Joint Tentative Agreement Roadshow Part Two

Dealing With The Iron Bank

First and foremost, understand this Tentative Agreement came at an additional cost of $380 million to United. All three Flight Attendant contracts were valued at about $1.4B. Up until the arrival of United CEO Oscar Munoz, United had no intention of paying more than a budgeted $110 million additional dollars for this T.A.

The last $50 - $60 million of added money came at the very end of negotiations. United MEC President, Ken Diaz describes at the roadshow the difficult final days.

Negotiations at this point had stretched into the early morning hours. Unified, the JNC fought to keep five far reaching, ominous issues OUT of this agreement that United Management insisted upon.

They were at an impasse. No one would budge. Ken spoke of how agonizing it was after so many years of hard work and feeling so close to the end. At 06:30 that morning, the decision was made and the JNC began to pack up their materials to leave.

The packing of materials took time (an hour or so) and as the JNC was nearly finished loading their vehicles, Linda Puchala, Chairman of the National Mediation Board called to ask them to return.

Startled, the JNC heard her words, “United has agreed to those last remaining issues.” 

 They were:

• 30/31 day months. UAL wanted 29 day months which mathematically produced higher reserve exposure, particularly in the high travel months of Jun, July and Sept.
  
  

• The 12th day off for RSV. United’s desire for a 29 day month lead to only 11 days off for reserves.
  
  

• The 29 day month also would result in less vacation days available for bid during these valuable summer vacation months, which would have impacted everyone during our vacation bids.
  
  

• Higher Profit sharing percentages. UAL wanted to payout less, somewhere in the 5% range. Instead this agreement produces 10% of pre-tax earnings with a bump up to 20% pre-tax earnings that are in excess of those earnings for the previous year.
  
  

• Limiting narrow bodies to just 1 language position and 3 on a wide body. United wanted 2 LQ’s for smaller narrow bodies, 3 on the 757 and 4 on wide bodies. The JNC wanted to protect both the language qualified and line Flight Attendants by meeting the company in the middle. They did so by keeping the narrow bodies down to 1 LQ, 2 LQs for the 757 and 3 on the wide body fleet.

Again, these last issues drove the package up by $50-$60 million dollars over what United had already agreed upon. This increased the value to $380 million, 3x the amount they had been willing to spend all along, for a total of $1.9B.

 Winds From The North

Matt Barton, a financial and economic advisor from FlightPath Economics, was hired as an outside consultant for AFA for our joint negotiations. He explains more about the numbers as his industry experience is to “cost out” contracts.

All three existing contracts cost United about $1.4B for the Flight Attendant group as a whole. This number included wages, benefits, work rules, etc. Adding in the additional cost of $380 million due to these new wages and benefits, brought this number to $1.83B for this contract which averages out to about $76,000 in cost to United per year, per Flight Attendant.

He explains further that each airline, United, American, Delta, as well as other carriers, look at contracts and “cost them out” for each work group. United, until just a year ago planned to spend no more than $110 million for our combined contract (in addition to the existing cost of $1.4B). These were industry standard numbers and as we all know, this is a competitive business.

United, during the course of these negotiations found itself making incredible amounts of money. Just in the last two years, it has been looking at about $7B alone in operating profits.

In 2015, United broke all records with a profit margin of 14%. Historic averages show profits in the 6%, 3%, 2%, range. 14% is unprecedented. The economy was doing well and at this time is continuing to enjoy about seven years without a recession.

At both the SFO and LAX roadshows, Matt presented a number of slides with graphs. He was not available at our HNL roadshow, so this information will not be familiar to those of you that attended in HNL or GUM.

Matt shows us that based on historical data, recessions for the last 40 - 50 years have occurred about every 4 to 10 years, on average. 

As mentioned, this country has enjoyed being free from a recession for the last seven years. Looking ahead, Matt sees headwinds. The airline industry is cyclical and tied to the economy. Fuel is down, but $40 and $50 per barrel won't continue forever. We are also acutely aware of our high exposure to terrorism today and other political risks that are out there.

While this is in no way a perfect contract, Matt explains that it is a good one in terms of its value compared to other carriers. And importantly, it has come at an opportune time. Next year, United may not be in this position.

Up next, a look at how provisions were brought into this Tentative Agreement from each Flight Attendant contract. We’ll also talk about the process if this agreement is voted down.

Until then...