Sunday, July 18, 2004

Delta 'scope' limiting growth


Comair already feels constraints

By James Pilcher
Enquirer staff writer

Pay, productivity ... regional jets?

While it might not seem as important as compensation and hours in the cockpit, Delta Air Lines' use of regional jets at carriers such as Erlanger-based Comair is certain to be an issue when the airline and its pilots sit down to discuss concessions later this month.

Worried that increasing use of the smaller planes might mean a shift in jobs from the parent to smaller regional airlines, Delta's pilots in 2001 were able to get a contract that limits how many and what kind of regional jets the airline can use.

The so-called "scope" clause has already crimped the airline's long-term plans - especially when it comes to using 70-seat planes.

But with Delta struggling, something's got to give, says one key Delta executive.

"Certainly there is an obvious need for us to keep expanding our smaller-gauge airplanes," said Fred Buttrell, president and chief executive officer of Delta Connection Inc., which runs the regional network that includes Comair and five other airlines.

In addition, Delta is in the midst of a massive restructuring and desperately needs to cut costs, he says.

"Our hands are very tied by this ... from a network-planning point of view, we definitely have a need for more 70- to 100-seat aircraft,'' he said. "But how it works out will be a function of the collective bargaining process, and I can't discuss that."

The "scope" has already limited potential growth at Delta subsidiary Comair, the first airline to use the smaller, cheaper-to-operate jets more than 10 years ago. Comair employs more than 4,000 people locally, including 1,800 pilots. More jets - especially more 70-seaters - could mean more frequencies, more legroom on longer flights, and potentially more jobs.

Buttrell and other industry experts also note that all other major airlines that have gotten concessions from pilots who have been allowed to do more regional jet flying.

"The scope clause will definitely be an issue at the bargaining table," said Robert Ashcroft, regional airline analyst with UBS Investment Research.

"Delta is starting to bump up against their limits, and they'll want to go further, especially on the issue of 70-seaters."

Delta's 8,000-member pilot union includes more than 800 pilots based at the airline's hub at Cincinnati/Northern Kentucky International Airport.

"I can tell you that the Delta pilots have always had a reasonable scope clause that has allowed Delta to be flexible," said Karen Miller, spokeswoman for Delta's branch of the Air Line Pilots Association, who declined to discuss what may be on the table later this month.

This month's talks come after a year-long push by Delta for cuts in pay and increased productivity, a push that has included a warning that bankruptcy could be an option. The company has lost more than $3 billion in the past three years and is expected to announce another second-quarter loss on Monday.

Industry trend

Pilots at Delta and other major airlines have long been afraid of losing jobs to the smaller, cheaper airlines, especially on shorter routes.

Those carriers usually fly 50- to 70-seat regional jets - which are less expensive to operate and are used to open new service to smaller cities, add frequencies to existing markets and even keep a route alive for the parent company if demand drops.

A 10-year captain of Delta's smallest plane, the 107- or 119-seat Boeing 737-200, is guaranteed a minimum salary of $177,060 a year, according to www.airlinepilotpay.com, while a Comair 70-seat regional jet captain with the same seniority makes $80,100 minimum.

In the contract that Delta pilots signed in 2001, before the Sept. 11 attacks, they were able to limit the number of 70-seat regional jets to 57. In addition, the total amount of actual flying time on regional jets is limited to 47 percent of the Delta system.

Delta plans to take delivery on its 57th regional jet later this year, and total regional-jet flying makes up about 45 percent of the system.

But as other airlines have gone through either Chapter 11 reorganizations or renegotiated contracts, they have pressed for flexibility to use smaller planes on less-popular routes.

United, American and US Airways all got major restrictions lifted on regional jets, with United and US Airways promising to use laid-off mainline pilots as regional pilots.

"It was a critical part of our restructuring plan," said American's managing director of employee relations, Mark Burdette.

Other airlines have added or will add 90- and 100-seat planes. Those jets are prohibited under the Delta contract.

Buttrell said Delta is examining its use of regional jets on longer flights - which could mean a need for more of the roomier 70-seaters. The company is expected to present a restructuring plan to its board next month.

Analyst Ashcroft says the Atlanta-based carrier's scope clause is one of the most flexible in the industry, but he and other experts say Delta will push for even more.

"They want it as liberal as they can get it," said Ray Neidl, airline analyst for the Wall Street firm Blaylock & Partners LP. "These (clauses) are gradually breaking down, and it's 100 percent sure that Delta's restructuring plan includes some of this."

Comair's position

How this could affect Comair remains an open question.

The scope clause was a major issue in the Comair pilot strike of spring 2001, creating ill will between some Comair and Delta pilots. The issue was left unresolved.

One local Comair pilot has even sued the national office of his own union, saying it was breaching its responsibility by allowing Delta pilots to limit the job opportunities at other, smaller airlines represented by the same union. That suit, filed in a federal court in New York City by Daniel Ford of Burlington and a pilot from Delta's other regional subsidiary ASA, is in discovery phase.

J.C. Lawson III, chairman of the union representing Comair's 1,800 pilots, would say only that he hoped to work with the Delta pilot union "to do the best thing we can for both pilot groups."

Comair operates 150 regional jets, including 23 of the larger 70-seat aircraft. It is scheduled to get just four more 70-seaters this year before the scope clause kicks in.

"Regional jets will continue to have a critical role in our network," Delta's Buttrell said. "But we have to remain competitive, and providing a product at a competitive cost will be the rule of engagement as we go through the collective bargaining process."

E-mail jpilcher@enquirer.com




BUSINESS HEADLINES
Queen City Rewind
GE's X FACTOR
Look Who's Talking: Tyrone Hill
Hybrid funds dull but stable
Delta 'scope' limiting growth
Business notes
Putting it off? Maybe smart, or maybe not
Roasted chicken not a hot item for KFC
Business agenda