Delta Air Lines posted a record profit last year and its stock is near the all-time high it reached in December. But its momentum faces a hurdle as the company negotiates a new contract with pilots.
The existing contract expired in December, which triggered a 90-day window for management and the pilots’ union to reach an agreement.
That period ends on Thursday and both sides are now preparing for negotiations that will be led by the National Mediation Board as required by the Railroad Labor Act.
Representatives from the pilots’ union say the process, as outlined by their current contract, is working as it should. The main issue for both sides is profit-sharing.
Delta raked in a $4.5 billion net profit in 2015. This, along with significant debt reduction, led Moody’s Investor Service in February to restore Delta’s investment grade rating, the first of the big three U.S. carriers to rise above junk bond status. These high marks have further fueled the pilots’ desire to see a profit-sharing provision in their new contract that is similar to the current one.
“We like to say we are investment grade, too,” said Capt. John Malone, chairman of the Master Executive Council, the union’s governing body for Delta pilots.
About 1,200 of Delta’s 12,000 pilots are based at the airline’s Minneapolis-St. Paul hub. Delta employs roughly 9,700 people in the Twin Cities in various jobs.
Last July, the pilots rejected a tentative contract reached between the airline and their union, the Air Line Pilots Association (ALPA), because of several provisions including one that reduced profit-sharing. The Delta union chairman resigned when 65 percent of the voting pilots rejected the contract that he helped negotiate.
In January, new Delta union leadership presented its opening proposal to the company, asking for 40 percent compounded raises over three years.
Malone and others in union leadership say it is no burden on the company to reward the pilots through profit.
“We want the company to succeed. We’re not trying to kill the golden goose,” said Jon Lewis, chairman of the Minneapolis-St. Paul Local Executive Council for ALPA. “It’s no burden on the company because [profit-sharing] is only there when things are good.”
Under the current contract, the company pays out to all employees a total of 10 percent of pretax income up to $2.5 billion, and 20 percent of profits over that value. The rejected contract had the company paying employees 10 percent of pretax profits up to $6 billion and 20 percent for any profit beyond that threshold.
Management responded to the union’s opening proposal with a memo stating it is willing to reassess its position on some controversial provisions in the rejected contract — regarding sick leave and pathways to promotions — but avoided directly mentioning profit-sharing. The memo brushed close to the issue, referencing the unstable nature of variable compensation.
“We will maintain the disciplined and balanced approach to running our business that has produced industry-leading total compensation through sustainable increases, growth opportunities and more secure careers for our people, while remaining competitive in the marketplace,” Capt. Steve Dickson, senior vice president of flight operations for Delta, said in the memo. “We are only now beginning what appears may be a lengthy process to reach a new agreement based on our respective positions.”
According to management’s calculations, the rejected contract would have increased the average Delta pilot’s total compensation in 2016 from $258,300 to $279,000, keeping it ahead of United Airlines pilots’ recently ratified new contract as the top-paid pilots in the U.S.
But representatives from the pilots’ union believe several recent decisions or statements made by Delta suggest management likely predicts its profits will continue to balloon. Delta increased the base pay of its flight attendants and ground crew — who are nonunionized employees — this fall by 14.5 percent. But it also raised the bar that would trigger a greater share in the profits for those employees.
The industry has transformed from five years ago when airlines’ balance sheets were struggling to stay in the black and jobs were being slashed. Mergers and low oil prices have led to record profitability, changing the dynamics between airline management and its labor unions.
“The days of yelling and screaming at each other just aren’t there any longer. The overall state of the industry means you are able to negotiate from a place of prosperity, not concession,” said Jerry Glass, an airline labor-relations consultant and former US Airways executive.
The pilots argue that the industry, which suffered a bruising during the post-9/11 and bankruptcies years, has reset itself in nearly every way except the concessions made by labor, which included pay cuts in excess of 45 percent. The pilots’ union says they’ve gradually clawed their way back, but are looking now for full restoration.
Malone predicts negotiations will begin in earnest once Delta’s president, Ed Bastian, succeeds CEO Richard Anderson after Anderson’s retirement on May 2. So far the tenor has been hopeful, with both parties expressing appreciation for the other side’s contributions to the company’s health. Malone told members in a letter last week that the union’s goal is to have a tentative agreement to vote on by this summer.
“You still have honest-to-goodness differences,” Glass said. “But you aren’t fighting to keep your job and you aren’t fighting to save the company. And that changes things in a good way.”