Air Force Reserve Adds New Commitment for Pilots and Maintainers

U.S. Air Force photo/Tech. Sgt. Shane A. Cuomo

The Air Force Reserve just added an additional six month commitment for pilots and maintainers who wish to separate or retire.

While being careful to not call this new requirement a "stop-loss", the AF Reserve is adding on six months of involuntary service in addition to whatever service requirements were previously imposed. The military typically adds mandatory service requirements for things like aircraft qualification courses, professional development courses, and permanent change of station moves.

I find it interesting that the AF Reserve has to implement controls like this as membership as a traditional reservist typically requires as little as a few days per month up to about a week and a half per month for combat ready flight crews. In addition, reservists are protected from discrimination or firing by their civilian employers by a law known as USERRA.

What this telegraphs is that as the commitments, deployments, and tasking of the reserve forces increases, reservists, who already have a civilian career as a pilot or maintainer, are calling it quits.

What military planners seem to fail to realize is that pushing on the combined active/reserve water balloon in one place will result in a bulge in another place. That is to say that there is no free lunch. Higher tasking and deployments for the guard and reserves, most of whose members came from the active forces, will force an exodus from those organizations as well.

The military should either accept higher personnel loss rates in a good economy and spend the money and resources on training replacements, or, here is a novel idea: just start to say no to increased tasking, though that would require a higher degree of testicular fortitude than is normally displayed in the flag ranks.

The Dominoes Fall: Goodbye Great Lakes Airlines

Photo - Quintin Soloviev 

Great Lakes Airlines, a regional airline serving the upper midwest part of the US has shut down operations as of  last week.

In a statement released, the management of the airline blamed their woes on the 1500 minimum hour for pilots rule imposed by Congress in the wake of the 2009 crash of a Colgan commuter aircraft. Great Lakes management has had trouble finding pilots to fly their Beech 1900 aircraft.

A lively debate currently continues as to the efficacy of the 1500 hr rule which mandates that all pilots have a minimum of 1500 hours of experience before being able to serve as a pilot on a commercial passenger carrying aircraft. It has been noted by opponents of the rule that both pilots on the fated Colgan airliner had the minimum 1500 hours and that the rule would not have prevented that crash. The accident review blamed fatigue and training issues with the captain of that flight.

I am personally agnostic about this rule noting that the USAF and other military services can produce competent pilots with about 200 hours of experience. On the other hand, their training is estimated to cost about $1 million per pilot.

Also, there is an ongoing worldwide pilot shortage occurring in many countries without such an onerous hours requirement. The pilot shortage is a multi-faceted problem which will not likely be solved with the repeal of the 1500 hour rule.

When Choosing an Airline, Choose Wisely!

It should not be news to anyone working as a pilot that the airlines are hiring. With many thousands of pilots retiring in the next decade, the major airlines need to hire thousands of pilots just to maintain their current manning levels. Any growth will mean hiring even more.

This hiring binge is causing headaches for the traditional sources of pilots, the commuter airlines and the military. For various reasons I've written about in recent posts, fewer young people are opting for a career in aviation, meaning that as the major airlines hire pilots away from the commuter airlines and the military, those organizations are having trouble maintaining their manning levels.

For the young pilot who has his or her ratings and is ready to make a move to a major airline, times could not be better. All the major airlines are currently hiring and are offering long and lucrative careers as an airline pilot. The question is, which airline is the best to work for?

The simple answer, of course, is that the best airline is the one that hires you. If you only have one offer from a major, then your choice is an easy one. All the major airlines will provide a secure and comfortable flying career. Should you be lucky enough to have offers from multiple carriers, which is increasingly likely, your choice becomes more complicated.

Seniority is Life

Seniority, or the order in which you get hired, determines your quality of life for the next several decades. That guy or gal sitting in front of you in new hire class? He or she will be senior to you until one of you retires and there's nothing you can do to change that. Seniority will determine the days you fly, the quality of your layovers, which base you can hold, and the equipment you will operate. These all add up to quality of life and pay.

Being senior means you get both quality of life and better pay (by flying larger equipment or bidding better trips). Mid level seniority means you can have one of these or the other but not both, and being junior means you get nothing (and like it)! Obviously, being senior is better, but you can choose the airline at which you will gain the most seniority in the least amount of time by doing a little homework before accepting an offer.

The most important thing you will need to ascertain is the number of expected retirements of pilots senior to you when you get hired. For instance, if your prospective airline has not hired for a long while and is now just getting started, that means many of the pilots working there will retire after a short while, thereby clearing the way for you to become senior.

Conversely, if you are getting hired near the end of a long hiring binge, that means the relatively young pilots who were just hired, but are senior to you, will be there a long time before retiring, keeping you in the right seat or working weekends and holidays for a large part of your career. Getting hired at an airline full of old pilots is best.

Other Considerations

You should consider the overall financial health of any carrier you wish to join. Currently, the big four US major airlines, Delta, American, United, and Southwest, make up about 80% of airline capacity and are all in great financial shape. But then again, they should be with a good economy and cheap fuel. You will want to consider what happens when the economy goes south or fuel gets expensive.

Smaller carriers such as Alaska and JetBlue may be positioned less well to weather a substantial economic downturn. Then there are the ultra low cost carriers such as Spirit and Frontier that have carved out niches with a bare bones product. They are small, but at least in the case of Spirit, they are growing fast. I've had several Spirit pilots on my jumpseat say that they are there for the long haul and not considering looking elsewhere.

You will also want to consider the equipment that your prospective airline flies. Widebody international flying will generally provide a better quality of life in terms of days worked and length of layovers, but back side of the clock flying can take its toll on your health over time. Many pilots consider being a widebody F/O as a career destination as the pay is close to narrow body captain pay and the schedules and layovers are good.

Take into account the type of bidding system your prospective airline employs. Preferential bid systems are generally reviled, but being senior under such a system means you always get everything you want. As an example, a good friend of mine, who is the number nine 737 captain at his airline with a PBS system, routinely gets four or more 30 hr Maui layovers monthly because he likes them. I, on the other hand am the number fourteen 737 captain at my airline with a traditional bidding system and can only bid the lines that the company publishes. To get longer layovers in warm locales, I have to suck up things like four day trips and 11 hour layovers in DTW.

In Conclusion

There has never been a better time to be starting a career in aviation. There is a world wide pilot shortage and airlines are hiring pilots as fast as they can. Make sure to project your career aspirations at any carrier you are considering with an eye towards your seniority attainment to make the best decision. Good Luck!

Air Force to Recall 1000 Retired Pilots

The Air Force has a pilot problem. It doesn't have enough. The service says that the problem is reaching "crisis" levels with a current shortage of 1500 pilots. Having exhausted all means to convince their current pilot force to remain in the service, and unable to increase the number of new pilots produced, the Air Force appealed to the President to revise an executive order allowing for the recall of up to 1000 retired pilots to active duty. President Trump signed this order last Friday touching off a firestorm of social media commentary.

In many ways, this problem has existed for decades, even stretching back to the 1980s when I first wore the green bag (flight suit). The issues are the same and the same arguments get made over and over. What has changed is simply the intensity of each issue affecting pilot retention. As the saying goes, you can't tell who's swimming naked until the tide goes out. And the tide has indeed gone out.

Inflow Minus Outflow

Air Force personnel managers are charged with managing the pilot force to maintain appropriate force levels. They not only manage the total number of pilots, but also the personnel levels existing at various career stages. They attempt to keep a surplus or deficit from existing anywhere along the career "pipeline". Tools at their disposal are the management of training rates, promotion rates, and incentive programs used to either retain pilots or to encourage them to separate.

Looking at the inflows, the number of pilots that the Air Force can train in a given year, there was a huge reduction in initial pilot training capacity dating from the end of the cold war. Training bases were closed and resources were reassigned. Total pilot production was reduced from about 1500 to 500 pilots annually in the early 1990s. That number has recovered somewhat; about 1100 pilots were produced in 2016. The Air Force is attempting to ramp this production back up, but planners estimate that a maximum of 1400 pilots per year is the ceiling given current numbers of training aircraft and other resources.

It is on the outflow side, however, that the problem becomes clear. In short, pilots are bailing out of the military to take airline jobs—just as they always have when the airlines come a calling. It is here where the pilot retention problem really looks like a rewind of the 1980s. Back in the late eighties, the airlines were on a hiring tear, scooping up as many ex-military pilots as they could get their hands on. 

I specifically recall being asked to participate in a round table discussion with the wing commander to address the issues of why pilots were leaving the service. The complaints I heard back then are eerily similar to the ones being voiced today. Pilots chafed at too many non-flying additional duties (affectionately known as "queep"), not enough flying time, and a lack of leadership. Here is an example of the unrest from the comments of my blog (in the original):

...additional duties that have nothing to do with flying, PME (professional military education-ed) requirements to get promoted that have to be accomplished in off duty spare time, 24/7 on call status, exercises that have little to do with flying, PT (physical training-ed) requirements that have to be prepared for in spare time, mountains of regulations based on a single act of buffoonery with the goal of preventing bad judgement from ever happening again, i.e. The Shotgun Approach to problem solving, time off is time off. Not everyone wants to be a four star general/politician/professional staff officer but, the senior AF brass expect everyone to jump through time wasting hoops to be prepared for that minute possibility.

One factor which currently helps to push pilots out of the service which largely did not exist back in the 1980s is the deployment rate. Deployments, or long term tours away from home lasting weeks or months, are now the rule rather than the exception. Air Force pilots flying tactical or theater based aircraft can expect multiple, lengthy, deployments during their career. No amount of incentive money will likely dissuade these pilots from exiting the service once their service commitment is over.

When the Airlines Hire, Pilots Leave

So are pilots actually leaving the service in numbers greater than they have in past airline hiring surges? A 2015 Rand study which examined the issue of fighter pilot retention, defined a measure of total active rated service (TARS) to measure the retention of pilots. Denoted in years, it measures the average length of time a pilot remains on active duty.

As you can see, the rate at which pilots leave the service (thereby shortening their active duty years) roughly corresponds with airline hiring, verifying that in spite of conditions in the military, when the airlines are hiring, pilots will leave.

This makes sense for many reasons. At the 10 year point of a military pilot's career, there are often many lifestyle changes including marriage and children. The excitement and travel which provide much of the allure of being a military pilot may have lost their lustre. The early part of a military pilot's career involves becoming an expert in the operation of their weapons system, but as time progresses, the focus will switch to grooming for leadership positions and away from flying.

At work here also is the psychology of the airline seniority system. Nearly every measure of quality of life in the airlines is determined by one's seniority, or hire date. Logic dictates that if a pilot has decided to eventually go the airline route, an earlier rather than later departure from the military will be better. This "fear of missing out" no doubt drives many pilots off the fence onto the side of the airlines, but it also presents an opportunity to help solve the problem.

Can it be Fixed?

Anything can be fixed given enough money and imagination, which unfortunately, seem to be in short supply these days. From a merely economic point of view, matching airline pay rates dollar for dollar might help, but the calculus would then be why work harder for the same money? To beat this problem with money will require quite a bit more than the military is willing (or able) to pay.

To their credit, Air Force leadership has recognized the toll that nonstop deployments have taken on the force and are moving to reduce them. Other initiatives include keeping pilots in the cockpit and out of staff positions by utilizing non-pilots for those staff positions.

One possible solution to the airline seniority problem might be for the airlines to interview, provisionally hire, and guarantee military pilots a seniority position based on that interview date. This type of program would mirror the "flow-through" programs which some regional airlines have with their mainline counterparts.

Requiring a longer service commitment seems to be a well that has run dry. Currently at 10 years from completion of training (up from six when I joined in 1982), the length of that commitment will eventually dissuade the best and brightest who have other options. 

Then, of course, there is the brute force method, of which an involuntary recall of retired pilots would be a showpiece. Other levers include the use of a "stop-loss" program which simply closes the door to pilots leaving the service prior to retirement. Invocation of a stop-loss seems the more likely course in lieu of a retirement recall. I have personal experience with that, being prevented from retiring for awhile back in 2003.

The last policy prescription I'll offer is to simply define the problem away. It still escapes me as to why we're deploying state of the art fighters against Pashtun goat herders in the Hindu Kush, especially when the place will look like we were never there a year after we leave.

In Conclusion

The Air Force's pilot retention problem is the same as it ever was. When the airlines hire, pilots leave. The complaints about the service being made today echo not only those I heard back in the 1980s, but also those of Joseph Heller's Yossarian voiced in Catch 22. Creative management and incentives will help stop the bleeding, but the tide of a world wide pilot shortage is a powerful force.

Captain Rob Graves is a veteran airline pilot and retired Air Force officer. He currently flies a Boeing 737 for a major American airline where he has over 25 years of experience. His Air Force career included instructing future USAF pilots in the T-37 primary jet trainer, aerial refueling in the KC-135 Stratotanker, and conducting worldwide logistics in the C-5 Galaxy cargo aircraft.

Where are the Pilotless Airliners?

Peter Thiel, PayPal founder and tech evangelist, noted several years ago that "We wanted flying cars, but instead got 140 characters." He was, of course, talking about Twitter, but his larger point was that the technological advancements that seemed to be inevitable have—when they've even shown up— been underwhelming.

The pilotless airliner, like the driverless car, is one of those innovations that always seems to be close, but like a mirage in the desert, keeps receding into the distance. And it certainly isn't for lack of effort. DARPA has recently been testing a robot which occupies the space where a copilot sits on an airliner.

A recent headline proclaimed that this robot was able to fly (and land!) a 737. So that's that right? We can finally get on with the business of halving (or eliminating) our pilot force, solving the pilot shortage, and saving a ton of money to boot.

Well, I wouldn't be so quick to quit flight school and dust off that medical school application. We are still quite a ways away from single or no pilot airliners for a number of reasons. But first, I'd like to review where we've come from when it comes to cockpit automation and what we'll ultimately be asking our machines to do.

There was a time not too far removed when it took five or more crew members—in addition to flight attendants—to operate an airliner. Besides the two pilots up front, there were navigators to navigate, flight engineers to keep the engines running, and a radio operator to communicate. Over the years, these positions have been eliminated through the use of technology and automation.

The last airplane Boeing manufactured that had an engineer's panel in the cockpit was the 1960s era 727 which ceased production in 1984. Navigators and radio operators were eliminated decades earlier, replaced by inertial navigation systems and solid state radios.

Job Functions Were Consolidated, not Eliminated 

I think it important to note that none of the functions that those earlier crew members accomplished were actually eliminated, but rather consolidated into the job of pilot. Airplanes still needed to be navigated, engines needed to be started, monitored and kept running through fuel management, and radios still needed to be tuned and monitored. 

Automation has allowed pilots to assume all those duties while still flying the airplane. And as you've no doubt read somewhere on the internet, pilots only actually "fly" their airliners for just a few minutes per flight during takeoff and landing. For the most part this is true. I personally like to hand fly the jet more than most, but that is because I enjoy it. There is certainly no need to do so. For many, it is gear up, flaps up, autopilot on.

The dirty truth is the autopilot can fly better for longer than any human can. Sure, some pilots can fly a better final than "George" (the autopilot), but George doesn't get tired or rusty. This is a good thing, because it is that autopilot which frees up the two pilots to deal with things like a low oil pressure light during a diversion in bad weather.

Why Have Pilots at All?

Technology has eliminated all those other jobs on the airplane, and we have autopilots that routinely handle almost all the flying already, so what's the problem? Just make a machine that can handle the other three minutes of flying and we're done here.

This gets down to the fundamental reason pilots are really on the airplane, and that is decision making. The reason there are two pilots aboard? Collaboration and validation of the decision making process. Plus having two people up front has the added advantage that they help keep each other awake. (Laugh, but it will need to be addressed in a single pilot airliner.)

We will only need  to write some software that can handle the decisions that pilots are expected to make. This gets down to the question of things that machines do well versus the things that humans do well. They each have their strengths and weaknesses.

Pattern Recognition and Heuristics 

Computers are really good at tedious detail work such as, say, doing a spell check or a word find and replace on a blog post. What they're not so good at is deciding if you've buried the lede, or if your prose is somewhat leaden. That takes judgement, which is more difficult to code.

Have you ever wondered why all the fruits and vegetables in the supermarket have those little stickers on them used by the scanner? Why can't the scanner just look at a tomato and recognize it? The reason is that when you program the computer to recognize something that is "red" and "round" it will confuse tomatoes with apples (or red bell peppers). While humans will rarely mistake an apple for a tomato, getting a machine to routinely recognize the difference is more difficult, (and expensive) hence the stickers.

In short, humans are much better than machines at pattern recognition and heuristics, which is a fancy word for an educated guess or hunch. Humans are better decision makers in ambiguous situations. And many situations on an airliner can be ambiguous.

Canned Decision Making or AI

What is software other than prepackaged expertise and decisions? Automation is threatening whole sectors of the economy such as accounting because expertise and best practices can be distilled into code and sold to people who couldn't otherwise afford to hire a tireless expert. Accounting software, though, is unlikely to be presented a scenario which hasn't been preprogrammed. If it does come across such a situation, it would likely come to a halt state to await human intervention.

The software in a pilotless airplane would need to be either pre programmed with every possible scenario likely to ever be encountered, or to employ some sort of artificial intelligence. Artificial intelligence (AI) is the ability of a machine to be able to process information which it hasn't specifically been programmed to handle, i.e. to learn. In short, it is canned judgement.

Advances in AI are being made all the time but it does have a way to go. Imagine a piece of software which would have the judgement to tell the difference between a need to do a gate return for a woman who'd left her purse in the gate area versus one whose husband had been seriously injured (or one of several million other scenarios). I can't imagine that either. 

So it seems apparent to me that we're going to need humans available to make decisions on or about airliners for the foreseeable future. The question arises as to how many humans are required, and if they should they actually be on the airplane.

Pilot/Dispatcher/Controller

Our current commercial airline transportation system consists of at least four people watching over your flight at any one time. Two or more pilots are up front, a dispatcher has planned your flight and keeps watch over things like destination weather and other operational concerns, while air traffic controllers keep your airplane away from all the other airplanes flying around.

All of these jobs are supposedly ripe for replacement through automation. Back in my military days my crew would come in the day before a scheduled flight and spend the entire day flight planning. Dispatchers today plan and oversee many dozens of flights per shift using sophisticated software tools. They become extremely busy, though, when many airplanes under their control have to divert in the case of bad weather in one location.

Similar automation and technology advancements are impacting the job of the air traffic controller as well. The FAA has proposed using advanced data tools to have a flight fully cleared and deconflicted from all other airborne traffic before it has even taken off. Controllers would only be available to intervene in the case of rapidly changing weather or other unpredictable contingencies such as aircraft emergencies.

Virtual Copilots

In the most likely interim single pilot scenario, one pilot aboard an airliner would be coupled with a "copilot" assistant on the ground connected through datalink. A decision would need to be made as to how many airborne planes would be assigned to each assistant. If the ratio is one to one, there would be little cost savings as assistants would likely make about as much as copilots currently do. Perhaps two to one or four to one. An optimal number will need to be found though this would open a new cost versus safety frontier that does not now exist.

These assistants would be only available for voice or text consultation given the current state of deployed technology. Robust telecommunications networks allowing for remote control of airliners along with control systems aboard airliners to allow such control, while technically feasible, currently do not exist and would require a sizeable investment in hardware and infrastructure to implement. This is certainly doable, but there is little evidence of any movement towards this future other than pure research.

The trend is unmistakable though. Fewer humans will, over time, be involved in watching over your flight, and this may work out just fine. The advantages of automation are manifest: lower costs and higher productivity being two of the greatest. A third metric, however, safety, may be the fly in the ointment.

Is It Safe?

2016 was a record year in US commercial aviation as there were no fatalities on any US commercial airline anywhere in the world. It is also the seventh straight year that this feat has been attained. In 2015 that worked out to 7.6 billion miles flown with a (non-fatal) accident rate of 0.155 per 100,000 flight hours. There are about 24,000 commercial flights per day in the US. Flying is extremely safe and this is not by accident.

The current state of safety in the airline industry has been achieved over the years through dogged research into human factors, technical standards, preventative maintenance, training, and accident investigations. Aviation policies and procedures for operators, controllers, and maintainers have years of development and history behind them. 

One of the best reasons to cheer the introduction of driverless cars is the promise of a reduction in the 35,000 annual US auto accident deaths. The promise of the pilotless airliner is mostly economic. Our commercial aviation system is already nearly as safe as can reasonably be accomplished short of parking airplanes.

The burden of proof from a safety point of view will be upon those wishing to introduce large changes into this system for marginal economic gains. Measured in defects per operations accomplished, matching the current safety record will be a challenge. Not impossible, but the bar is pretty high.

I personally find myself having to intervene multiple times a day to correct "errors" made by our current state of the art automation. My experience is not unique. Automation is not nearly as automatic as advertised. This record of course must improve before the system can be fully autonomous.

The current pilot shortage, one of the justifications for increasing automation, is a mostly self inflicted injury by the US aviation industry compounded by Congress. It will eventually work itself out through rising wages and ab initio training programs for prospective pilots. It should also be noted that the shortage is currently only a problem facing regional airlines. Major airlines are poaching all the pilots they need from the regionals and military for the time being. 

In Conclusion

To deflect the inevitable charge that I am merely a dinosaur expressing indignation at my own extinction, I'll say that I have every confidence that the goal of pilotless airliners will eventually be achieved given enough time and money. I also believe that it will not be nearly as cheap nor as easy as some acolytes of pilotless airplanes believe. If you'll notice, I haven't even touched on the acceptance of this idea by the flying public. I leave that for you, dear reader, to discuss in the comments. In any event, I'll be retired long before then.

Big Airlines buy Smaller Jets: Should Regional Airlines Worry?

Bombardier C-Series Regional Aircraft

The airline business model for the past decade or so has depended on the big six (now three) network carriers flying larger narrow and widebody aircraft to and from fortress hubs while outsourcing regional flying to lower cost regional partner airlines through capacity purchase agreements (CPAs). This model was driven by both the introduction of new and capable 50 to 70 seat regional jets (RJs), and also the need to compete with low cost competitors such as Southwest and America West.

By the late 90s, network carriers had found themselves hamstrung by union pay scales and work rules when attempting to compete with the fast growing low cost carriers (LCCs) unleashed by deregulation. Competitive responses such as United's Shuttle by United and Ted, Delta's Delta Express and Song, and Continental's Continental Lite were all terminated after lackluster economic results.

As I detailed in an earlier post, partnerships with regional airlines who operate under the brand of the mainline carriers allowed a competitive response to LCC incursion by circumventing high labor costs and work rules. Loopholes in union contracts at the mainline carriers allowed for the outsourcing of this flying.

This model, however, may no longer be working.

Mainline Carriers Seek Regional Jets

In the past year or two we've seen increased interest in regional aircraft by mainline carriers which suggests that the mainline carriers wish to bring at least some of their regional flying back in-house. One of the first accessions was by Delta of all the Boeing 717 aircraft that Southwest had acquired in its merger with AirTran. The 717 is a smaller, 100 seat variant of the MD-80 line and a highly desired aircraft as it fills the niche between RJ aircraft and larger narrowbody jets like the 737.

The next move by Delta was its attempt to reach a contract with its pilots last summer that included the purchase of 20 Embraer E-190 regional jets. This would have been the first time that Delta operated regional aircraft in its mainline operation using its own pilots and not a regional partner. That contract was rejected by the pilots for reasons mostly unrelated to the RJ purchase, but it could be assumed that Delta was still interested in those aircraft. And as we shall see, they were.

Next up was United who last fall made an unsolicited offer to their pilot's union to reopen their recently negotiated contract. In a letter to the union, a senior vice-president mentioned that a successful conclusion of the negotiations would result in the acquisition of new small narrowbody (NSNB) aircraft to be flown by United mainline pilots. That contract extension was passed by the union.

Here Come the Jets

In recent weeks we've seen a flurry of smaller jet purchases by both Delta and United. Delta is reportedly very close to a deal with Canadian aircraft manufacturer Bombardier for 75 of their new C-Series regional aircraft. These new and highly efficient aircraft come in two variants which will seat between 100-160 passengers depending upon model and interior configuration. This aircraft will fit nicely with their already existing 717s for the 100 seat market.

And back in January United announced an order for 40 Boeing 737-700 aircraft. While the 737-700 is not considered a regional aircraft, United's configuration for its existing -700s is for 118 seats which puts it right in the middle of the pack for regional flying. They reportedly got the airplanes for a screaming deal of $20-25 million per plane which Bombardier, the other choice under consideration, simply couldn't match. Boeing has just launched the newer variant 737-Max and is giving United a deal to clear the last of the -700s off the lot as it were.

American Airlines is in a somewhat different situation as they've owned their own regional airline, American Eagle (now Envoy) since buying out all their regional partners back in 1987. Apparently American was able to wrangle exceptions to the scope clauses in their union contracts allowing this arrangement. Already being the owner of their regional would seem to reduce the need for bringing that flying in-house. After American's bankruptcy and merger with USAir though, they have resumed American Eagle branded flights with a number of outside regional partners under capacity purchase agreements.

Why Change Now?

The current model has worked for some time so why rock the boat and change things around now? There may be a few things going on here. The first one may have something to do with the cost of fuel. Let me explain. 

When regional airlines first started flying RJs, the 50 seat RJs were very popular and allowed network airlines to raid each other's hubs with these fast and relatively long range aircraft. Later, though, as the price of oil climbed through $100 a barrel, the aircraft became uneconomical to operate. The reason for this is that they cost just slightly less to purchase and operate as larger aircraft, but generate only a fraction of the revenue putting them at a disadvantage. Fuel is cheap now but airline managers realize it may not stay that way for long.

This is one of the reasons regional airlines are retiring their fleets of 50 seaters and moving to aircraft with larger seating capacities.

A second reason for the declining popularity of smaller regional airliners may have to do with limits on the capacity of the nation's airspace system. Slot limited airports such as Laguardia or Newark can only handle so many arrivals per hour. In order for an airline to increase revenue in a particular market like this, the only feasible means is by using higher capacity aircraft.

Even at non slot restricted airports, a particular market may not support additional departures as most business travellers like to travel early in the morning or at the end of their day. Again, the only way to boost capacity in such a market without doubling costs by deploying a second aircraft is to use a larger aircraft.

Lastly, there is an ongoing shortage of pilots to fly regional aircraft. Regional airline jobs are entry level jobs into the industry, and as the major airlines are on a hiring binge to replace retiring Baby Boom era pilots, the regionals are having trouble replacing their departing pilots with new hires. 

Also, by bringing their regional flying in-house, the network carriers may be attempting to gain control of their pilot pipelines. Once a pilot is on a seniority list, they are not likely to leave a particular airline as they have to start over at the bottom of the list. If one corporate entity controls both the regional and mainline flying and keeps their pilots on one seniority list, there will likely be less draw for them to jump ship to another carrier.

There are many reasons for this dearth of pilots which I addressed here. The upshot is that regional airlines are having to make hefty boosts in pay and benefits to attract the diminishing pool of new pilots. This negates their cost advantage in comparison to the network carriers which is really their reason for existing in the first place. 

As regional aircraft size and capacity grows, the mainline network carriers will find themselves bumping up against their union contracts which require larger aircraft to be flown by mainline pilots. With no cost advantage and control of their pilot pipelines to be gained, it may be advantageous for the mainline network carriers to bring their regional flying back in-house thereby ending the era of outsourced regional flying.

This may be a perfect storm of bad news for the operators of regional airlines, and one that they probably knew would eventually come. 

So You Want to Fly an Airliner? Career Advice for Pilots (Pt 1)

Charting a path to a successful aviation career can be daunting.

I often get asked for career advice by aspiring and younger pilots and thought it might be helpful to condense some thoughts in a post on aviation career strategy. The Women in Aviation Conference was recently held in Nashville and I gave jumpseat rides to a number of younger pilots making their way out there for some face time with the recruiters who were there. This got me thinking about where a young pilot might find some career advice. There is quite a bit of change currently underway in the aviation career field, and plotting a path to a successful career can be daunting.

The Timing has Never Been Better to be a Pilot

So you want to become a major airline pilot? Well the timing has never been better in terms of demand for pilots. Due to the mandatory retirement age of 65, US airlines will need to replace thousands of retiring pilots in the next five to ten years. The numbers are staggering. Estimates run to a need for over 18,000 pilots to be hired just to replace retiring US pilots in the next five years. Those numbers don't account for airline growth nor do they factor in early retirements and should therefore be considered minimums.

And it is unlikely that many of these pilots will be hired from overseas as the pilot shortage is a worldwide phenomenon. Boeing estimates the worldwide need for pilots at over 500,000 in the next 20 years. The major airlines have or are about to embark on a hiring binge to replace the thousands of retiring Vietnam era pilots currently flying their airplanes. They are hiring primarily from the ranks of regional airlines who in turn are scrambling to keep their airlines staffed. The military, a traditional source of trained pilots, is doing a better job of holding onto their people so those numbers will be made up primarily through the hiring of pilots with civilian backgrounds.

One need only search the term "pilot shortage" to see stories of regional airlines having to park airplanes due to a lack of pilots. Republic Airlines even cited the pilot shortage in its recent bankruptcy filing. In the meantime, a bidding war has broken out between regional airlines for the dwindling number of pilots who meet the new 1500 hour minimum requirements. Those requirements are dropped to 1000 hours for pilots who have graduated from an accredited aviation school, but those graduates will likely be carrying the better part of a hundred grand of debt for their schooling, which is why there aren't many of them.

The following comments are directed at currently qualified regional, military or corporate pilots who are looking to make a jump to a major airline. I'll address the subjects of entering the career field for non-pilots and special considerations for military pilots leaving the service in parts two and three.

Seniority is Life

As an old tale from aviation lore goes, a wise old captain was once advising a young copilot on the things which contributed the most to a fulfilling career. The captain said that a career flying airplanes was, besides a love of aviation, about time off and money. And he made sure to emphasize and in that order. 

A career in aviation means being away from home. A lot. It is a tradeoff that all pilots make. And while we understand that we will be at the bottom of the seniority list when starting out, the hope is that given enough time, we will eventually earn those coveted weekends off and summer vacation blocks and an upgrade to the left seat or a widebody. And that means seniority.

There are two ways to become senior at any airline. The first is through growth. If the airline you get hired by doubles in size in say five years, you will upgrade to captain in five years give or take. The second way to seniority is through the retirement of those pilots who are senior to you. Given the current state of the four largest airlines which control about 80% of the US domestic market and are not likely to grow any faster than the overall economy, it is retirements which will likely fuel your ticket to watching football in your own living room and not in the hotel bar on a layover.

This means that during any extended hiring binge, like the one which is just getting under way, getting your foot in the door as early as possible is of supreme importance. Getting ahead of a hiring wave means you will spend most of your career in the left seat enjoying the pay and prestige that comes with that position. Get hired at the end of the wave and you will likely spend years throwing the gear for captains who are just a few years older than you.

My advice, then, is to get on with your preferred carrier at the earliest possible time. This means getting your required PIC hours as soon as possible through whatever means. There's a land rush going on out there and you don't want to miss out.

For you regional pilots toiling away with the hope of getting a job through a flow-through program, my advice is to ignore those and do whatever it takes to get your hours and to then get your resume out on the street. A flow-through program is just a promise and not worth the paper it is written on if things change, and things change all the time.

Which is the Best Airline to Fly For?

That's an easy one. The best airline is the one that hires you. Don't ever turn down a job offer from any airline offering you a job flying equipment that is larger than what you currently fly. Show up to training, act like that airline is the only one you've ever wanted to fly for, and then should an offer show up from where you really want to work, just walk out the door. Of course be polite and gracious for the opportunity, but never forget that this is your career and life we're talking about here. It's just business.

But all else being equal, and assuming that you get an offer from the airlines you're considering, there are a host of factors which will influence your decision. As I mentioned above, the existing demographics and pending retirements will be one of your biggest considerations. Next you'll want to consider where your prospective airline has pilot domiciles. Pick the one which has a domicile in a city where you want to live. Yes, commuting is possible, but a career of it will effectively mean extra years sleeping in hotels and crash pads which could be spent in your own bed.

Next you should consider the equipment that the airline flies. Widebody flying pays the most and generally has the most days off. It will take some time to get into a widebody, but if the airline doesn't own any, you'll never fly one. And if you ever get sick of flying international routes, bidding back to domestic equipment is always there if you so desire.

Furloughs. Yes, the "F" word. No one can predict the future and fuel shocks, mideast wars and recessions are always possible. And when they happen, you might find yourself back on the street. Southwest is the only one of the big four US airlines which has never furloughed any pilots, but they are resembling a legacy carrier more each day, so past performance may not guarantee future results. In any event, getting on early with an airline that has the most retirements will move you up the list and away from the furlough zone the quickest.

In Conclusion

I've just barely scratched the surface here but have touched on some of what I feel are the most important considerations for pilots who are looking for a job at the majors. Since the topic is so large, I'll be doing several additional installments where I give my advice to military pilots who are leaving the service, and also to non-pilots who may be hoping to explore a career in aviation. Stay tuned!

Lastly, please feel free to ask any questions you might have about your own job search in the comments. Is there something you'd like to ask about your own career progression? Just let me know. I'm here for you!

Update: Part 2:  Career advice for pilots leaving the military is here.

Update: Part 3  Career advice for those looking  to start a career in aviation is here.

How Does an Airline Go Bankrupt with Fuel This Cheap?

Republic operated E175 jet in American Eagle Livery

Earlier this week Republic Airlines declared bankruptcy stating that a lack of pilots resulted in lost revenue due to grounded flights. Anyone in the travelling public reading this story must be confused as to how an airline can go bankrupt in this time of cheap fuel. After all, planes are jammed full and stories of record profits being set by airlines abound.

To understand all this, it is important to note that Republic isn't a "real" airline in the customary sense. That is, you can't go online and buy a ticket on Republic Airlines. Republic, like most "regional" airlines, is simply a provider of aircraft and crews to their major airline partners. Their aircraft are flown under the banners of American Eagle, United Express, and Delta Connection.

The agreements which bind Republic and other similar airlines to their partners, known as "capacity purchase agreements", delineate the terms under which aircraft and crews are provided to fill the schedules dictated by those major airline partners. Once signed, as with any contract, the terms are set. And again, as with any business contract, there are likely a host of penalties imposed for non-performance of the terms of those contracts. This is all routine business stuff.

Revenue Restricted but Costs Unbound

The regionals, then, are bound on the revenue side of their ledger by the contracts they've signed. They don't get to raise prices on their flying customers because they don't really have any. Their customers are the major airlines with whom they have signed contracts. Passengers are the cargo who incidentally happen to be on the airplane. You can easily see how incentives are aligned for the "enhanced" customer experience that most regional airlines provide.

The only way for a regional airline to increase profit, then, is by reducing costs.

One cost input that most likely wasn't considered highly variable was that of labor, specifically pilots. One of the main reasons the regional airline model even exists is that it functioned as an end run around union contracts at the major airlines. Several decades ago major airline unions (ALPA, APA) allowed loopholes in their contracts allowing their airlines to outsource the operation of smaller aircraft thinking that the amount of flying would remain small.

That was a strategic mistake for the unions as "regional" airlines grew unabated using new fast and capable jets. Regional airline enplanements grew from 27 million passengers in 1985 to about 160 million passengers in 2014 taking a huge bite out of the flying done by the unionized pilots at the major network carriers. The reduced costs from the regional airline operations also allowed the major airlines to field a competitive response to the explosive growth of younger low cost carriers (LCCs), notably Southwest.

The Model Breaks Down

That model more or less worked because younger pilots were willing to accept the low wages offered by the regional carriers in exchange for the flight hours they needed to apply for a job at the major airlines where the money is. In a sense it was a deal with the devil because the existence of the low paying regional jobs came at the expense of the higher paying flying at the majors. It might have been considered an industry wide "B" scale, but the model persisted.

With the crash of Colgan 3407 and the subsequent legislation which raised the minimum hours required for any pilot to work at a regional by five times, the wheels have apparently come off. Any pilot who wishes to work for any commercial airline must now have a minimum of 1500 hours. 

This new requirement has effectively shut down the pipeline for new pilots. As the major airlines now must hire thousands of pilots to replace retiring pilots, the regionals are losing pilots faster than they can be replaced causing them to cancel flights for a lack of pilots.

Republic itself was losing around 40 pilots per month and couldn't cover their schedule. This meant lost revenue. Last year Republic was even sued by Delta for breach of contract in not fulfilling its obligations, the irony being that Delta is hiring away many of Republic's pilots.

A result of the pilot shortage is a bidding war for the fewer pilots remaining available for hire. One need only click over to the Republic corporate home page to see multiple appeals to prospective pilots. For pilots with the requisite number of hours, it's a good time to be looking for a flying job.

As far as the Republic bankruptcy is concerned, this is nothing more than a renegotiation opener by Republic to gain more favorable terms with its major partners while avoiding the penalties in its existing contracts. As the pilot shortage worsens, fares will likely increase and service to smaller cities is likely to be curtailed or ended.

Are We any Safer?

A good way to start a bar fight or internet brawl on a pilot forum is to question the need for the higher hours requirement. It should be noted that both the Colgan pilots far exceeded the new hours requirements. The problem in that crash was identified as a weak captain and fatigue. It should also be noted that the Air Force routinely puts its pilots in the seat of advanced fighter and multiengine heavy transport aircraft with only about 200 hours of experience. I know because I was one of them.

That said, it appears to be highly unlikely that the 1500 hour requirement will be relaxed any time soon. The topic is simply too much of a political hot potato. My guess is that we will see more shrinkage and possible bankruptcies of regional airlines along with major airlines bringing some of that flying in-house in order to keep ahold of their pilots.

The Pilot Shortage in a Nutshell

A recent article (paywall) in the Wall Street Journal details the efforts of gas and oil pipeline companies to enlist drones in the inspection of their lines.

U.S. utilities see great potential in the use of remote-controlled drones to do the often-dangerous work of inspecting power lines and transmission towers but strict regulations have so far slowed adoption of the technology.

Pipeline inspection, along with other mundane flying such as banner towing or crop dusting has long been a staple of inexperienced pilots looking to build flying time. Pilots needing to build hours and gain experience would do these jobs for little pay in hopes of being eventually picked up by a commuter or cargo airline as a copilot. Then, after building hours and eventually making it to the left seat of a commuter or cargo aircraft an aspiring pilot could then hope to be hired on by a major airline.

Drones, coupled with new government regulations quintupling the numbers of hours required to even be hired by a commuter airline, have disrupted this process. Together, these two developments form an effective one-two punch to knock prospective pilots out of the game.

Cost savings and safety are the reasons why:

Utilities spend millions of dollars inspecting power lines, which are often in hard-to-reach places. The industry has been interested in the potential use of drones for years, but has been slower than European companies to adopt the technology because of U.S. regulatory restrictions.

Other entry level piloting jobs such as crop dusters are also at risk of being replace by drones:

Other industries, including oil and gas drillers, pipeline operators, construction companies, and agriculture are also investigating the use of drones to make inspection and mapping tasks faster, more accurate, safer and less costly.

Even renewable energy operators benefit from the use of drones:

"With wind turbines, you'll have a couple of guys hanging off the blades by a rope a couple hundred feet in the air to do inspections visually, at a cost upwards of $10,000 per site," Bordine said. "We can get the same results with a UAV for $300, without putting workers in danger."

What this means is that for a young person hoping to become a pilot, the journey will include borrowing the better part of $100K to pay for the flight time which was previously built by flying a banner tow or pipeline inspection aircraft. The military is also doing a much better job of retaining pilots through the use of long commitments in exchange for pilot training.

For those lucky enough to already have their ratings, these developments mean assured employment and increasing wages...at least until such time as automation eliminates pilots from airliners entirely.

Do Pilot Unions Have a PR Problem?

Southwest pilots walk the picket line

Last week, the pilots of Southwest Airlines took to the streets outside of the airline's headquarters in Dallas to protest the lack of progress in their current negotiations. The union is not on strike, or even close to it, but is engaged in what is known as "informational picketing" to get their message out. Southwest Airlines' management and the pilots' union have been in negotiations since the pilots' contract became amendable in August of 2012.

If you'll recall, airlines are organized under the Railway Labor Act (RLA). Under the RLA, labor contracts never expire but become "amendable". Labor unions continue to work under the terms of the preceding contract until a new contract is negotiated.

The pilots' union at Southwest (SWAPA) contends that the airline has been dragging its feet in negotiations in order to extend the favorable terms of the preceding contract negotiated in leaner times. This standoff has continued for several years while the airline has been recording record profits. The airline, for its part, points out that a deal was reached with the union's negotiators last summer which included raises totalling 17.6% over the life of the contract. That deal was soundly voted down by the union membership.

So who's in the right? Has the airline been using the RLA to delay paying raises to its pilots, or have the pilots just gotten greedy in turning down a great offer by the company? Well, as per usual, it depends on with whom you speak. Each side passionately insists that their version of events is the correct one and that the other side is obfuscating. And also, as per usual, there is an element of both truth and falsehood in each narrative.

But my purpose here is not to adjudicate the differences between the two opposing sides, but rather to point out that pilot unions have a natural disadvantage when they attempt to take their case to the public though picketing and other public displays. The problem is that while many pilots in entry level jobs at commuter and cargo airlines do in fact make a very modest wage, by the time a pilot gets on board at a major airline, he or she is making decent coin. And on average, pilots at major airlines are solidly in the middle to upper middle class arena.

This presents a PR problem when trying to garner a sympathetic ear from a public who may feel that the picketing pilots' income is likely higher than their own. Taking any dispute over wages and benefits to the public inevitably invites an inquiry into and a judgement of what pilots actually make. And of course, helpful members of the press and airline managements are only all too willing to facilitate the discussion by providing actual numbers for public consumption.

Hence shortly after their picketing event, Southwest pilots were met by this headline in the Dallas Morning News:

 High pay, job security and profit-sharing — and Southwest pilots are picketing?

The article was somewhat misleading but not factually incorrect. But it is the pilots who have the burden of getting across their message that having no cost of living raises since 2012 is causing their real purchasing power to erode due to the effects of inflation. It's not an easy message to convey while trying to avoid the "greedy" label.

Another difficulty is that many members of the public don't understand the nature of the pilot profession. For instance, public perception of a pilot's work week may be that pilots have a lot of time off. Some do, but many in the public may not realize that pilots can be gone for weeks at a time and miss many family events and holidays that someone in a traditional job would not. But as with compensation, taking their case to the public invites kitchen table discussions of what pilots should be paid and how much they should work. These discussions will probably not end up favoring pilot demands for higher wages.

Lastly, many members of the public don't have a good understanding of unions and unionism in general. This is due to the fact that with only about six percent of the private work force being unionized today, very few Americans have any experience with unions. With the high water mark of union membership in the US having been reached back in the 1950s and on a steady decline ever since, unions may be thought of by the public as an anachronism in today's economy.

I personally don't get too worked up about any of this. My feeling is that the underlying economics more or less determines wage rates. With an ongoing and worsening world wide pilot shortage in progress, wage rates will inevitably increase as the big four major US airlines have to compete to hire from a dwindling pool of prospective pilots to replace huge numbers of retiring Vietnam era pilots.

And on the bright side, informational picketing allows some of the more enthusiastic members of the pilots' union to expend their energies organizing these outings. It seems to help reduce the discomfiture in some pilots which is being made worse by the length of the negotiations. And it actually looks like a lot of fun. Unfortunately, I'll be working.

Shifting Currents: Will Regional Airlines Survive?

It would  appear to observers of the domestic US airline industry that things are finally settling down. After years of turmoil, bankruptcy and consolidation, the remaining big four US major airlines control nearly three quarters of all domestic airline seats. Low fuel prices have meant a season of record profits as well.

The regional airline market, however, is a somewhat different story. Whipsaw fuel pricing, the introduction of a new class of small jets and a pilot labor shortage along with a reassessment of the relationships between regionals and their mainline partners could be changing the landscape.

The regional airline business model consists mainly of little known companies such as Envoy, Expressjet or Republic Airlines that fly airplanes in their major airline partners' livery. Flying as American Eagle, United Express or Delta Connection, these companies sign "capacity purchase agreements" with their major partner airlines to provide service between major airline hubs and smaller regional airports that don't support a mainline aircraft.

Regional Airlines: How We Got Here

The industry has always existed to ferry passengers from major hubs to small feeder cities, but the introduction of small regional jets from the late 1990s fundamentally changed the dynamics of the business model. These small jets such as the 50 seat Bombardier CRJ 200 and the Embraer ERJ 145 could not only go as high and as fast as their major airline brethren, but could also and more importantly, fly as far.

What this meant is that regional airlines could poach passengers from each other's regional feeder airports. For instance, historically, to fly out of a regional airport such as Twin Falls, Idaho, one would have to take a regional airline to the nearest hub which was within the range of the smaller and slower turboprop aircraft. This probably would have been Salt Lake City where Delta was the dominant major airline. The new regional jets (RJs) allowed regional airlines to now fly directly from a smaller city to a hub in another region such as LA, or Chicago.

It also meant that regional airlines were no longer strictly feeders to their mainline partners but rather operators of parallel airlines under the same corporate identity. The real brilliance of the arrangement, however, was that the regional partners were not covered under the collective bargaining agreements which kept labor costs high at the mainline network airlines. How did this happen?

The Unions Get Snookered

The one aspect of collective bargaining agreements (CBAs) that unions are most jealous of is their scope clause. A scope clause will delineate which work must be accomplished by employees covered under the CBA and which work, if any, can be outsourced. Obviously unions have an interest in keeping the most work in-house and under the agreement.

In fact, unions view scope clause protections as so vital, that those protections are usually set forth in the first section of many airline labor contracts. Thus, the term "Section 1" protections becomes a shorthand for all the restrictions on who may perform work for the company with which the union collectively bargains.

It was a lack of imagination and vision on the part of mainline union negotiators that allowed both existing provisions for the outsourcing of regional flying to remain in airline CBAs, or for those provisions to be imposed after the wave of post 9/11 airline bankruptcies. Mainline union negotiators were caught flat footed by the introduction of the new capable RJs which resulted in stagnation in the amount of flying they controlled. They simply didn't think that the provisions for commuter aircraft flying in their contracts would eviscerate their members' livelihoods.

In 2000, for instance, regional airlines flew a total of 24 billion revenue passenger miles (RPMs), but by 2010 that number had increased three fold to about 75B RPMs. In the same time frame, all network mainline airlines flying stagnated at about 360B RPMs until 2007 followed by an erosion to about 320B RPMs in 2014. The data can be found here and here.

Some, but not all of this mainline stagnation could be attributed to the growth of low cost carriers (LCCs) like Jetblue, Southwest and AirTran airlines, but it became clear that regional airlines were doing a fair bit of the flying that mainline airlines might have done themselves.

In 2011 for instance, regional carriers accounted for 64% of all departures at Chicago's O'Hare airport and 74% at Seatac. Some city pairs such as Nashville - Chicago (O'Hare) have had only RJ service while others such as Austin - Denver might have a mix of RJs and mainline aircraft. Three of the largest regional airlines, Envoy, ExpressJet and SkyWest can be even now counted as major airlines in their own right with each having over a billion dollars of annual revenue.

Alter Egos

What one should be careful to not do, though, is to assume that mainline carriers are in actual competition for business with their regional partners. This is due to the nature of the capacity purchase agreements (CPAs) that mainline and regional airlines have entered into. In a capacity purchase agreement, the mainline carrier simply purchases all the seats on the regional aircraft while retaining the marketing, ticketing, and most importantly, the revenue from the sale of tickets.

The regional carrier gets paid regardless of how many seats are filled or how the customer is ultimately treated. The regional airline is effectively wet-leasing its aircraft to the mainline. You can easily see how incentives line up for a less than optimal customer experience on regional airlines...they're getting paid either way. The lack of amenities, spartan service and cramped cabins have made regional jets increasingly unpopular with the traveling public.

So if the customer experience is so negative, why do the mainline airlines outsource their valuable branding and operations to third parties who get paid regardless of product quality? Cost control. Salaries are notoriously low at regional airlines with some crew members qualifying for food stamps. In fact, due to the long term contracts regionals have with their mainline partners, the only way for a regional airline to increase unit revenue is through cost control and cost reduction, which is exactly what they've done and become very good at.

So who wants to work at such a place? One of the reasons that employees may accept the low wages offered by regionals is that hiring standards are lower, or perhaps employees hope to gain needed experience in the industry in hope of landing a better job at a major airline.

This is especially true for aspiring pilots who can count their flight hours as a form of pay. Most mainline airlines have minimum hours requirements for pilots to be considered for hiring. The only way for a young pilot to get this experience other than joining the military has traditionally been to fly for a regional airline. New federal regulations, however, are changing that dynamic which I wrote about here.

The arrangement between regionals and mainline carriers has many of the usual suspects and social justice warriors in a degree of moral high dudgeon due to low wages, but my view is somewhat moderated. It's simply not true that forcing wages higher will result in a greater quality product while leaving service distribution unchanged. In many cases, smaller cities will just lose scheduled air service as costs climb. This is already happening.

Flies in the Ointment

The regional industry has several other vulnerabilities which may eventually change how they do business. One particular achilles heel is the high seat-mile cost that the small jets have. While the cost to acquire and operate a 50 seat jet is only marginally less than say a 737, a 737 will have nearly three times the seats and therefore three times the ability to generate revenue.

After huge fuel price spikes in the late 2000s it became apparent that the economics of the 50 seat jets didn't really work. As a result, many of those jets are being traded in for the larger 70 and 90 seat versions. A new generation of small jet such as the Embraer E series and Bombardier C series of jets feature larger cabins, first class seating and are as comfortable as mainline Boeings or Airbuses.

Now though, with the larger capacity aircraft, regional airlines are bumping back into union contracts which restrict the outsourcing of aircraft of larger than 90 seats. Coupled with an ongoing pilot shortage, at least two mainline carriers, Delta and United, have considered bringing their regional airline operations back in-house.

Bringing the Flying Home?

Last summer, Delta proposed to their pilots a purchase of 20 Embraer E-190 regional aircraft and United recently approached their pilot union with an offer of increased pay which included the introduction of either the Embraer or Bombardier 100 seat aircraft. While Delta pilots turned their offer down for unrelated issues, pilots at United have yet to vote on the new pact which also includes pay increases.

It seems apparent that with the pilot shortage driving higher pilot salaries, the advantages of outsourcing regional aircraft flying to a third party where customer service may suffer is being outweighed by keeping the flying in-house.

Will There Be an Airline Strike?

Florida News Journal

The pilots of Southwest Airlines are the latest airline labor group to reject a proposed labor contract. By a vote of 62% against, the 8000 pilots at Southwest recently voted to turn down a tentative agreement which was forged after three years of negotiations with the low cost carrier. Earlier this year the pilots at Delta Airlines and flight attendants at Southwest also rejected proposed contracts.

Does this mean that there will be an airline strike soon?

While the future is impossible to predict, the answer is probably not. To understand why, it is important to understand how the negotiation process works at airlines. It is somewhat different than at other unionized industries.

Railway Labor Act

Collective bargaining at most unionized industries in the US is governed by the National Labor Relations Act of 1935, also known as the Wagner Act. This law provides for the formation of labor unions and the right to bargain collectively for wages and work rules. The law also sets down the requirements for the conduct of strikes and/or lockouts. Airlines, however, are not included under the provisions of the Wagner Act but rather are governed under a law known as the Railway Labor Act or RLA.

Passed in 1926 as a result of negotiations between the railroads and their unions, the RLA was an effort to balance the rights of workers with the realization that a strike against a railroad could be acutely disruptive to the national economy as a whole. Airlines were included under the jurisdiction of the RLA in 1936.

Under the RLA, contracts never "expire", but rather they become "amendable". Should an agreement not be reached by the amendable date of a contract, both workers and management are obligated to continue on as before while a new agreement is crafted.

Should an agreement not be reached, the RLA provides for specific requirements to be met before either management or labor is "released" to "pursue self help" otherwise known as a strike or lockout. One of these requirements is for an impasse to be declared by a mediator after which a mandatory 30 day cooling off period is observed. Only then would a strike be authorized.

No airline today is anywhere near this happening.

Presidential Emergency Board

And even when it does happen, it might not happen. The RLA contains a provision wherein if a labor action  threatens to "substantially to interrupt interstate commerce to a degree such as to deprive any section of the country of essential transportation service," the National Mediation Board (NMB) may notify the President of an imminent threat to commerce. The President may then appoint a three member board to make recommendations for a resolution. This delays a strike even further.

This last happened in 2001 when President George Bush intervened in a labor dispute between Northwest Airlines and its mechanics by invoking a PEB. Before that, Bill Clinton used a PEB to head off a strike by pilots at American Airlines in 1997. With only four major airlines controlling a majority of air travel, it is possible that airline strikes may be a thing of the past. No president wishes to be seen doing nothing in the face of packed terminals and irate flyers.

But as I mentioned above, no current airline is anywhere near an impasse in negotiations. In fact, due to the ongoing pilot shortage, airline managements may wish to get labor troubles behind them quickly as the competition heats up for a dwindling number of pilots needing to be hired to replace the tsunami of retiring pilots. 

This happened recently at Republic Airlines where management threatened to declare bankruptcy in order to increase pilot wages to attract applicants. Republic had been cancelling flights due to a lack of pilots.

It's nice to be wanted.

Pilot Shortage Hits the Bottom Line

A recent article in the Wall Street Journal (gated) made the claim that the ongoing pilot shortage is responsible for a drop of 50% in the value of Republic Airways stock. This is an unprecedented claim.

What this means in less technical terms is that "this s#!t be getting real!"

Republic Airways Holdings is a regional airline holding company based in Indianapolis. Through its subsidiaries Republic Airlines, Chautauqua Airlines and Shuttle America, the company operates regional feeds for its major airline partners branded as American Eagle, United Express, Delta Connection and US Airways Express.

Republic maintained that their inability to reach an agreement with their pilot union coupled with an ongoing pilot shortage resulted in a reduction of about 4% of their flying and causing 2nd quarter results to come in well under analyst expectations. Last year Republic parked 27 of its 243 aircraft due to a lack of pilots according to the carrier.

An irony here is that while dragging out labor negotiations is a tactic often employed to avoid raises for unionized employees, the current stall in talks is now hurting Republic's ability to attract new hires and to fulfill contractual commitments.

The Government Accounting Office, coming a little late to the party, said they had "found mixed evidence" regarding the extent of a pilot shortage. Being astute as ever, what they've discovered is that the major airlines are as yet having little trouble attracting aviators away from the regional airlines. The real difficulty is being felt by the regional carriers in replacing those disappearing pilots.

New government experience requirements have effectively closed the door to all but the most committed of new pilots. Only those who are willing to spend the better part of $100k dollars for a career which starts at about $20k and takes decades to reach the top tier are applying. New rest regulations are also reducing pilot productivity by 5 to 7% which increases the numbers of pilots the majors need to hire.

The regional airlines themselves have little ability to increase revenue to cover the needed increase in salaries to attract new aviators. This is due to the long term fixed fee service agreements they have with their major airline partners. They have in effect wet leased their aircraft for a fixed rate and can only increase profit through cost cuts.

It is this financial arrangement which allows the regionals very little wiggle room. There may not be a way out of this maze other than reductions in service. Republic Chief Bryan Bedford is even on record saying that the airline business will necessarily get smaller.

What he actually meant by that statement is that the regional airline business will have to get smaller. As the economics of regional feeders evaporate, the majors may take some of this flying on themselves as I mentioned in a recent post.

In the short term, look for 90 seat or larger regional airliners to become more prevalent as they have more advantageous economics. This trend may, however, leave smaller cities without service entirely.

A Summer of Profits for Airlines but of Discontent for Labor

Second quarter earnings reports are out and there's quite a bit of good news for airlines. This latest earnings season has the big four airlines swimming in black ink. On the other hand, airline labor groups are not quite feeling the love they feel they deserve. Delta's pilots just voted down a tentative agreement for a new contract while Southwest's flight attendants also voted down their recently reached tentative agreement. So what's going on?

Well, lets first take a look at the haul that the airlines brought in this past quarter. United weighed in with an all time record profit of $1.2 billion and this was on reduced revenue. Southwest, the smallest of the "big four", increased their profit 31% to a record $608 million. American Airlines pocketed a record $1.7 billion, while Delta brought home a healthy $1.49 billion on $10.71 billion of revenue.

These airlines are so hip deep in cash that they don't know what to do with it all. The airlines have been under the gun to not flood the market with capacity which in the past has always ended up in brutal fare wars and bankruptcies. Since expansion is mostly off the table, returning the loot to investors through stock buybacks is the order of the day.

American bought back over $700 million last quarter and has announced further buybacks of  $2 billion through 2016. United is just finishing a $1 billion buyback ahead of schedule and is embarking on a further $3 billion buyback through 2017. Southwest recently completed a $430 million buyback and is accelerating plans to buy $500 million more.

First Time Rejection for Delta's Pilots

Yes, times are flush for airlines but airline labor groups are now angling for a larger piece of that pie. As mentioned above, Delta's pilots recently voted down their tentative agreement with the carrier. This was the first time that the pilots at Delta had ever defeated a proposed contract. Chief among the complaints were reductions in profit sharing, changes in sick leave policy and a wish to be made whole after a decade of stagnation at the carrier, especially in light of record profits.

Southwest's flight attendants also voted down their tentative agreement in a lopsided 87% negative vote. The issues centered mostly around work rules which would increase the maximum duty day to 12 hours and minimum work rules which would affect vacation pay. Southwest is still in negotiations with its pilots who recently formed a strike committee and also its baggage loaders.

The pilots at American and USAir voted last January to approve their new contract with the newly combined carrier. This agreement included hefty pay raises over and above post 9/11 concession wages, but they are still looking for improvements. From the APA website:

APA will now focus on further engagement with American Airlines management to address ongoing shortcomings in our contract. Our total compensation will still trail industry-leader Delta, while work rules affecting our pilots’ quality of life need meaningful improvement. There’s a lot of work remaining to achieve the industry-leading contract our pilots deserve.

United's pilots likewise approved their merger contract back in 2013 which included pay increases over bankruptcy contract wages dating from the early 2000's. While the United pilot's contract doesn't become amendable until 2017, rest assured that they will be targeting "industry leading" wages.

Will There Be a Strike?

Unlike most unionized labor forces in the country, airline labor groups and their collective bargaining agreements are regulated under a very old law known as the Railway Labor Act (RLA). The RLA, passed in 1926, doesn't allow for labor contracts to "expire" but for them to become "amendable". This means that on the amendable date, the labor agreement in force just continues until a new agreement is reached. The animus behind this law is that it was viewed that a shutdown of the railways was too economically harmful and therefore work stoppages must be avoided at all cost.

There is a very specific series of events that must occur before any strike can occur under the RLA. The first step is mediation followed by a declared impasse. Once an impasse is declared, a 30 day cooling off period must be observed and only then may a labor group or company engage in "self help" which means a lockout or a strike. No current disputes are even close to any of this happening. So no, it is highly unlikely that there will be any airline strike. Keep in mind that there is always quite a bit of posturing by both labor groups and management in these affairs.

What Next?

The Kabuki dance between labor unions and management will continue. Agreements will eventually be reached and everyone will get on with their jobs. It's Great Circle of Life stuff.

As far as the specific pilot contracts are concerned, my belief is that airline managements will eventually have to open their checkbooks to attract a dwindling number of new pilots to replace the tsunami of retiring pilots. Regional pilots looking for their first major carrier jobs are in the catbird seat, and have the luxury of choosing the major airline with the best pay and best prospects for a quick upgrade to captain. 

As captain upgrade is driven by retirements (and growth, which is not happening), looking for the airline with the best upgrade prospects means finding the airline with the most retirements. Currently all three of the largest major airlines, American, United and Delta have huge numbers of upcoming retirements. Replacing these pilots will drive wage demands. Southwest, which has a relatively young pilot force, and hence upgrade times topping 15 years, may have a specific challenge attracting new talent.

I don't personally get too excited about union politics as things always seem to have a way of sorting themselves out.