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Who Loses with Delta’s Pilot Contract Rejection?

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Who Loses with Delta’s Pilot Contract Rejection?

Who Loses with Delta’s Pilot Contract Rejection?
July 17
10:00 2015

MIAMI — Delta’s fleet is losing 60 new aircraft, previously scheduled for delivery starting as early as 4Q2016. The orders – 20 Embraer E190 and 40 Boeing 737-900ER – were conditional on the pilots agreeing to the most recent contract offer. That offer was voted down by 65% of the carrier’s pilots last week. Cancellation of the order was confirmed by CEO Richard Anderson during the quarterly earnings call this week with a terse, “Those orders will be cancelled,” in response to an analyst inquiry.

This news is a blow to both the aircraft manufacturers, obviously, though it arguably affects Embraer more than Boeing. The hit to Boeing is less than one month’s worth of manufacturing compared to roughly a half-year of deliveries for Embraer. And the 737s were further out in the future for delivery compared to the E-Jets. But there’s more to the E-Jet cut and the contract.

The new E190s would have entered Delta’s mainline fleet, not as part of a regional operator. This is consistent with how they operate at US Airways and JetBlue so not surprising, but adding the type into another carrier would be a significant win for Embraer. Moreover, the now rejected agreement provided for increased deliveries of E190 aircraft should the company choose to increase the number of 70-seat regional jets. It also would have drawn down the number of 50-seat regional jets flying, as the MEC explained to members in a memo:

The Company must first take delivery of two E190 aircraft for each additional 70 or 76 seat aircraft it adds to the fleet. It also must eliminate the equivalent of two 50-seat aircraft for each 70 or 76 seat aircraft that is added.

In addition to increasing the number of mainline pilots flying for the company relative to contracted Delta Connection operators the increase of E190 frames would have been a huge win to Embraer.

The proposed deal also changed the order of positions within the company hierarchy to have the E190 Captain positioned above the First Officer position on the rest of the domestic fleet, including the 767/757 aircraft. While that is not especially unusual the new rankings would have also put the E190 First Officers above the Canadair CRJ 900 Pilots. Combined with the lower pay scale (as much as 30%, depending on position and seniority) on the CRJ 900 compared to the E190 this would have likely made additional E190s more appealing to the pilots as new aircraft were chosen for the fleet, again bolstering Embraer’s position.

The rejection of the contract draws some parallels to the similar scenario with Envoy, the American Airlines regional carrier, from a year ago. In that case American eventually reassigned aircraft away from Envoy and put them in service with other regional operators. This is a slightly different case as the ability to reassign mainline flying elsewhere doesn’t really exist. Then again, one of the new clauses inserted into the contract this time around may have opened that door a bit:

Except as approved by the Delta MEC Chairman, or as otherwise provided by Section 28 1 E., a carrier engaged in international partner flying will maintain a separate operating and corporate identity from the Company including, but not limited to, name, trade name, logo, livery, trademarks or service marks. The Delta MEC Chairman may, at his option, approve the use by a carrier engaged in international partner flying of a trade name, brand, logo, trademarks, service marks, aircraft livery or aircraft paint scheme currently or in the future utilized by the Company or any Company affiliate.

This paragraph suggests that some international partners may be permitted to operate flights under the Delta brand, so long as the Union chair agrees. It seems unlikely that would happen without significant concessions made to the Union, but the option was there.

Negotiations will continue and it is likely that many of these same provisions will ultimately be adopted. It could even result in the orders being reinstated. No doubt that both Boeing and Embraer are hoping that is the case.

 

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Seth Miller

Seth Miller

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