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October 15, 2004
For Many Airline Pilots, the Thrill Is Gone
By CLAUDIA H. DEUTSCH
The New York Times
Neil Swindells, who flies a United Airlines Airbus 320 out of Chicago, remembers why he chucked his job as a financial analyst to go to flight school nearly 15 years ago. It was not just the prospect of a six-figure salary for flying maybe 80 hours a month, or the lure of being in charge, or the sheer fun of flying. It was, most of all, the glamour, the respect that the pilot's uniform got from passengers and airline management (usually, former pilots themselves) alike.
When United Airlines hired him nearly 10 years ago, "I thought I'd won the brass ring,'' Mr. Swindells said. "It was my ticket to financial independence, to socioeconomic status, to prestige.''
Today, that ticket feels like a trap. Only the lowest-cost airlines are hiring these days, and they have never paid as much as the mainstream lines like United, a unit of UAL. And a seniority system that bumps pilots down to entry-level jobs when they switch airlines makes it costly to jump ship among the so-called legacy carriers.
Of course, the airlines are in a trap, too. United and US Airways are struggling to get out of bankruptcy; Delta Air Lines is poised on the brink of it. Desperate to cut costs, they are turning to the pilots again and again, seeking ever more concessions.
Not so long ago, even asking for such a vote would have been laughable. In negotiations, the pilots called the shots. When the airlines balked, pilots had many ways to bring them into line. In the summer of 2000 - when weather and air traffic congestion were already wreaking havoc - United pilots staged a work-rule slowdown. Numerous flights were delayed; United was forced to apologize to customers; and the pilots won one of their richest contracts ever.
But today, while pilots still feel in command in the air, they increasingly are feeling slighted, almost impotent, on the ground. Airlines have extracted huge salary, work-rule and benefits concessions from them. Layers of vice presidencies have been created at many corporate headquarters, so that the chief pilot, the person who oversees all of the fliers, rarely reports directly to the top anymore.
Pilots are not giving in without a fight. Northwest, for one, is pleading with its pilots for $300 million in concessions. Pilots at US Airways, where salaries have already been cut by an average of $89,000 a year, are refusing to allow a vote on the company's bid for still more cuts. Delta and its pilots have been at odds all year about the airline's bid for $1 billion in cuts, despite repeated threats by Delta to seek Chapter 11 protection.
Without pilots to lead them, other employee groups generally sit back on similar requests for cuts. But once the airline files for Chapter 11, the sway that pilots have over their fate and those of other workers cedes to a judge's control. And with it, the pilot's dominance is eaten away.
Gone, too, is much of the glamour, a casualty of the plummeting fares that have made air travel available to the masses. "People used to wear stockings and heels; we loved welcoming them to the cockpit, and hearing them say, 'Thanks, captain, you did a great job,' when they disembarked,'' said John A. McFadden 3d, who flew for United from 1967 until March of 2000, when he hit the federally mandated retirement age of 60. "Now you have to ask them to put shoes on, and security issues keep the cockpit door closed.''
All airlines face that, of course, but as a group, United pilots seem particularly galled. United was owned by its employees until its bankruptcy in 2002, so the pilots not only felt on a par with management, in a sense they were management.
United and other airlines say that in a world where low-cost carriers are grabbing market share, fuel prices are skyrocketing and passengers are surfing the Internet for the cheapest fares, they have no choice but to cut costs. But pilots say they have already given too much.
"The only idea this company has is to take more money from us,'' Mr. Swindells said. "Well, I don't see the C.E.O. taking a 30 percent pay cut. When they get their house in order, we'll look at further concessions.''
If Mr. Swindells, even in his defiance, holds out the possibility of further sacrifices, it is probably because he recognizes how dire United's condition remains. It is facing a $1 billion increase in its fuel bill this year, it recently cut back its domestic flights, it is considering yet more layoffs and the termination of its pension plans, and it is facing unremitting competition from low-cost rivals.
Indeed, not all pilots are as disaffected as Mr. Swindells. "Yes, pilots have less authority, and service is skeletal, but cost accounting is making that happen throughout corporate America,'' said Mr. McFadden, the retired pilot.
His son, John B. McFadden, 37, has been flying for United since 1995, and he, too, seems more saddened than angry. He is the captain of a 737 that flies primarily to the Rockies and Canada, and he is clear-eyed about the mounting drawbacks of his job.
When flying took a hit after Sept. 11, he was bumped from captain on a 737 to first officer on a 767 at a "hefty pay cut'' - to $120 an hour from $148 an hour. He regained his pilot's status about six months ago, but he still makes less money than before, is away from home for longer stretches, and worries about his eventual retirement pay.
United should be able to find ways to cut costs without turning to the employees, he said. "I still love flying, but I know pilots who think it's gone from a dream job to a daily grind.''
No wonder. The economy has forced the grounding of many planes and the furloughing of nearly 9,300 pilots, while technology has eliminated some of the entry-level jobs. Pilots used to start out as flight engineers -making sure the instruments are functioning properly - and worked their way up to co-pilot and finally, captain. Now, computers often do what flight engineers once did, which means that increasingly, there are only two cockpit jobs to fill.
And the glamour is tarnished. "I can still remember, as a kid, flying economy class and seeing a flight attendant roll a cart down the aisle, carving slices from a roast for the passengers,'' the younger Mr. McFadden recalled. "The service, the uniforms, everything about air travel seemed glamorous.''
These days, airplanes have become what many pilots disparagingly call "the Greyhounds of the sky,'' and that has unleashed a vicious cycle: with per-ticket revenue so low, airlines have had to cram in more seats per plane and replace roasts and Champagne with soda and peanuts. And, pilots say, as airports become more congested, more flights are delayed, making passengers cranky. "Airlines have not escaped the WalMartization of everything in America,'' Mr. Swindells complained.
Pilots are still paid relatively well, so often elicit little sympathy from the general public. But Mr. Swindells gets furious when he hears people speak of their supposedly cushy life. Before United declared bankruptcy, Mr. Swindells was making $200 an hour for the 78 hours he spent in the air each month and his annual salary approached $200,000. Today, after more than $1 billion in concessions from the pilots' union, he makes $130 an hour. He gets 10 days off instead of the prior 12, and his pay for waiting in airports or hotels during layovers has also been reduced.
Indeed, he was speaking by phone with a reporter from O'Hare International Airport during a two-hour break between his landing a flight from Toronto and taking off again for Spokane, Wash. - two hours for which he says he is not paid.
"If you fly 85 hours a month, you're probably away from home for 320 hours, and you're working 10-hour days for five hours' pay,'' he said. Which means he would have to clock in a lot more time than before to reach the $200,000 mark.
Mr. Swindells expects that soon after he completes this latest tour, he'll be called in at the last minute to pilot another multiday trip. United, like other airlines, has always had the contractual right to schedule pilots on four hours' notice but, he said, rarely did. Now, after furloughing more than 2,000 pilots as part of a cost-cutting measure, it does.
"I'll come back from five days away and assume I'll be called for another trip,'' he said. "I won't welcome it. It will help my pay, but I've got a 6-year-old and an 8-year-old, and after five days away, I'm desperate to be home.''
The airlines, of course, say they need for pilots to be more productive. But Mr. Swindells and others say they are bearing the brunt of management incompetence.
"The bloated structure of United Airlines is the problem, not employee pay,'' he insisted. He points to a recent trip, in which he flew from Chicago to Toronto, Toronto to Chicago, then Chicago to Spokane, then back to Chicago. The trip took five days; one of them, he said, he spent in a hotel in Spokane, doing nothing and being paid only his expenses.
"The airlines say they want us to be more productive,'' he said. "So why do they keep me sitting in a hotel for an entire day?''
http://www.nytimes.com/2004/10/15/bu...=all&position=
For Many Airline Pilots, the Thrill Is Gone
By CLAUDIA H. DEUTSCH
The New York Times
Neil Swindells, who flies a United Airlines Airbus 320 out of Chicago, remembers why he chucked his job as a financial analyst to go to flight school nearly 15 years ago. It was not just the prospect of a six-figure salary for flying maybe 80 hours a month, or the lure of being in charge, or the sheer fun of flying. It was, most of all, the glamour, the respect that the pilot's uniform got from passengers and airline management (usually, former pilots themselves) alike.
When United Airlines hired him nearly 10 years ago, "I thought I'd won the brass ring,'' Mr. Swindells said. "It was my ticket to financial independence, to socioeconomic status, to prestige.''
Today, that ticket feels like a trap. Only the lowest-cost airlines are hiring these days, and they have never paid as much as the mainstream lines like United, a unit of UAL. And a seniority system that bumps pilots down to entry-level jobs when they switch airlines makes it costly to jump ship among the so-called legacy carriers.
Of course, the airlines are in a trap, too. United and US Airways are struggling to get out of bankruptcy; Delta Air Lines is poised on the brink of it. Desperate to cut costs, they are turning to the pilots again and again, seeking ever more concessions.
Not so long ago, even asking for such a vote would have been laughable. In negotiations, the pilots called the shots. When the airlines balked, pilots had many ways to bring them into line. In the summer of 2000 - when weather and air traffic congestion were already wreaking havoc - United pilots staged a work-rule slowdown. Numerous flights were delayed; United was forced to apologize to customers; and the pilots won one of their richest contracts ever.
But today, while pilots still feel in command in the air, they increasingly are feeling slighted, almost impotent, on the ground. Airlines have extracted huge salary, work-rule and benefits concessions from them. Layers of vice presidencies have been created at many corporate headquarters, so that the chief pilot, the person who oversees all of the fliers, rarely reports directly to the top anymore.
Pilots are not giving in without a fight. Northwest, for one, is pleading with its pilots for $300 million in concessions. Pilots at US Airways, where salaries have already been cut by an average of $89,000 a year, are refusing to allow a vote on the company's bid for still more cuts. Delta and its pilots have been at odds all year about the airline's bid for $1 billion in cuts, despite repeated threats by Delta to seek Chapter 11 protection.
Without pilots to lead them, other employee groups generally sit back on similar requests for cuts. But once the airline files for Chapter 11, the sway that pilots have over their fate and those of other workers cedes to a judge's control. And with it, the pilot's dominance is eaten away.
Gone, too, is much of the glamour, a casualty of the plummeting fares that have made air travel available to the masses. "People used to wear stockings and heels; we loved welcoming them to the cockpit, and hearing them say, 'Thanks, captain, you did a great job,' when they disembarked,'' said John A. McFadden 3d, who flew for United from 1967 until March of 2000, when he hit the federally mandated retirement age of 60. "Now you have to ask them to put shoes on, and security issues keep the cockpit door closed.''
All airlines face that, of course, but as a group, United pilots seem particularly galled. United was owned by its employees until its bankruptcy in 2002, so the pilots not only felt on a par with management, in a sense they were management.
United and other airlines say that in a world where low-cost carriers are grabbing market share, fuel prices are skyrocketing and passengers are surfing the Internet for the cheapest fares, they have no choice but to cut costs. But pilots say they have already given too much.
"The only idea this company has is to take more money from us,'' Mr. Swindells said. "Well, I don't see the C.E.O. taking a 30 percent pay cut. When they get their house in order, we'll look at further concessions.''
If Mr. Swindells, even in his defiance, holds out the possibility of further sacrifices, it is probably because he recognizes how dire United's condition remains. It is facing a $1 billion increase in its fuel bill this year, it recently cut back its domestic flights, it is considering yet more layoffs and the termination of its pension plans, and it is facing unremitting competition from low-cost rivals.
Indeed, not all pilots are as disaffected as Mr. Swindells. "Yes, pilots have less authority, and service is skeletal, but cost accounting is making that happen throughout corporate America,'' said Mr. McFadden, the retired pilot.
His son, John B. McFadden, 37, has been flying for United since 1995, and he, too, seems more saddened than angry. He is the captain of a 737 that flies primarily to the Rockies and Canada, and he is clear-eyed about the mounting drawbacks of his job.
When flying took a hit after Sept. 11, he was bumped from captain on a 737 to first officer on a 767 at a "hefty pay cut'' - to $120 an hour from $148 an hour. He regained his pilot's status about six months ago, but he still makes less money than before, is away from home for longer stretches, and worries about his eventual retirement pay.
United should be able to find ways to cut costs without turning to the employees, he said. "I still love flying, but I know pilots who think it's gone from a dream job to a daily grind.''
No wonder. The economy has forced the grounding of many planes and the furloughing of nearly 9,300 pilots, while technology has eliminated some of the entry-level jobs. Pilots used to start out as flight engineers -making sure the instruments are functioning properly - and worked their way up to co-pilot and finally, captain. Now, computers often do what flight engineers once did, which means that increasingly, there are only two cockpit jobs to fill.
And the glamour is tarnished. "I can still remember, as a kid, flying economy class and seeing a flight attendant roll a cart down the aisle, carving slices from a roast for the passengers,'' the younger Mr. McFadden recalled. "The service, the uniforms, everything about air travel seemed glamorous.''
These days, airplanes have become what many pilots disparagingly call "the Greyhounds of the sky,'' and that has unleashed a vicious cycle: with per-ticket revenue so low, airlines have had to cram in more seats per plane and replace roasts and Champagne with soda and peanuts. And, pilots say, as airports become more congested, more flights are delayed, making passengers cranky. "Airlines have not escaped the WalMartization of everything in America,'' Mr. Swindells complained.
Pilots are still paid relatively well, so often elicit little sympathy from the general public. But Mr. Swindells gets furious when he hears people speak of their supposedly cushy life. Before United declared bankruptcy, Mr. Swindells was making $200 an hour for the 78 hours he spent in the air each month and his annual salary approached $200,000. Today, after more than $1 billion in concessions from the pilots' union, he makes $130 an hour. He gets 10 days off instead of the prior 12, and his pay for waiting in airports or hotels during layovers has also been reduced.
Indeed, he was speaking by phone with a reporter from O'Hare International Airport during a two-hour break between his landing a flight from Toronto and taking off again for Spokane, Wash. - two hours for which he says he is not paid.
"If you fly 85 hours a month, you're probably away from home for 320 hours, and you're working 10-hour days for five hours' pay,'' he said. Which means he would have to clock in a lot more time than before to reach the $200,000 mark.
Mr. Swindells expects that soon after he completes this latest tour, he'll be called in at the last minute to pilot another multiday trip. United, like other airlines, has always had the contractual right to schedule pilots on four hours' notice but, he said, rarely did. Now, after furloughing more than 2,000 pilots as part of a cost-cutting measure, it does.
"I'll come back from five days away and assume I'll be called for another trip,'' he said. "I won't welcome it. It will help my pay, but I've got a 6-year-old and an 8-year-old, and after five days away, I'm desperate to be home.''
The airlines, of course, say they need for pilots to be more productive. But Mr. Swindells and others say they are bearing the brunt of management incompetence.
"The bloated structure of United Airlines is the problem, not employee pay,'' he insisted. He points to a recent trip, in which he flew from Chicago to Toronto, Toronto to Chicago, then Chicago to Spokane, then back to Chicago. The trip took five days; one of them, he said, he spent in a hotel in Spokane, doing nothing and being paid only his expenses.
"The airlines say they want us to be more productive,'' he said. "So why do they keep me sitting in a hotel for an entire day?''
http://www.nytimes.com/2004/10/15/bu...=all&position=
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Quality of Life?
First time back on pprune after several years away! What a difference a few years make.
Remember the story about the old pilot looking down at the boy fishing on the dock and wishing he was down there, and the little boy looking up and wishing he was up there. That was probably written by one of the Wright brothers. Nothing has changed. There will always be dreamers and always be 'old' pilots who want out.
Part-time is an option some of you 'old' pilots might consider. I have been working 50% now for 10 years. I miss the money but that factor is more than compensated by the quality of life. I have another business which takes up some of my time off but that is so far removed from flying as to be a joy. If your company will let you, ask them about it.
Two pilots on 50% rosters are more productive than one on a 100% roster. Each can do 55 or 60 hours in a month. Find a buddy and lean on them!
Remember the story about the old pilot looking down at the boy fishing on the dock and wishing he was down there, and the little boy looking up and wishing he was up there. That was probably written by one of the Wright brothers. Nothing has changed. There will always be dreamers and always be 'old' pilots who want out.
Part-time is an option some of you 'old' pilots might consider. I have been working 50% now for 10 years. I miss the money but that factor is more than compensated by the quality of life. I have another business which takes up some of my time off but that is so far removed from flying as to be a joy. If your company will let you, ask them about it.
Two pilots on 50% rosters are more productive than one on a 100% roster. Each can do 55 or 60 hours in a month. Find a buddy and lean on them!
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<pilot wannabe>
come on.. so little positive comments?
bored, sick of it, doing it for the money?
and i was told only the people who really love the industry would be in the industry
come on.. so little positive comments?
bored, sick of it, doing it for the money?
and i was told only the people who really love the industry would be in the industry
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A buddy of mine said "You don't see Rolex's in the cockpit anymore..." This is true, the Industry is not what it was when I started out, but I still fly with guys who arrive for work as I do,, Bright-eyed and bushy tailed...
If you can't take the heat, get out of the kitchen.
If you can't take the heat, get out of the kitchen.
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In my experience we spend 10 hours moaning about how life is so unfair, but still fly the aircraft as soon as we leave the hold and a smooth landing always brings a smile to the face. We then sit in a bar, in some corner of the world, buying beer and moan some more about the state of the flying world. Then just before we retire, a quick glance across to your mate before you admit (almost ashamed) that actually you love flying and it's the best job in the world.
Next day at pick up, you both start moaning again!
Next day at pick up, you both start moaning again!
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Life is a cyclic thing. Never forget that.
Right now and for a year or two more, there will be tremendous pressure on employees, especially pilots.
But....
Numbers going through training schools are down, many "baby boomers" are retiring soon.
Air travel continues to grow, slowly I admit, despite terrorists et al.
One day, with little warning, all the furloughs will be back, and new hiring will start. Shock, horror, not enough trained pilots!!!
Boot now on other foot.
I think that time will be two to four years off, but inevitable.
What say you?
are we there yet?
Right now and for a year or two more, there will be tremendous pressure on employees, especially pilots.
But....
Numbers going through training schools are down, many "baby boomers" are retiring soon.
Air travel continues to grow, slowly I admit, despite terrorists et al.
One day, with little warning, all the furloughs will be back, and new hiring will start. Shock, horror, not enough trained pilots!!!
Boot now on other foot.
I think that time will be two to four years off, but inevitable.
What say you?
are we there yet?
Moderate, Modest & Mild.
Airbubba's post has identified what I believe is the BIGGEST reason airlines are struggling to survive these days, and in the process reducing the conditions of the primary REVENUE PRODUCING employees....
and
Airlines have become infested with overpaid, non-revenue productive parasites, whose SOLE task is to try to trim a few dollars from anywhere they can, whilst receiving ridiculously inflated salaries.
Layers of vice presidencies have been created at many corporate headquarters,
"The bloated structure of XXXXX Airlines"
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I got this off our ALPA forum. It's the best example of airline mismanagement that I've ever heard.
This would be funnier if it wasn't so accurate:
Judge: Ok, let’s get these proceedings started. I understand you are the attorney representing Delta Air Lines, and that Delta Air Lines is seeking protection under the chapter 11 of the federal bankruptcy code. Is this correct sir? Yes your honor.
J: As you are aware, in order to grant bankruptcy protection, the law requires that your company must have done everything reasonable in its power to prevent a declaration of bankruptcy. Furthermore, this court must be presented with a viable business plan to ensure this situation does not happen again. I must now review actions by Delta Air Lines leading up to this situation. Please state your case.
DL: Your honor, for the past three years, Delta has suffered major financial losses and a dramatic increase in debt. We are now in a position whereby we cannot pay the debt service given our current revenue and costs. We feel, the primary culprit of our financial situation is pilot salary costs and we seek relief from the pilot contract.
J:That's it? Just the pilots?
DL:Uh, yes your honor.
J:Well looking at your quarterly financial reports for the past 7 years, it appears you have let your debt level to swell up to around 20 billion dollars, which causes roughly an annual debt service of a billion dollars per year. So I'd like to see where all this debt came from.
First, I see that your company engaged in a 2.5 billion dollar stock buy back program. How much is this worth now?
DL:Um, virtually nothing.
J:You also spent over 2.5 billion dollars purchasing Comair and ASA?
DL: Yes. Both these companies were subcontractors of ours previously. In the case of ASA, there were quality control issues we felt could be better managed if we owned them. As for Comair, by outsourcing to them so much work, we allowed to become a monopoly in our Cincinnati hub. We were afraid they could become a competitor, or be purchased by one of our competitors.
J: OK, I also see that your management then went on an aircraft spending spree, buying hundreds of regional jets for your Comair and ASA Delta Connection division at a cost of an additional few billion dollars. I hope these planes are a wise investment. Are they are cheaper to operate?
DL: Well not exactly. These regional jets have a seat cost of around 16 to 19 cents per seat mile whereas our existing mainline jets cost about 9.5 cents.
J: So then I hope they attract more passengers. They are more comfortable, right?
DL: No, they are smaller, offer no first class, no overhead storage, and you have to be a contortionist to use the lavatory. But they sure beat flying a turboprop. We believe we can we create greater demand due to higher frequency when we replace mainline flying with these jets.
J: So you offer more of a product your customer does not truly prefer?
DL: Yes, but they are profitable.
J: Well how can that be when they cost almost twice as much to operate?
DL: Oh that's easy. Delta mainline subsidizes them by purchasing their airplanes, paying for their facilities, providing marketing, as well as reservations, distribution, etc. etc. Basically, we pay all their fixed costs.
J: Well how would Delta mainline be doing if Delta Connection was actually paying their own expenses?
DL: Well it does not matter, we are all one big company and all the money goes into one big pot, so to speak.
J: Then how do you know if the regional jets are truly profitable?
DL: Um, I’ll have to get back to you in about four to six weeks on that one.
J: And if all your money goes into one big pot, how is it you figure that your mainline pilot costs are your problem?
DL: Look, we need to get our costs down and this is the easiest expense to go after, OK!
J: That is your plan? I did mention you have to have a viable business plan, right? How is your Song operation doing?
DL: Great! It is profitable, customers love it, and it has received great reviews from the press.
J: Because you have gotten lower cost pilots at Song?
DL: Well your honor, that is not exactly correct. Song uses the same mainline pilots at the same pay rates.
J: Bailiff, can you get me some aspirin? I am getting a headache.
Bailiff: Here you go sir.
J: All right, what about these charges of over a billion dollars for terminal improvements in Boston and New York?
DL: Well, our old terminals looked yucky.
J: Yucky? How about the 600 million you lost due to the Comair strike? I hope it was worth it.
DL: Well, we settled at our last offer, so we didn't really save anything. We figure the difference between what the Comair pilots wanted and what we gave them will have been worth it in about 20 years.
J: And I see a few hundred million dollars spend for stock equity in a South American airline?
D: That airline unfortunately went out of business, your honor.
J: I see. I mentioned that Delta needed a viable business plan. You do understand this would presume a management team capable of competent execution and decision making. It appears as though your management has exercised all the financial restraint, responsibility and competence of a spoiled sorority girl with her fathers Neiman Marcus charge card. Were they penalized?
DL: Um no. Actually we gave them bonuses. And a separate bankruptcy proof retirement trust fund. You have to pay top dollar to keep top talent!
J: And have been able to keep top talent?
DL: Well, the funny thing is.............um.......they kind of...........left.
J: All of them?
DL: Just about.
J: Well that is the first good news I've seen regarding this case so far. From what I have seen so far, I am very concerned about the debt accumulation which has been allowed. It appears Delta would be profitable now if there were not such huge debt service. Do you seek a restructuring of your debt? I see about half of it is unsecured. Your requests so far have been unusual in that with most bankruptcy proceedings, debt reduction and restructuring is the main priority.
DL: Uh, can we have our pilot pay cut now please?
J: Enough about operating costs and debt service. How about revenue?
DL: Well, demand is down so we have no pricing power.
J: Really? What are your load factors?
DL: In the 80% range.
J: That seems kind of high.
DL: Actually it is an all time record.
J: Shouldn't you raise ticket prices?
DL: I'll have to get back to you on that one as well, your honor. You see, a funny thing happened. We tried to save money by cutting out travel agent middle men by forcing our customers to the internet. And we kind of lost control of our product distribution. (Heh heh!) We believe the customer always goes with the lowest price
This would be funnier if it wasn't so accurate:
Judge: Ok, let’s get these proceedings started. I understand you are the attorney representing Delta Air Lines, and that Delta Air Lines is seeking protection under the chapter 11 of the federal bankruptcy code. Is this correct sir? Yes your honor.
J: As you are aware, in order to grant bankruptcy protection, the law requires that your company must have done everything reasonable in its power to prevent a declaration of bankruptcy. Furthermore, this court must be presented with a viable business plan to ensure this situation does not happen again. I must now review actions by Delta Air Lines leading up to this situation. Please state your case.
DL: Your honor, for the past three years, Delta has suffered major financial losses and a dramatic increase in debt. We are now in a position whereby we cannot pay the debt service given our current revenue and costs. We feel, the primary culprit of our financial situation is pilot salary costs and we seek relief from the pilot contract.
J:That's it? Just the pilots?
DL:Uh, yes your honor.
J:Well looking at your quarterly financial reports for the past 7 years, it appears you have let your debt level to swell up to around 20 billion dollars, which causes roughly an annual debt service of a billion dollars per year. So I'd like to see where all this debt came from.
First, I see that your company engaged in a 2.5 billion dollar stock buy back program. How much is this worth now?
DL:Um, virtually nothing.
J:You also spent over 2.5 billion dollars purchasing Comair and ASA?
DL: Yes. Both these companies were subcontractors of ours previously. In the case of ASA, there were quality control issues we felt could be better managed if we owned them. As for Comair, by outsourcing to them so much work, we allowed to become a monopoly in our Cincinnati hub. We were afraid they could become a competitor, or be purchased by one of our competitors.
J: OK, I also see that your management then went on an aircraft spending spree, buying hundreds of regional jets for your Comair and ASA Delta Connection division at a cost of an additional few billion dollars. I hope these planes are a wise investment. Are they are cheaper to operate?
DL: Well not exactly. These regional jets have a seat cost of around 16 to 19 cents per seat mile whereas our existing mainline jets cost about 9.5 cents.
J: So then I hope they attract more passengers. They are more comfortable, right?
DL: No, they are smaller, offer no first class, no overhead storage, and you have to be a contortionist to use the lavatory. But they sure beat flying a turboprop. We believe we can we create greater demand due to higher frequency when we replace mainline flying with these jets.
J: So you offer more of a product your customer does not truly prefer?
DL: Yes, but they are profitable.
J: Well how can that be when they cost almost twice as much to operate?
DL: Oh that's easy. Delta mainline subsidizes them by purchasing their airplanes, paying for their facilities, providing marketing, as well as reservations, distribution, etc. etc. Basically, we pay all their fixed costs.
J: Well how would Delta mainline be doing if Delta Connection was actually paying their own expenses?
DL: Well it does not matter, we are all one big company and all the money goes into one big pot, so to speak.
J: Then how do you know if the regional jets are truly profitable?
DL: Um, I’ll have to get back to you in about four to six weeks on that one.
J: And if all your money goes into one big pot, how is it you figure that your mainline pilot costs are your problem?
DL: Look, we need to get our costs down and this is the easiest expense to go after, OK!
J: That is your plan? I did mention you have to have a viable business plan, right? How is your Song operation doing?
DL: Great! It is profitable, customers love it, and it has received great reviews from the press.
J: Because you have gotten lower cost pilots at Song?
DL: Well your honor, that is not exactly correct. Song uses the same mainline pilots at the same pay rates.
J: Bailiff, can you get me some aspirin? I am getting a headache.
Bailiff: Here you go sir.
J: All right, what about these charges of over a billion dollars for terminal improvements in Boston and New York?
DL: Well, our old terminals looked yucky.
J: Yucky? How about the 600 million you lost due to the Comair strike? I hope it was worth it.
DL: Well, we settled at our last offer, so we didn't really save anything. We figure the difference between what the Comair pilots wanted and what we gave them will have been worth it in about 20 years.
J: And I see a few hundred million dollars spend for stock equity in a South American airline?
D: That airline unfortunately went out of business, your honor.
J: I see. I mentioned that Delta needed a viable business plan. You do understand this would presume a management team capable of competent execution and decision making. It appears as though your management has exercised all the financial restraint, responsibility and competence of a spoiled sorority girl with her fathers Neiman Marcus charge card. Were they penalized?
DL: Um no. Actually we gave them bonuses. And a separate bankruptcy proof retirement trust fund. You have to pay top dollar to keep top talent!
J: And have been able to keep top talent?
DL: Well, the funny thing is.............um.......they kind of...........left.
J: All of them?
DL: Just about.
J: Well that is the first good news I've seen regarding this case so far. From what I have seen so far, I am very concerned about the debt accumulation which has been allowed. It appears Delta would be profitable now if there were not such huge debt service. Do you seek a restructuring of your debt? I see about half of it is unsecured. Your requests so far have been unusual in that with most bankruptcy proceedings, debt reduction and restructuring is the main priority.
DL: Uh, can we have our pilot pay cut now please?
J: Enough about operating costs and debt service. How about revenue?
DL: Well, demand is down so we have no pricing power.
J: Really? What are your load factors?
DL: In the 80% range.
J: That seems kind of high.
DL: Actually it is an all time record.
J: Shouldn't you raise ticket prices?
DL: I'll have to get back to you on that one as well, your honor. You see, a funny thing happened. We tried to save money by cutting out travel agent middle men by forcing our customers to the internet. And we kind of lost control of our product distribution. (Heh heh!) We believe the customer always goes with the lowest price
