Management’s final “enhancement” provides that if as a result of eliminating the pilots’ current A-Plan and B-Plan, converting to a strict 401(k) Plan, a pilot exceeds the current IRS limits for 401(k) contributions, management will pay the pilot those amounts that exceed the IRS limits in taxable income instead of keeping the money.
Management’s proposal:
Company contributions on compensation above the IRS compensation limit will be paid as taxable income to the participant.*
No pilots reach these limits under the current A and B Plans so this “enhancement” is not currently needed. This problem is one created solely by management wanting to get rid of the A and B Plans and converting them to a 401(k) Plan. Management wants to give the pilots an “enhancement” that may result in the pilots’ pension plans being taxed as ordinary income for the first time ever.
If the pilots agree to the other 67 onerous items, a couple being agreeing to terminate their A-Plan and eliminate their B-Plan, management will provide them with this final “enhancement” - a smaller pension and a pension plan that may be taxed.
An enhancement? Really?
Friday, March 23, 2012
Thursday, March 22, 2012
Enhancements Part IV: Pension Contributions
Management’s two final “enhancements” pertain to the pilots’ pension plans.
With the first one, management proposes that if the pilots do not prevent management from terminating the pilots’ A-Plan, and the Court ultimately allows it to be terminated, then and only then will management pay the pilots the money they propose.
Under this scenario, management proposes to eliminate both the current A-Plan and the current B-Plan and replace it with a 13.5% 401(k) contribution. If the pilots agree to management’s proposal prior to the actual A-Plan being terminated then the Company will not pay this 13.5% directly to the pilots as is done today under the B-Plan, but instead they will escrow the 13.5% contribution and will not transfer the assets to the pilots until the A-Plan is terminated. If the A-Plan is not terminated, the pilots would not receive this escrow amount.
To receive this first pension “enhancement,” the pilots must agree to change their 11% B-Plan to an 11% 401(k) contribution. If they allow their A-Plan to be terminated, management will provide the pilots with an additional 2.5% 401(k) contribution. For these major changes to the pilots’ A and B Plans, management will agree to pay the pilots what they agreed to pay them from the escrowed account.
Management's fourth enhancement:
Amend the agreement to provide that the Company will offer a replacement benefit through the SuperSaver 401(k) Plan with a thirteen and one-half (13.5%) percent Company contribution. Company contribution will be escrowed and is contingent upon court approval of DB plan termination. Otherwise, funds will revert to Company.*
So, if the pilots agree to eliminate their B-Plan and allow the termination of their A-Plan, management will provide the pilots the enhancement of paying them what management has proposed under their proposal which is significantly less than what pilots currently receive under their A and B Plans.
This is an enhancement? In what universe?
Under this scenario, management proposes to eliminate both the current A-Plan and the current B-Plan and replace it with a 13.5% 401(k) contribution. If the pilots agree to management’s proposal prior to the actual A-Plan being terminated then the Company will not pay this 13.5% directly to the pilots as is done today under the B-Plan, but instead they will escrow the 13.5% contribution and will not transfer the assets to the pilots until the A-Plan is terminated. If the A-Plan is not terminated, the pilots would not receive this escrow amount.
To receive this first pension “enhancement,” the pilots must agree to change their 11% B-Plan to an 11% 401(k) contribution. If they allow their A-Plan to be terminated, management will provide the pilots with an additional 2.5% 401(k) contribution. For these major changes to the pilots’ A and B Plans, management will agree to pay the pilots what they agreed to pay them from the escrowed account.
Management's fourth enhancement:
Amend the agreement to provide that the Company will offer a replacement benefit through the SuperSaver 401(k) Plan with a thirteen and one-half (13.5%) percent Company contribution. Company contribution will be escrowed and is contingent upon court approval of DB plan termination. Otherwise, funds will revert to Company.*
So, if the pilots agree to eliminate their B-Plan and allow the termination of their A-Plan, management will provide the pilots the enhancement of paying them what management has proposed under their proposal which is significantly less than what pilots currently receive under their A and B Plans.
This is an enhancement? In what universe?
Wednesday, March 21, 2012
Enhancements Part III: Is This The One True Enhancement?
Management has stated they are offering an industry leading profit sharing plan, but as shown in a previous posting, their proposal is not industry leading at all. But is it at least an enhancement?
Management’s profit sharing proposal is below:
But is this an enhancement? Under the current profit sharing plan, employees would receive 15% of all net income above the first $500 million. With management’s 1113 proposal that would change to 15% of all net income starting with the first dollar of net income.
Under their business plan, management anticipates lowering current employee salary, wages and benefits from about $6.2 billion to approximately $5 billion annually through the bankruptcy process.
With the new first dollar profit sharing proposal, employees would receive $75 million more than they would under their current profit sharing plan (15% of the first $500 million). With an annual payroll of approximately $5 billion, that would equate to 1.5% of an employee’s annual wages being distributed to them as profit sharing.
Is this an enhancement? Yes it is, if the pilots agree to the other 67 onerous items that will result in drastic compensation reductions - higher medical costs, loss of sick leave pay, pay banding, less than annual CPI pay increases, loss of international override pay, loss of night pay, elimination of E, F and G time (duty rigs), pay for sequences on a trip basis not on a leg basis, loss of military guarantee and finally the loss of the pilots defined benefit plan, just to name a few. For all of that, the pilots can anticipate the one enhancement in management’s 1113 proposal, a 1.5% profit sharing plan increase if AMR makes $500 million annually.
Fair and Equitable? You decide.
Management’s profit sharing proposal is below:
- Current profit sharing plan and the Annual Incentive Plan (AIP) would be eliminated.
- Beginning at the first dollar of pre-tax income, the new profit sharing plan would pay awards equal to fifteen (15%) percent of all pre-tax income, prorated to take into account any groups of frontline employees who do not participate in the plan. Pre-tax income for the purposes of these awards will be calculated prior to the effects on income of any special, unusual, and non-recurring items and inventive pay.
- The Enhanced Fund would be distributed equitably to all employees based on each employee’s earnings. Profit sharing is not considered compensation for purposes of determining Company contributions or other benefits under any retirement plans.
- Individual Enhanced Awards will be distributed no later than March 15 of the following year for employees who meet the eligibility requirements as long as minimum funding requirements are met.
- The implementation of the Enhanced Profit Sharing Plan is contingent on reaching a consensual agreement.
But is this an enhancement? Under the current profit sharing plan, employees would receive 15% of all net income above the first $500 million. With management’s 1113 proposal that would change to 15% of all net income starting with the first dollar of net income.
Under their business plan, management anticipates lowering current employee salary, wages and benefits from about $6.2 billion to approximately $5 billion annually through the bankruptcy process.
With the new first dollar profit sharing proposal, employees would receive $75 million more than they would under their current profit sharing plan (15% of the first $500 million). With an annual payroll of approximately $5 billion, that would equate to 1.5% of an employee’s annual wages being distributed to them as profit sharing.
Is this an enhancement? Yes it is, if the pilots agree to the other 67 onerous items that will result in drastic compensation reductions - higher medical costs, loss of sick leave pay, pay banding, less than annual CPI pay increases, loss of international override pay, loss of night pay, elimination of E, F and G time (duty rigs), pay for sequences on a trip basis not on a leg basis, loss of military guarantee and finally the loss of the pilots defined benefit plan, just to name a few. For all of that, the pilots can anticipate the one enhancement in management’s 1113 proposal, a 1.5% profit sharing plan increase if AMR makes $500 million annually.
Fair and Equitable? You decide.
Monday, March 5, 2012
Enhancements Part II: Base Rate Pay Increases or Base Rate Pay Erosion?
As discussed in Part I of Enhancements, American Airline’s management has proposed five provisions in their 1113 term sheet they describe as “enhancements.” However, these provisions are contingent on the pilots of American Airlines consensually agreeing to the other 67 plus contractual concessions management is proposing, most of which can only be described as draconian and many just seem plain punitive.
But are these five asterisk marked items really enhancements or are they just further concessions? In Part I of Enhancements, it was illustrated how management’s proposed sequence protection is nothing close to approaching an enhancement. It was just another management-designed concession cloaked in the cover of calling it an enhancement.
But what about pay increases? Have they finally provided the pilots with something that may incentivize the pilots to agree to their other 67 plus requested concessions?
Under management’s proposal they propose providing the pilots with 1.5% annual pay increases for five years after the first year of the agreement if the pilots consensually agree to all the other concessionary provisions of their 1113 term sheet.
One of the requirements of their 1113 term sheet is that the pilots agree to management’s proposal of a six year duration agreement.
In 2003 management also proposed a six year agreement that was eventually agreed upon as a five year duration contract that ran from May 2003 until May 2008. As of the date of American Airline’s bankruptcy filing on November 29, 2011 management and the pilots’ union had been in negotiations for three and a half years past the amendable date of May 2008. Prior to that contract, management and the pilots union had negotiated what eventually became the 2003 agreement for nearly two years past its previous amendable date.
Prior to the 2003 agreement, the last pay increase the pilots of American Airlines received was a 2.5% increase in 2000. As part of the 2003 agreement, the pilots of American Airlines agreed to an immediate 23% pay reduction in May of 2003 from their 2000 pay rates. In May of 2004 the pilots received a 6% restoration of part of the 23% pay reduction since many of the work rule concessions of 2003 were now fully implemented which resulted in additional cost savings that offset 6% of the previous 23% pay reduction. They also received 1.5% pay increases for each of the following five years of their five-year agreement beginning in May of 2004.
On the amendable date of the 2003 agreement in May of 2008, the American Airlines pilots’ hourly base pay rates purchasing power was 66.5% of the pilots 2000 pay rate purchasing power as a result of the 17% pay reduction in 2003 and the effects of inflation and the lack of base pay rate increases that kept up with inflation since 2000. The CPI (Consumer Price Index) averaged 2.8% from 2000 until 2008. The American Airlines pilots averaged a 10.6% decrease in hourly base pay rates since 2000 whereas the CPI had increased 24.7%.
Since the amendable date of the 2003 agreement in 2008 the American pilots’ hourly base pay rates have been further eroded due to further effects of inflation and the fact that American’s pilots have not had any pay increases since 2008.
From 2008 until today, inflation has averaged approximately 2.8% annually or a compounded total of 11.7%. This has further reduced pilot pay rates to a total of 59.5% of inflation adjusted 2000 base pay rates.
Today, as adjusted for inflation, the pilots of American Airlines make slightly less than 60% of the purchasing power they did in 2000. That’s right! Every pilot’s base aircraft pay rate has been reduced by 40% since the year 2000 when compared to inflation.
Now, American Airlines management is offering an “enhancement” of “pay increases” in exchange for the pilots consensually agreeing to management’s 1113 term sheet, including a six year duration agreement.
Pay increases? Or further pay erosion? As illustrated above, pilots have endured over a decade of pay erosion due to lack of pay increases that have kept up with inflation. Management understands the power of this end result and once again apparently hopes to use it against the pilots.
Looking around the industry and particularly at American Airlines, pilot contracts are taking years past their amendable dates to renegotiate. At American, it has been four years since the amendable date of their pilot contract and at many other carriers it is even longer. It is safe to assume that if the pilots of American Airlines agree to a six year duration contract, the contract will be in effect for at least eight years and quite possibly, more like ten years.
If you were to use an average of nine years before the pilots of American Airlines were able to negotiate a follow-on contract to the one American management is now proposing and assuming inflation would continue to average 2.8% annually through the term of the agreement then the total compounded inflation would be 28.2% for those 9 years. Meanwhile, under management’s 1113 term sheet they have offered five annual pay increases of 1.5% a year, 1.3% less than forecasted annual inflation. Management is offering a 7.7% compounded pay raise through the term of the agreement while inflation will be approximately 28.2% over those nine years.
Under management’s proposal, assuming a 6-year contract will ultimately be a 9-year contract, the current hourly base pay rates for pilots will only be worth 86.4% of their current purchasing power. When compared to 2000 pay rates, the last time pilots received a pay increase approaching CPI, their hourly base pay rates in effect prior to the next contract being ratified when adjusted for inflation will only be worth 51.4% of their 2000 pay rates. That’s right, nearly 50% less than they were making in 2000 for doing the same job.
Under management’s proposed 1113 “enhancement,”American Airlines pilots will endure another 13.7% erosion of their current hourly base pay rates and will see their purchasing power worth only 51.4% of their 2000 hourly base pay rates. If American pilots will simply agree to management’s draconian and often times punitive proposals, management will provide the pilots of American Airlines with this “enhancement.”
As illustrated in a prior discussion, the pilots of American Airlines already trail the only true “new generation” carrier by nearly 10% and with management's “enhancement,” pilots will see a further reduction in their purchasing power of nearly 14%.
Is it any wonder the public has recently been reading that the leadership of the pilots' union is publicly stating that American Airlines management is not trying to conclude a consensual agreement but is instead pursuing another court designed strategy?
What in this proposal provides an incentive for an American Airlines pilot to want to agree to the other 67 plus concessions? Further pay reductions?
Is management bargaining in good faith? Are they treating the pilots fairly and equitably? Are they credible in trying to conclude a consensual agreement?
But are these five asterisk marked items really enhancements or are they just further concessions? In Part I of Enhancements, it was illustrated how management’s proposed sequence protection is nothing close to approaching an enhancement. It was just another management-designed concession cloaked in the cover of calling it an enhancement.
But what about pay increases? Have they finally provided the pilots with something that may incentivize the pilots to agree to their other 67 plus requested concessions?
Under management’s proposal they propose providing the pilots with 1.5% annual pay increases for five years after the first year of the agreement if the pilots consensually agree to all the other concessionary provisions of their 1113 term sheet.
One of the requirements of their 1113 term sheet is that the pilots agree to management’s proposal of a six year duration agreement.
In 2003 management also proposed a six year agreement that was eventually agreed upon as a five year duration contract that ran from May 2003 until May 2008. As of the date of American Airline’s bankruptcy filing on November 29, 2011 management and the pilots’ union had been in negotiations for three and a half years past the amendable date of May 2008. Prior to that contract, management and the pilots union had negotiated what eventually became the 2003 agreement for nearly two years past its previous amendable date.
Prior to the 2003 agreement, the last pay increase the pilots of American Airlines received was a 2.5% increase in 2000. As part of the 2003 agreement, the pilots of American Airlines agreed to an immediate 23% pay reduction in May of 2003 from their 2000 pay rates. In May of 2004 the pilots received a 6% restoration of part of the 23% pay reduction since many of the work rule concessions of 2003 were now fully implemented which resulted in additional cost savings that offset 6% of the previous 23% pay reduction. They also received 1.5% pay increases for each of the following five years of their five-year agreement beginning in May of 2004.
On the amendable date of the 2003 agreement in May of 2008, the American Airlines pilots’ hourly base pay rates purchasing power was 66.5% of the pilots 2000 pay rate purchasing power as a result of the 17% pay reduction in 2003 and the effects of inflation and the lack of base pay rate increases that kept up with inflation since 2000. The CPI (Consumer Price Index) averaged 2.8% from 2000 until 2008. The American Airlines pilots averaged a 10.6% decrease in hourly base pay rates since 2000 whereas the CPI had increased 24.7%.
Since the amendable date of the 2003 agreement in 2008 the American pilots’ hourly base pay rates have been further eroded due to further effects of inflation and the fact that American’s pilots have not had any pay increases since 2008.
From 2008 until today, inflation has averaged approximately 2.8% annually or a compounded total of 11.7%. This has further reduced pilot pay rates to a total of 59.5% of inflation adjusted 2000 base pay rates.
Today, as adjusted for inflation, the pilots of American Airlines make slightly less than 60% of the purchasing power they did in 2000. That’s right! Every pilot’s base aircraft pay rate has been reduced by 40% since the year 2000 when compared to inflation.
Now, American Airlines management is offering an “enhancement” of “pay increases” in exchange for the pilots consensually agreeing to management’s 1113 term sheet, including a six year duration agreement.
Pay increases? Or further pay erosion? As illustrated above, pilots have endured over a decade of pay erosion due to lack of pay increases that have kept up with inflation. Management understands the power of this end result and once again apparently hopes to use it against the pilots.
Looking around the industry and particularly at American Airlines, pilot contracts are taking years past their amendable dates to renegotiate. At American, it has been four years since the amendable date of their pilot contract and at many other carriers it is even longer. It is safe to assume that if the pilots of American Airlines agree to a six year duration contract, the contract will be in effect for at least eight years and quite possibly, more like ten years.
If you were to use an average of nine years before the pilots of American Airlines were able to negotiate a follow-on contract to the one American management is now proposing and assuming inflation would continue to average 2.8% annually through the term of the agreement then the total compounded inflation would be 28.2% for those 9 years. Meanwhile, under management’s 1113 term sheet they have offered five annual pay increases of 1.5% a year, 1.3% less than forecasted annual inflation. Management is offering a 7.7% compounded pay raise through the term of the agreement while inflation will be approximately 28.2% over those nine years.
Under management’s proposal, assuming a 6-year contract will ultimately be a 9-year contract, the current hourly base pay rates for pilots will only be worth 86.4% of their current purchasing power. When compared to 2000 pay rates, the last time pilots received a pay increase approaching CPI, their hourly base pay rates in effect prior to the next contract being ratified when adjusted for inflation will only be worth 51.4% of their 2000 pay rates. That’s right, nearly 50% less than they were making in 2000 for doing the same job.
Under management’s proposed 1113 “enhancement,”American Airlines pilots will endure another 13.7% erosion of their current hourly base pay rates and will see their purchasing power worth only 51.4% of their 2000 hourly base pay rates. If American pilots will simply agree to management’s draconian and often times punitive proposals, management will provide the pilots of American Airlines with this “enhancement.”
As illustrated in a prior discussion, the pilots of American Airlines already trail the only true “new generation” carrier by nearly 10% and with management's “enhancement,” pilots will see a further reduction in their purchasing power of nearly 14%.
Is it any wonder the public has recently been reading that the leadership of the pilots' union is publicly stating that American Airlines management is not trying to conclude a consensual agreement but is instead pursuing another court designed strategy?
What in this proposal provides an incentive for an American Airlines pilot to want to agree to the other 67 plus concessions? Further pay reductions?
Is management bargaining in good faith? Are they treating the pilots fairly and equitably? Are they credible in trying to conclude a consensual agreement?
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