ALPA says ignore the elephant in the room (June 07)

Greetings.

We have recently received Part 1 of 4 ALPA efforts to explain and defend their targeting scheme. (Retirement Transition Update #1)

It comes as no surprise that this Part 1 has done nothing to actually describe the specifics of what is being proposed. It certainly does not include the seniority list of the individual effects of targeting as the MEC agreed to provide for us at the April MEC meeting.

What Part 1 does do is use a bully pulpit to reiterate ALPA’s justifications for targeting our DC funds without any counterpoint whatsoever.
While there are numerous points that deserve critique, the elephant in the room that ALPA spent a full third of Part 1 trying to shoo away is the vulnerability of our DB benefits to a distress termination.


Let us be clear in understanding that our frozen DB plan is very much at risk when looked at from a historical perspective.

To illustrate this point, let’s quickly review the past couple of decades and look at all of the major airlines that have entered Chapter 11 bankruptcy proceedings and see how they have fared.

After Braniff entered chapter 7 liquidation, the first airline to file Chapter 11 was Continental, which entered and exited bankruptcy two times before moving ahead.

Next came TWA. TWA also entered Chapt. 11 a second time and was staring into the abyss a third time when AA bought them.

Pan Am went through several bankruptcies, the number dependent on what one defines as the real Pan Am. It is, of course, gone.

Then came Eastern. Eastern is gone.

After a brief lull in the late 90’s, we had USAir and then United enter Chapter 11. Both of these carriers entered and exited bankruptcy 2 times and both are still on very shaky ground.

Quite a consistent track record for airlines entering Chapter 11 bankruptcy: in bankruptcy at least two times or gone altogether. And how many of these have maintained a pre-existing DB plan through it all? None!

So our ALPA guys have the audacity to suggest that out DB plan is secure. All it takes is for NWA to go back into bankruptcy again, which history suggests is more likely than not, and they can distress terminate at will.

Considering that DB plan security is a cornerstone of ALPA’s defense of its plan to take the pension money from 2000 senior pilots and give it to the more junior pilots, it appears that the justifications for the targeting scheme start on very shaky ground.


Moving on:

A continued flat allocation of the paltry 5-8% DC money falls far short of making up for the 40% pay cuts and work rule concessions that the senior pilots are suffering along with the rest of the pilot group.

ALPA makes it sound like the senior pilots would be getting some sort of windfall if the DC money continued to be flatly allocated. This is the height of absurdity when considered with the bigger picture of our total contract and its effects on our lives and finances. At least the younger junior pilots will have time to make up for what we all hope is a short term downwards blip in our contract at NWA. Which leads to the next point...

Targeting fixes the inadequate pension twice for the junior pilots at the expense of the senior pilots

Numerous times in Part 1 and other ALPA communications it is made clear that the pension program and pay scales at NWA are sub-standard and improving those will be a major focus of future negotiations with NWA. What this means is that, barring catastrophe, the inadequate pension provisions are likely to see significant improvement in coming contracts. This can basically fix the current pension shortfall for our most junior pilots, precisely the ones who are receiveing the largest windfall from targeting. Meanwhile, any such improvements will come too late for the more senior pilots.

The targeting assumptions do not take such future improvements into account, (let’s be careful to avoid mixing the engineering of the charts in Part 1 with the actual assumptions that are proposed to be used to target our pension) so junior pilots get senior pilots’ pension money to fix a shortfall that is likely to be addressed in future contracts anyway - contracts that will do nothing to make up for the huge losses in income and benefits that the senior pilots are suffering along with the rest of the pilot group right now. And there is a large cadre of mid seniority pilots who are being led to think that targeting is good for them but are likely to get the short end of the stick as well.


Pilot pension traditionally continued to increase in value to the pilot right up to retirement, even for pilots with over 25 years longevity.

It is slight of tongue for ALPA to claim that “once a pilot completed 25 years of service, his accrued benefit would never thereafter increase...” This statement applies to only one aspect of the larger calculation of a pilot’s pension benefit. It is misleading to take it out of that narrow context as done on page 5, footnote 4 of Part 1. And the obligation by the pension fund to fund that benefit increases right along with it.

Past pension benefit increases, as well as the attendant funding obligation increases, occurred in part due to annual increases in pay rates that were reflected in the FAE calculations. It also occurred due to the progressive reduction of early retirement penalties. In this last respect, benefit and funding obligations per pilot still increase even under the frozen plan.

So, ALPA’s intimation that pilots with over 25 years no longer required the company to put money into the pension fund for them is false.



These points are just a few of the many problems with ALPA’s defense of its targeting scheme. The assumptions used in creating the charts were not revealed and numbers that we do know, such as the 8.8% rate that is used for actuarial calculations on funding our DB plan, were probably too high an assumption for ALPA's purpose in calculating the future value of junior pilots’ DC money. But take a 5-8-12% DC contribution and apply 8.8% compounded over 20 years, as many of the junior pilots have ahead of them, and Part 1’s chart numbers would look very different. Or maybe not? Since the details are still being kept in the closet by ALPA, we can't be sure.

Why does ALPA continue to keep the details of the targeting formula secret? Management knows what they are. Whose side is ALPA on here anyway?

The bigger tragedy inherent in targeting is the schisms that its underlying philosophy is creating in this pilot group. This whole business of taking from one group to fix the contract for another is an abrupt departure from the historic philosophies of MECs at NWA, which saw us successfully through some other very difficult times. If this philosophy is allowed to stand, it provides a dark picture of the future prospects of all pilots at NWA.

Enough for now. It's time to spend a little time with my family.

Until Part 2,
Mike Tanksley