Acpa's Response To Arbitrator's Award

[Guest rozar s'macco]

If AC replaces the EMJ with another jet of similar size (Cseries) they're crazy. The cost advantage that they want so badly comes only from fleet simplification, not merely slightly-lower operating costs.

What it sounds like the plan is, is to potentially farm out the E175's to Sky Regional, and get additional CRJ705's to Jazz but at favorable rates ie. "if you want to operate 30 more RJ's, this is the price."

Send A319's to LCC.

Send B767's to LCC.

Replace remaining E190/A320/321 narrowbody fleet with A320neo's.

Retire A330's.

Left with two CPA carriers operating a mishmash of DH8, Q400, E175, CR7 but the fleet doesnt matter because it's a turnkey cost.

"LCC" (in quotations, because it is just a low price/wage grab operation)

A320neo and B787/B777 with crews CCQ'd

The next threat for ACPA is LCC fleet renewal, when they come asking to put neo's and B787's there a la JetStar. Time will tell.

[Say Altitude]

I think going with the 737Max to replace the narrow bodies is a better idea. If you can order up 80+ 700/800's with the same flight deck as the 787 (Boeing should be motivated to make it work for a few billion), you would save boat loads in training costs (common type rating) on top of the fact that the 777 and 787 already have a differences course and common type rating. Imagine the reduction in crew training, crew blocking efficiencies, and operational flexibility. I don't think there is enough upside in ordering the C-series to offset the potential operational and cost efficiencies.

[taxman2036]

rewarding careers cannot be an entitlement, get a grip already.

[cc130435]

was there mention of rewarding careers ?

[Spinnaker]

As AC splits, subdivides and dismantles we'll all be left with WJ as the biggest and strongest in the country.

I'm sure to some people that might seem a great victory, however with that goes responsibilities and political challenges impossible for any company to live up to...........

My advice to any young gun is to go off shore if you truly want a rewarding career. Opportunities abound.

The race to the bottom in Canada is moving much faster than I thought.

I'm not sure if by 'some people' you mean WestJet people but please recognize our pay comparators are tied to our competition. There was no victory here for anyone. WestJet just put out numbers showing CASM creep, the same week our competition was just handed a contract that allows a 767 Captain to make 30 percent less than a WestJet 737 Captain, while flown to CARS limits. Also, the AC airframe contracts have just gone overseas, lowering another major cost.

No victory.... it truly affects all of us because eventually we have to have our costs in line with the competition or we become the legacy carrier.

[rudder]

I'm not sure if by 'some people' you mean WestJet people but please recognize our pay comparators are tied to our competition. There was no victory here for anyone. WestJet just put out numbers showing CASM creep, the same week our competition was just handed a contract that allows a 767 Captain to make 30 percent less than a WestJet 737 Captain, while flown to CARS limits. Also, the AC airframe contracts have just gone overseas, lowering another major cost.

No victory.... it truly affects all of us because eventually we have to have our costs in line with the competition or we become the legacy carrier.

So, does it fall within the realm of possibilities that WJ pilots could face a pay rate reduction based on the benchmarking criteria?

[Seeker]

So, does it fall within the realm of possibilities that WJ pilots could face a pay rate reduction based on the benchmarking criteria?

Absolutely. "Some people" are in for a rude awakening.

[Thebean]

Mark my words: The way things are going, they're are going to be people out there looking at the possibility of launching a ULCC in Canada within 3 years.

Most of them will be hare-brained schemes but there will be at least one that has the right combination of capitalization, strategy and experienced operators behind it.

Wishing it won't happen or assuming that existing operators will be able to steam roll them into oblivion is ostrich-like thinking. If they get their casm advantage where it needs to be and take on a modified Allegiant / Spirit model, there's going to be the opportunity for investors to make a ton of money in this niche.

If I were at either airline, I'd be already planning an innovative strategy to deal with this inevitability.

[props2you]

Isn't there an imminent arbitration ruling on AC's CPA formula calculations with regards to Jazz?

[cp fa]

Just curious, does anyone who has actually read the arbitration still believe there are going to be massive layoffs?

[rudder]

Just curious, does anyone who has actually read the arbitration still believe there are going to be massive layoffs?

Of AC pilots? No.

[FA@AC]

Mark my words: The way things are going, they're are going to be people out there looking at the possibility of launching a ULCC in Canada within 3 years.

I'm not sure what you mean by "The way things are going......".

Are you referring to people seeing the success of certain ULCCs elsewhere and being tempted to start others, or is there something about the Canadian market in particular other than the fact that no ULCC currently operates here that makes it appear likely that someone will soon give it a try?

[Guest rozar s'macco]

I would love to see a ULCC in Canada. You could poach as many pilots as you wanted, and more, from the poorly run airlines in this country and there are a few.

[rudder]

It's no longer an income trust, and as a dividend paying corporation can adjust its priorities to funding growth instead of paying an 18.30% dividend.

CHR Funding growth? That would be a dramatic shift from its traditional behaviour and cash distribution practices. It would require that the CHR BOD begin to take a longer term view. An AC CCAA is looking to be less and less a possibility so that leaves CHR to decide if it wants to remain AC's preferred supplier or if it simply wants to watch the clock run down to 2020. My guess is that logic will prevail and reasonable CPA accommodations will be made. The parties appear to have set a pattern in the Q400 substitution agreement(s) and that pattern will likely continue. CHR will potentially be looking at financing 30-50 further replacement aircraft so the probability that the current cash distribution level can be sustained is low, particularly if base aircraft rates and margin form part of the discussions with AC.

[rudder]

What I find most interesting is the plan to remove the Embraers, starting almost certainly with the 175s. You can spool up regional capacity with 76 seaters, and the 175s disappear overnight. Some of the 190s could go with further regional expansion, but you can also see a narrowbody fleet renewal program around the two C-Series models and the Airbus Neo.

I'd think Bombardier would cut Air Canada and Chorus an enormous deal on a C Series/CRJ package.

Here is the language which seems to indicate that some near term change to the EMJ fleet - most likely the 175's - is in the offing:

In order to mitigate the effects for the Air Canada Pilots who may be adversely affected by changes being considered which could reduce the number of Embraer aircraft operated below the number operated by the Company as of July 31, 2012, Air Canada commits to the following:

..... Air Canada will determine the number of pilots on July 31, 2012 holding a QPOS or APOS EMJ Captain or First Officer Position (“the Embraer Pilots”).

..... should Air Canada remove or replace some or all of the Embraer aircraft it operated on July 31, 2012, other than for airworthiness problems or concerns, none of the Protected Pilots shall be furloughed as a direct result of the Company’s decision to so remove or replace those aircraft.

The smaller number of EMJ pilots (approx 150) that would equate to the 15 175's could easily be digested back into the system thereby reducing hiring requirements in the short term. So the question for the 10th will be: Are the 175's being leased/sold away from the AC system and replaced by a CPA provider (existing or new) using CRJ lift (76 seats) or are they being leased/sold to a CPA provider (existing or new) and remain operating AC code flying? If I were betting on the outcome it will be the eventual sale of 175's to a US operator with an existing EMJ fleet and replacement of capacity by an existing CPA provider using either or a combination of CRJ 705's and 900's. Timing will be an issue and the source for the replacements may ultimately be the 'slightly used' market (i.e. PLUNA/EDC/BBD) unless or until factory deliveries were available. I see that the cannibalization of Comair (US) has begun - CRJ 700/900's transferred to Skywest to be flown on behalf of DAL. It may soon become a sellers market for the larger CRJ's with the revised scope provisions in the US. But the CRJ 1000 still remains ostracized in North America. The threat to mainline flying is not the difference between 50/76/100 seats - it is the use of J class inventory on CPA medium gauge jet feed. Take a look at KLM Cityhopper: 100 seats but no J class. ACPA might have been better served to show flexibility on CPA gauge but take a hard line on single class configuration only. That might have saved more of the EMJ's. Water under the bridge now...

[Guest rozar s'macco]

Hard line, soft line, flexibility...doesn't matter. The company wrote their ticket and the government punched it. We are irrelevant to the process.

[times like these]

[rudder]

Hard line, soft line, flexibility...doesn't matter. The company wrote their ticket and the government punched it. We are irrelevant to the process.

After reading the portion of the ACPA submission on the handling of the post age 60 pilots to comply with the legislation that will come into effect in December 2012, one can hardly believe that the ACPA submission was meant to be taken seriously. And perhaps even though the outcome was a foregone conclusion, ACPA clearly did not understand the tenant of FOS with that type of ludicrous proposal. That one piece was reason enough for the arbitrator to say 'No Thanks'. ACPA apparently hired a battery of experts and I am sure racked up a huge bill for services and this was the best that they could do? It doesn't even look like they made the arbitrators choice a difficult one.

I had suggested that playing by CR's rules would be dangerous. And I had suggested that any deal reached outside of FOS would be better than the one selected by the arbitrator. And I also suggested that the final deal would be less than TA1. There were many that said that could not happen (what was the word used - jurisprudence?).

Well, here we are on the other side and CR is licking his chops. Huge victory. Employee morale is not deemed essential in the new world. Besides, there is a large portion of the group that did quite well, notwithstanding the early retirement penalties. Life will go on. But big changes are afoot. Best job at AC will be widebody international on B777/787. The rest will be somewhat less attractive. In any case, the deal is done and now everybody is waiting to see what commercial plan will follow.

[Seeker]

After reading the portion of the ACPA submission on the handling of the post age 60 pilots to comply with the legislation that will come into effect in December 2012, one can hardly believe that the ACPA submission was meant to be taken seriously. And perhaps even though the outcome was a foregone conclusion, ACPA clearly did not understand the tenant of FOS with that type of ludicrous proposal. That one piece was reason enough for the arbitrator to say 'No Thanks'. ACPA apparently hired a battery of experts and I am sure racked up a huge bill for services and this was the best that they could do? It doesn't even look like they made the arbitrators choice a difficult one.

I had suggested that playing by CR's rules would be dangerous. And I had suggested that any deal reached outside of FOS would be better than the one selected by the arbitrator. And I also suggested that the final deal would be less than TA1. There were many that said that could not happen (what was the word used - jurisprudence?).

Well, here we are on the other side and CR is licking his chops. Huge victory. Employee morale is not deemed essential in the new world. Besides, there is a large portion of the group that did quite well, notwithstanding the early retirement penalties. Life will go on. But big changes are afoot. Best job at AC will be widebody international on B777/787. The rest will be somewhat less attractive. In any case, the deal is done and now everybody is waiting to see what commercial plan will follow.

I agree with most of what you have written but just want to point out that ACPA tried repeatedly (incessantly) to bargain with the company and they refused. Obviously, the company felt there was no need to bargain. You certainly can't claim that ACPA chose to go the FOS route.

[John S.]

. . . . ACPA tried repeatedly (incessantly) to bargain with the company and they refused. . . . .

Like doing the Tango, it takes two to bargain. All else is just arguing.

Looks like they were dancing last summer but not so much this spring.

[Guest]

Well for one thing they won't be able to do CAT3 approaches in YYT when the system becomes functional in YYT. The E190 is currently used heavily in YYT and doesn't have an auto land like the bus or HGS like the CRJ to do a CAT3

Cat 3 was available but like AC does it cheaped out on the options

[dagger]

I agree with most of what you have written but just want to point out that ACPA tried repeatedly (incessantly) to bargain with the company and they refused. Obviously, the company felt there was no need to bargain. You certainly can't claim that ACPA chose to go the FOS route.

Seeker, I think you're gilding the lilly here. As the arbitrator pointed out, somewhat pointedly I might add, ACPA's committee negotiated TA-1 in good faith, regularly consulting the MEC during the process, and the parties at the table had every reason to believe they had negotiated the best possible agreement under the circumstances. Yet the MEC sent the TA out without a recommendation, which in itself constitutes the original sin.

Then, instead of sending the bargaining team back, the MEC forced their resignation. The membership then votes the TA down, but by only two-thirds which is not overly strong.

But side from that, the contract was voted down in May, and it is only in October - a delay of five months - that a new committee informs AC of its desire to resume negotiations.

Now the new committee is about to compound the problem. Instead of using TA-1 as a basis for negotiations, it disavows anything the previous committee has done and wants to negotiate from scratch. In his ruling, Stanley takes to heart jurisprudence that effectively rejects the notion that new negotiations can take place without regard for the contents of a rejected TA. The only way to achieve that is by bypassing imposing one's might on the employer, because all the arbitral jurisprudence supports taking into consideration that a freely negotiated TA like TA-1 is the proper starting point for returning to negotiations. ACPA further argues that an arbitrator should consider the bargaining power of pilots - who can shut down an airline - a view Stanley also rejects.

Essentially, he says of the ACPA position towards bargaining under the new committee and more militant MEC took the process down a path the pilots only could have sustained through a strike. This is a devastating critique, because

1) Air Canada was well within its rights to refuse to negotiate without any regard to what was achieved in TA-1

2) Any conciliator or mediator entering the situation was right to conclude that ACPA was attempting to negotiate outside the parameters of what constitutes good faith bargaining as formed by all the arbitral precedent accepted in federal labor law.

I've been saying since the new committee took over that the militancy of this group was determined to manoeuvre the membership to strike the airline, in peak season. Nothing I've seen or read since changes my mind. The argument presented by ACPA to Stanley that his award should reflect the disproportional power the pilots have if they withdraw their services underscores my view, since there are only three ways to possible achieve such an outcome.

1) Go on strike and bring the airline to its knees.

2) Bring the airline to the brink of a strike, and inflict so much economic damage that it brings the airline to its knees

3) Propose arbitration without waiting for Lisa Raitt to define the rules of the arbitration, and hope to do better than TA-1 based on another arbitral principle - that arbitrators generally don't care what a company can afford, but tend to be influenced more by a doctrine of what is fair to both sides. (I would have advocated strongly for this if I were ACPA, because the worst case would have been TA-1, and there might have been a few areas where it might have done a little bit better).

But ACPA clearly favored #1 or #2, and was certainly conning the members into going further and further, which is why we kept hearing from so many well-intentioned members of this board that they didn't want or expect a strike. The evidence strongly suggests, however, that a strike was the only means by which the new ACPA committee could deliver on its promise of a much better deal than TA-1

Like I said, normally arbitrators wouldn't listen to AC's woe-is-me song, but in this case the federal legislation said Stanley had to consider the state of the airline's competitiveness, finances, and needs as well as the case presented by ACPA. In balancing Air Canada's real needs with ACPA's view, he declared

These various reports and opinions inform the positions taken by the parties on the issues in dispute. Clearly the way the parties use this information highlights why they have not been able to conclude an agreement. The parties cannot agree on the financial health of the company, what the competitive environment is, or what the

comparable pilot wages are at WestJet. Being unable to agree on these facts it is not surprising they cannot agree on whether/how the existing collective agreement restricts Air Canada's ability to compete, whether their pension plan is sustainable by the enterprise, and how Air Canada should position itself in the marketplace in the future.

Since the legislation requires Stanley to consider Air Canada's competitive landscape, the elapsed time between the rejection of TA-1 and the arbitration hearings also requires him to consider events like a stagnating global economy, persistent low interest rates and their impact on pensions, and - most importantly - Westjet's decision to launch a regional airline. He calls the latter event a game-changer, and it might well have done more to frame his view that AC's quest for scope relief is the more reasonable position, reinforcing his view that AC's overall package is the more reasonable. It reinforces his view of the scope changes, the need for the LCC, so-called domestic code-sharing language... Stanley keeps coming back to Westjet...

I accept the conclusion by management that to meet the competitive challenge of WestJet, Air Canada needs a more developed regional network to feed their mainline operations. I accept that in the time that passed between the TA and this arbitration, circumstances have changed which necessitated Air Canada's departure from the TA. In particular, WestJets' announcement of a LCC is a game changing event. I am not able to conclude that Air Canada is "over-reaching", as Counsel for ACPA suggested.

If TA-1 had been followed by a quick TA-2, none of this would have entered into his thinking. In siding with AC and considering Stanley quote above, a reader could easily infer he considers that ACPA's view of the world is completely out of touch with reality.

[rudder]

I agree with most of what you have written but just want to point out that ACPA tried repeatedly (incessantly) to bargain with the company and they refused. Obviously, the company felt there was no need to bargain. You certainly can't claim that ACPA chose to go the FOS route.

I believe that in the late stage mediation supervised by Stanley that if ACPA had made significant and progressive proposals - even ones that would have caused the membership great consternation - that Stanley might have hinted to AC that they might not end up the ultimate winners in the FOS process. Once again, that did not happen as was evidenced by the ACPA FOS submission. They towed the party line to the end and lost big time.

[rudder]

And on another note - the US carriers do not typically scope the non-jet CPA work. They do not see props as substitutes for mainline jet work. Yet in this agreement all prop flying counts against the subcontracting limits. And any tier 2 codeshare with US regional carriers also counts against the subcontracting limits. At its peak, there were 73 subcontracted jets flying for AC (by Jazz). Come the spring of 2013, that number will be down to 42. I suspect that the 73 will represent a peak that may not be reached again. So this is not a perfect deal for AC. Having said that, it was AC's own proposal (29/100) so what is there left to say? If they run out of room to subcontract it will be because they apparently are poor at math. The only saving grace is that a good portion of the LCC ASM's will count towards the mainline domestic capacity count:

L74.01.08

85% of the total LCC A-319 ASMs and 85% of the LCC WB ASMs are ASM’s flown

at Air Canada by Air Canada Pilots for the purposes of the Collective Agreement.

What does it mean? In order to take full advantage of the ability to operate the 60 MJ aircraft and more Q400's at the CPA subcontractors AC will have to grow the LCC specialty company where the flying positions belong to ACPA. Cannot wait to hear the details of the commercial plan. Unfortunately, I suspect that any details will not be forthcoming from AC in the near term.

In terms of fleet projections I see the following as being within the realm of possibilities for Jazz by December 2014 under the CPA:

30 CRJ705/900

15 CRJ200

30 Q400

40 D8-100/300

This means a fleet total of 115 down from a peak of 135. I also predict lower annual CPA block hours of 375,000 down from a peak of 410,000. Jazz revenues will be reduced from CPA peak of $1.6B down to approx $1.4B in combination with a reduction of the margin to single digit for all of the flying hours. One quid might be an extension to the CPA term beyond 2020 out to 2022 or 2024 that would apply at least to the incremental aircraft that Jazz will have to finance. You cannot borrow money for new aircraft when the guaranteed revenue stream is only 7-8 years.

This will leave AC with 30 unused 76-seat jet slots for CPA carriers. These replacements will not be an issue until the draw down starts on the E190 fleet. That will only happen when the replacement aircraft for the E190 at the mainline is determined and available. It will also be entirely dependant upon the 29/100 capacity ratio limitations. Some of these 76 seat slots for CPA carriers may actually go unused.

I have no predictions for Sky regional as they are just a stalking horse established to force CHR to be more conciliatory in CPA amendment negotiations with AC. They have no capital and no funding beyond the AC sub-leases. It would make no sense for AC to finance the new regional fleet on its own balance sheet. If that were the case, it should simply buy SKY and run it as a wholly-owned sub.

[Seeker]

Dagger; I'm not going to go through your post and rebut each point but I do want to mention that the main cause of the May-Oct delay was the fact that the company wouldn't allow displacements for the NC through the summer. Now I don't think the company should have allowed displacements - summer is the busy season and it's better for the pilots to be flying than working on the NC but, of course, the company later tried to use the delay as a weapon against the union when the company itself had control of this.

In hindsight it's possible to see a few places where ACPA could have gained an advantage by changing tactics but there is a certain amount of inertia to overcome and there are just as many ways that could have turned south too. The damage was done when the membership allowed TA1 to be negotiated in the first place. The first NC did not have the sentiment of the pilot group in-hand when they came up with TA1. This fact along with the way that the government empowered Stanley to place the company's interests first means there is almost no chance of ACPA being able to change the outcome.