consider two regional airlines where new pilots earn $20,000 per year and pilots who’ve been with the airline for 20 years earn $80,000 per year. Airline A and Airline B fly the same types of planes, have exactly the same cost structure, and have the same percentage of junior versus senior pilots. Suppose now that a fluctuation in demand causes Airline A to have slightly fewer customers and Airline B to have slightly more customers. Airline A will have to furlough a few pilots and Airline B will hire a few.

Airline A would naturally like to furlough its most senior pilots, the ones costing $80,000 per year, or perhaps cut all pilots’ monthly hours slightly. Union agreements, however, force it to furlough the most junior pilots. Airline A is thus left with a pilot group that, on average, has more years with the airline than before and therefore has a higher average cost. Airline B, by contrast, just hired a bunch of new pilots and is paying them just $20,000 per year. This means that Airline B’s average cost for a pilot is lower than before. Airline B can now move into Airline A’s region and offer lower fares. Customers start choosing Airline B over Airline A and the furloughing and hiring intensify.

Union agreements add positive feedback to an already unstable industry. An airline that is successful and growing will enjoy lower costs because of the new pilots being hired for almost nothing. An airline that is shrinking will see its labor costs spike as nearly all flights are operated by highly paid senior crews.

The start-up airline advantage

Union agreements and seniority-based pay give a huge advantage to a startup airline, such as JetBlue. Suppose that a new airline offers the exact same payscale as established airlines, including lavish pay for those who’ve been with the company for 20 years. As none of its employees will have 20 years of seniority, this promise is of no consequence initially. All pilots in the first year of operation are, by definition, on the Year 1 payscale. If the airline grows rapidly, even after 10 years, the average pilot may be on 3rd year pay. A legacy carrier with the same payscale will face enormously higher costs because its average employee is on 20th year pay.

Eventually the growth flattens out, the startup airline ages, and the average years of employment with the company is similar to that of pilots at other airlines. See above for how the airline will then be unable to compete and it will be time for a trip through Chapter 11, thus wiping out the shareholders. As this cycle is inevitable, the airframe manufacturers prepare for it by offering assistance and favorable terms to new carriers, e.g., see this page from Boeing.

How does Southwest survive and prosper? Since they are constantly growing they don’t have as high a percentage of senior pilots as their competitors. Also, their union may be taking a longer/smarter/more realistic view about maximizing its compensation. A union does have an incentive to avoid bankrupting an airline: if the airline goes Chapter 7 (liquidation) rather than Chapter 11 (reorganization), the senior pilots may have to start over at another airline at 1/10th of their former hourly compensation. Note that Southwest would be in a lot of trouble if the air travel market were open to international competition. Ireland’s Ryanair has costs that are 25 percent lower, but, fortunately for Southwest and unfortunately for American consumers, is prevented by government regulations from doing business within the U.S.

Conclusion

The interaction between labor laws and FAA regulations results in pilot unions having a strong claim on 100 percent of an airline’s profits. An investor in a unionized U.S. airline should not expect to see a return on that investment and, indeed, should expect an eventual Chapter 11 bankruptcy filing to wipe out his or her investment altogether.

The fact that an airline must pay its more senior workers so much more than its junior workers leads to further risk for investors. An airline whose business is slightly down will face increased labor costs precisely at the time that it needs to cut its costs in order to survive.

Union agreements and seniority-based schedule assignments lead to reduced safety for passengers, as the least experienced workers are pushed the hardest and get the least amount of rest. Despite the sometimes exhausted crews, the airline industry remains safe due to the disciplined use of checklists and the fact that two pilots are employed to do a job that, in the absence of a serious equipment failure (very rare), could be done by one person.

In the absence of protectionist regulations, which prohibit foreign carriers from carrying domestic passengers, we would expect the entire U.S. air travel market to be captured by airlines owned by countries where labor laws do not facilitate the unionization of pilots. Without barriers to competition we would expect to see something like the cruise ship industry, where foreign-flagged vessels dominate. An airline might be based in the Philippines, for example, or El Salvador (like the excellent TACA, which has its own history with ALPA), and serve the U.S. with foreign-based crews.

Regardless of whether the U.S. is able to maintain its trade barriers, a sustainable long-term structure would be a pilot-owned airline. If the pilots are the owners there need be no conflict concerning distributing profits.

About the Author

The author is a member of the Air Line Pilot’s Association (ALPA) and holds FAA Airline Transport Pilot and Flight Instructor certificates for both airplanes and helicopters. The author is type-rated in the Canadair Regional Jet and Cessna Citation Mustang and has more than 3500 hours of flying experience (more).





The Transformation Continues

3 09 2012

My 1997 VW MKIII GTI is slowly coming together. To be honest with you it is taking a bit longer than I had originally thought to complete this build. When it comes to this build I am not a get your hands dirty DIY kind of guy. The fact is I would have no clue on how to rebuild a car. I saved up my pennies, dimes, quarters and dollars and shipped the car off to some trusted professionals. In the back of my head I knew this was not going to be an easy task mainly because I really did, and still don’t know exactly what I want in the build. I guess on some level I saw Chip Foose from Overhauling or Ryan Friedlinghaus from West Coast Customs swooping in and in a weeks time magically restore my GTI.

Reality is, it takes time to find hard to get OEM parts. It takes time to collect the parts and rebuild an engine and transmission. Also it takes time when the customer (ME) waffles about not knowing exactly what they want.

I have to give a huge thanks to Tristan and Mike from Further Performance and Scott from Auto Works for taking the time to walk me through the project. Their patience with my lack of decision making has been greatly appreciated.





Not So Scary More Like Extreme Fun

26 07 2012

I came across this article in the Huffington Post where Rachael-Marie Prescott blogs about America’s scariest airports. I have flown into most every airport highlighted in her blog and I can tell you scary is not the word I would use to describe these airports, more like Extreme Fun.

 

Rachael-Marie Prescott: Scariest U.S. Airports (PHOTOS).








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