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The following is a letter from Capt. Lee Moak, chairman of
the Delta MEC, to the Delta pilots. While it is made available to you, we
will not be accepting follow up interview requests at this time. All
comments will be restricted to the contents of this letter.
Thank you for your cooperation.
The Delta MEC Communications Committee |
April 14, 2008
Dear Fellow Pilot,
Today, the boards of Delta Air Lines and Northwest Airlines
jointly announced their intent to merge the two carriers under the Delta
brand.
Unlike traditional airline merger scenarios, the proposed
merger is unique in that, for the first time in the history of airline
mergers, the Delta pilots, through their union representatives, have
participated from the formative stages of the proposed merger. This past
Saturday evening, your MEC voted unanimously to conditionally approve proposed
contractual modifications to the Pilot Working Agreement, codified in Letter
of Agreement19. Soon, you too will play a crucial role through the membership
ratification process as you decide whether to ratify these changes. If you
approve Letter 19, then we will know the terms on which we will participate in
the transaction, and Letter 19 will take effect on the date the corporate
transaction closes.
In my letter of March 17, I described your MEC’s efforts to
achieve an overall comprehensive agreement consisting of a transition
agreement, a joint pilot contract and an integrated seniority list in the
event of a corporate merger. Letter 19 is
not
that agreement. The contractual modifications and associated
returns of Letter 19 will apply
only
to pre-merger Delta pilots. Pre-merger Northwest pilots will
continue to work under their current agreement until together we negotiate a
joint pilot contract for the merged airline covering both groups. What Letter
19 does do, however, is provide us with the certainty of returns instead of
our having to negotiate later in the face of rising fuel costs and a declining
economy.
But let’s be clear about one thing in particular: the Delta
MEC welcomes the Northwest pilots as partners in the building of the new
merged airline, and we look forward to working with the Northwest MEC to bring
about the rapid completion of a new joint contract and a fair and equitable
integrated seniority list to take effect on the effective date of the new
joint agreement.
With that said, I want to provide you an update of the events
that led up to today’s announcement and the reasons behind your elected
representatives’ decision to unanimously ratify Letter 19 and support the
merger, as proposed, between Delta and Northwest.
Nearly one year ago, both Delta and Northwest emerged from
Chapter 11 as restructured carriers, thanks in very large part to the
sacrifices of each airline’s pilots. Those sacrifices were investments in the
future of our respective carriers, and we have the right to protect and defend
those investments.
Over the months following Delta’s exit from Chapter 11, we
carried millions of our passengers safely to their destinations as we had done
before and throughout the bankruptcy process. But there was a difference. For
the first time since the 9-11 attacks, our companies began to report profits.
Discouragingly, the price of oil continued its meteoric rise
and with it, speculation increased that long-anticipated industry
consolidation was just around the corner.
In November, the rhetoric increased when the
Wall Street Journal
reported that hedge fund Pardus Capital Management,
LP was attempting to force a merger between Delta and United. The story was
met with an immediate response from the Delta MEC establishing its position on
any proposed industry consolidation. In essence, we made clear that while we
do not oppose industry consolidation and that the "right" consolidation
opportunity could draw our support, we would not support a transaction for
transaction’s sake. Further, the Delta pilots would be critical participants
from the beginning in any consolidation discussion and potential resultant
event, not an afterthought to be considered at a later date.
Over the next several months, we continued to repeat this
message. We soon established our relevance in a process where labor has
historically been excluded. Having read the last several Chairman’s Letters,
you are no doubt familiar with what has taken place since Pardus’
ill-conceived attempt to shape
our
future.
Since my last letter, the financial difficulties that Delta
and the rest of our industry face have not gone away. In fact, they have
intensified. Oil remains above $100 per barrel, having increased at a
historically steep rate since Delta exited bankruptcy. The economy is
suffering, and many economists assert that we are entering a recession; others
argue we are already in one. The credit markets have become increasingly
difficult if not impossible to access. Just this month, Aloha, ATA and Skybus
ceased operations and Champion Air will shut its doors on May 31. Last week
Frontier filed for Chapter 11 protection. Legitimate concerns exist about the
long-term financial viability of several other carriers.
Delta is not immune to these pressures, and they must be
realistically addressed in the context of our broad goal which has not
changed—that the Delta pilots will work for a company that has long-term
viability with pay, benefits, working conditions and retirement commensurate
with the responsibility and experience required of our profession. With that
goal in mind, we remained actively and aggressively engaged with Delta’s
senior executives as they continued to consider consolidation options. The
purpose of that engagement was to determine what courses of action, to include
opposing or supporting any proposed merger, would best support our overall
goal.
While we were unable to reach an overall agreement with the
Northwest MEC, the Delta MEC remained determined to find an alternative to the
traditional merger process, an alternative that would provide for a superior
outcome not only for the pre-merger Delta pilots, but eventually
all
pilots of the merged corporation.
After careful analysis and deliberation of the facts, the
Delta MEC concurred with Delta’s senior executives and our financial
professionals that a merger between Delta and Northwest was financially
superior to a standalone Delta. That determination led to the negotiation of
Letter 19, a tentative agreement between Delta management and the Delta MEC
which, if ratified, will provide certain modifications to the current Pilot
Working Agreement designed to facilitate the proposed merger with Northwest
and provide returns for the value our participation brings to the merger.
Elements of Letter 19 include:
- A three and one-half percent equity stake in the merged
Company in fully tradeable stock at the close of the merger
- Annual pay raises beginning with a five percent raise on
January 1, 2009 and followed by four percent raises every January 1 through
January 1, 2012. On January 1, 2011, Delta pilot pay rates will exceed the
Letter 46 rates, without even considering the equity each pilot will
receive.
- A one percent increase to the DC Plan contribution rate
beginning in January 2010.
- Furlough protection—with certain exceptions, no pilot may
be furloughed as a result of the merger for a period from merger
announcement until 24 months after the close of the merger.
- An increase in the full-pay sick leave bank from 240
hours to 300 hours.
- The ability for a pilot returning from disability to
refill his full pay sick leave bank once every four years instead of once in
a career.
- An increase in 737-700 pay rates to match the 737-800 pay
rates.
- In return for these improvements, we would provide
various modifications to our scope clause to enable Delta to proceed with
the merger. For example, we would allow the Company to place the Delta code
and brand on Northwest flights on an unlimited basis after the close of the
merger, provide greater flexibility on minimum block hour protections during
the merger process, and permit the Company to retain Northwest’s large stake
in Midwest Airlines (previously purchased by Northwest Airlines) while
maintaining their separate operational status.
Your MEC unanimously adopted and enthusiastically endorses
Letter 19. Soon you too will be asked to vote on Letter 19. Our role in the
proposed merger will then rest with you.
If you choose to ratify Letter 19, its terms will become
effective at the close of the corporate transaction. We will actively support
the merger through legislative and other efforts. We will join management to
seek Department of Justice antitrust approval in a timely manner.
If you decide not to ratify Letter 19, it will become null and
void. In that event, what happens next is unclear but we will retain our
rights to seek to reshape or even oppose the proposed merger. Your MEC would
determine the course it would take under that scenario.
Over the next several weeks, we will provide you with the
information you need to make an informed decision on Letter 19. We will send
out a
Negotiators’ Notepad and a special edition
Widget
which will provide you with in-depth information on various
aspects of Letter 19, the broader Transaction Framework Agreement and other
related issues. Additionally, your elected representatives will soon be in the
lounges to answer your questions and address your concerns, the Delta Pilot
Network will be staffed this week, and Pilot-to-Pilot volunteers will be
available throughout the system to address your questions. The Delta MEC will
also host road shows during the coming weeks at all pilot domiciles. The
membership ratification process will follow soon after the completion of the
road shows.
Anger and hope will never be effective strategies to counter
the challenges we face, and change is never easy, but as we have become
intimately familiar with over the years, it is one of the few constants in our
industry. A key difference this time, however, is that the Delta pilots can
choose to be an agent of that change rather than a bystander to it.
Your union leadership chose to craft a new and, I believe, far
superior solution—one with a substantially brighter outcome for the pilots of
the merged corporation than the traditional merger scenario. As your MEC
recognized, we have a historic opportunity before us. I encourage you to read
and understand all the information you receive. Talk to your elected
representatives. Seek out answers to your questions. Make every effort to
attend a pilot road show.
Then, when the ratification window opens, I join the Delta MEC
in strongly encouraging you to vote in favor of ratifying Letter of Agreement
19.
Fraternally,
Lee Moak, Chairman
Delta MEC
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