It’s remarkable how quickly a labor agreement can be reached when both sides want something. Even though Delta’s pilot contract doesn’t become amendable until the end of this year, both management and pilots wanted something more. Because of that we have a tentative agreement a good six months early. The pilots will now vote on this to decide if they want to accept it. If they do (and at first blush, it seems they should) then they’ll have higher wages and lower profit sharing. They’ll also begin flying smaller airplanes.
There are a lot of little things changing in this agreement, but let’s focus on the big stuff.
The Pilots Want Less Outsourcing, Delta Wants a Great Deal on Airplanes
Mainline pilots always want to see less outsourcing. And Delta’s management team always wants a great deal on airplanes. In the last pilot contract, the stars aligned to make that happen. Delta was able to acquire the former AirTran 717s for cheap and the pilots agreed to fly them in exchange for a smaller Delta Connection regional fleet.
Now this opportunity has presented itself once again. Delta has a smoking deal in the works with Boeing. See, Air Canada had 20 Embraer 190 aircraft that it didn’t want. It was also looking for a next generation replacement for its domestic Airbus A320 fleet. Boeing stepped in and got Air Canada to switch to 737MAX aircraft partially by agreeing to take those Embraer 190s off Air Canada’s hands.
Enter Delta. Boeing is sitting on these Embraers with nobody to take them. Delta, of course, is interested in anything like that if the price is right. So, Delta has now entered into an agreement to buy those Embraer 190s as well as 40 more 737-900ERs if the pilots approve this deal. The 737-900ERs will be used to replace older generation airplanes, and you can be sure that Boeing was willing to give a sweetheart deal on these. Not only does it keep the current generation 737 line going but it unloads those 20 Embraers. Everyone is happy.
Of course, the pilots like this, and they’ve agreed to fly the Embraer 190 at 16 percent less in terms of hourly wage compared to the 717. But does this shrink outsourcing? Absolutely.
Delta Connection’s fleet is currently capped at 450. It will shrink down to 425 with this agreement. Within that 425, however, Delta will be able to use bigger airplanes. For every 2 Embraer 190 (or equivalent) airplanes that Delta puts into service, it can replace a 50-seater with a 70 or 76-seater. This would allow 25 more of those 70-76 seat regional jets to be added, so that would mean Delta has incentive to add 30 more Embraer 190s over the 20 it has already agreed to.
Delta Wants Less Profit-Sharing
That’s not all that Delta wants, however. Since Delta is making big money, it wants to follow American’s lead and actually reduce profit-sharing. It thinks it’s paying out too much. To get that, however, Delta has to raise wages to make up for it.
So, on the date of signing this agreement, wages go up 8 percent. Then next January, they go up another 6 percent with 3 percent raises in both January 2017 and January 2018. The contract becomes amendable again at the end of 2018.
In other words, on January 1 of next year when the current contract would be amendable, the pilots will be paid nearly 15 percent more under this new contract.
Profit-sharing, however, will be reduced. Today, Delta pays 10 percent of profits of up to $2.5 billion on the year to pilots. (That used to be 15 percent, but it changed in the last contract.) This won’t change. But there’s another threshold where Delta pays 20 percent of profits over $2.5 billion on the year to the pilots. Now that Delta is making big money, it thinks $2.5 billion is too low. So this will move the 20 percent threshold all the way up to $6 billion in annual profit.
There are other changes as well, and if you really want to see them all, here are the full details of the tentative agreement. If you keep reading that thread, you’ll see a lot of people saying this is awful. But the reality is that this is a deal that gives both sides something they want, though it’s not a cheap deal for Delta.
When fortunes turn down again, Delta might not like these high wage rates. But that’s how this industry always works. Hopefully this time, the next downturn won’t be as bad as previous ones.
While I have no idea if it will be approved, the tentative agreement seems like a very worthy deal to consider. Now we just wait to see what happens. If it gets the thumbs up, you can look forward to flying on a Delta Embraer 190 next year.