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Monday, July 19, 2004

Regional Pilot Pay Scales Pressured By JetBlue Rates

Embraer 190 Scale Less Than Small Planes

Ever since JetBlue Airways [JBLU] ordered 100 Embraer [ERJ] 190s, the pending delivery has been viewed as disruptive of the status quo and blurring the lines between regional and major carriers.

With the delivery of the Brazilian-made, 100-seat jets still more than a year away, JetBlue has established a pay scale for its Embraer pilots. Their new pay scale may prove to be an "industry leading event" as JetBlue will be paying its pilots at a much lower per seat rate than every regional carrier.

While the typical airline pilot gets paid "more as the aircraft size increases, JetBlue has established its 100-seat pay scale below that of certain 70-seat operators, an obvious competitive disadvantage for the regional airline sector," said Jamie Baker, an analyst with JP Morgan. "On a per seat basis, JetBlue's Embraer 190 pilot economics will also be superior to the larger Boeing [BA] and Airbus flown by its low-cost peers, AirTran [AAI], Frontier [FRNT] and Southwest [LUV]."

For example, JetBlue will be paying a three-year captain $74 an hour. A similar three-year captain flying a 70-seat Bombardier [BBD] CRJ 700 for Comair will also be paid $70 an hour while a Horizon captain will be paid $72 an hour for the same plane. However, on a per seat comparison, the JetBlue cost per seat for the captain will be 74 cents. At Comair the cost will be $1.01 per seat and $1.03 at Horizon.

The disparity becomes even greater when seniority is factored in. At JetBlue, the carrier currently is only flying Airbus 320s and plans to continue expanding its Airbus fleet while it flies the Embraers. Thus, the bulk of the new captains may very well be newly hired JetBlue employees. However, the JetBlue pay scale does call for the Embraer captain to be paid more than the Airbus first officer.

JetBlue's Embraer crews will be very junior captains while the "people at the regional airlines flying the larger equipment are not very junior," said Claude Sullivan, an airline labor attorney with the Atlanta law firm of Ford & Harrison.

A Comair pilot of a CRJ 700 has about 15 years experience and earns $103 per hour. The non-union captain at JetBlue flying an Embrear would top out at $89 an hour after 12 years. Likewise, most of the pilots flying the 50-seat jets have on average eight years of experience. While some of the airlines may pay their eight-year veterans at a lower hourly rate, the per-seat expense places them at a distinct cost disadvantage.

There may be a chance the JetBlue pay scales may be revised upward. "The 190 rates are clearly an item of discussion internally at JetBlue with their pilots," said Brad Bartholomew, a labor relations facilitator with the Newfoundland Group. "In the past when the management's and the pilots' views have diverged, the management has decided to bring them back in focus. This desire to maintain harmony leads to the possibility that these rates may not stay at the end of the day."

Unlike the pay scales at the regional carriers, JetBlue will pay 1.5 times the base hour rate for overtime, according to a JetBlue spokesman. Any hours logged after 70 each month are paid the overtime rate.

"The JetBlue rates certainly raises eyebrows. People will have to take notice," Sullivan said. "It will make the competition that much more vicious."

There also will be pressure on regional pilots to take pay cuts. "For the regional airline sector, the establishment of 100-seat rates generally consistent with the

prevailing 70-seat levels suggests a need for diminished RJ pay," Baker said. "In their current forms, Alaska [ALK] [parent of Horizon] and Delta [DAL] [parent of Comair] intend to pay certain of their 70-seat captains more per hour than JetBlue, but to fly smaller planes less efficiently and with arguably inferior passenger ergonomics. JetBlue's 100-seat pay scale poses an obvious threat to prevailing 50- and 70-seat rates."

Several observers have noted that the new JetBlue pay scale has already become a factor in wage talks at ExpressJet [XJT]. The pilots, represented by the Air Line Pilots Association, has been in contract negotiations since their contract became amendable in October 2002. However, none of the other pilot contracts at regional carriers are amendable before JetBlue starts to fly the Embraer.

"The JetBlue pay scale does provide an important precedent that will be useful for the management at regional airlines when attempting to moderate the demands by their pilots for pay increases," said Robert Ashcroft, an analyst at UBS Securities. "In particular, it may prove difficult for pilot groups with industry leading contracts, such as those at Comair, to further improve wages in light of JetBlue's new rates."

"JetBlue is already an industry leader," Bartholomew said. "This could be an industry leading event which could have tremendous pressure throughout the regional industry - internally at the regional carrier and externally with its relationship with a major carrier. "The implementation of these rates are a year out and - if they are to stick - they will add another layer of cost pressure not only to the labor component, but the entire industry itself as it tries to climb out of the recession. Clearly it will be a pressure."

As dramatic as the pay gap may be, Tom Kassin, another Ford & Harrison attorney, doesn't view the publishing of the JetBlue pay scale as the sole reason for wage concessions. A regional carrier will want to look at the whole picture. From the union's perspective, there is no reason to give back or accept a smaller-than-scheduled raise, when the carrier is still profitable and viable. "When you are talking concessions or amending a contract mid-term, there has got to be a bigger reason," Kassin said. Sullivan added that a regional carrier would not likely get wage concessions until the reality of competing head-to-head on an JetBlue Embraer route sets in. "I am not sure they will have much choice if they are going to then remain competitive," he said. As a counter-bargaining point in concessionary wage talks, Sullivan said he would expect that pilots at a regional carrier would ask for some of the "fairly generous non- cash incentives" that JetBlue offers to its employees, such as profit-sharing and stock incentives.

>>Contact: JetBlue, (718) 708-3056; Jamie Baker, JP Morgan, (212) 622-6713; Brad Bartholomew, Newfoundland, (817) 421-5076; Claude Sullivan, Tom Kassin, Ford & Harrison, (404) 888-3800; Robert Ashcroft, UBS, (203) 719-6064.<<

JetBlue's Embraer Pilot Pay Scale Lowest Among RJ Operators
Airline JetBlue Comair Air Wisconsin American Eagle Independence Air Chautauqua ExpressJet Horizon Mesa PSA SkyWest Trans States

Hourly Rate/Hourly Per Seat
Seats 100 50 70 70 50 70 50 50 50 70 50 70 50 50 50
Year 1 $71/$0.71 $60.31/$1.21 $66.34/$0.95 $56.31/$0.80 $55.40/$1.11 $58.32/$0.83 $55.69/$1.15 $51/$1.02 $51.60/$1.03 $67.68/$0.97 $52.19/$1.04 $54.94$0.78 $49.44/$0.99 $56.03/$1.12 $53.71/$1.07
Year 3 $74/$0.74 $64.08/$1.28 $70.49/$1.01 $59.85/$0.86 $58.78/$1.18 $61.86/$0.88 $59.19/$1.22 $57.67/$1.15 $54.75/$1.10 $71.91/$1.03 $55.44/$1.11 $58.31/$0.83 $54.53/$1.09 $59.54/$1.19 $57.14/$1.14
Year 8 $82/$0.82 $74.65/$1.49 $82.12/$1.17 $69.70/$1 $67.46/$1.35 $71.01/$1.01 $68.93/$1.42 $67.16/$1.34 $62.86/$1.26 $83.76/$1.20 $64.16/$1.28 $67.62/$0.97 $65.45/$1.31 $69.35/$1.39 $66.34/$1.33
Year 12 $89/$0.89 $84.31/$1.69 $94.43/$1.35 $78.72/$1.12 $75.93/$1.52 $79.91/$1.14 $77.86/$1.61 $76.20/$1.52 $70.73/$1.41 $96.33/$1.38 $72.2/7$1.45 $76.12/$1.09 $73.59/$1.47 $78.33/$1.57 $74.62/$1.49
Year 15 n/a $92.38/$1.85 $103.47/$1.48 $86.27/$1.23 $81.93/$1.64 $86.21/$1.23 $85.32$1.76 $83.12/$1.66 $76.31/$1.53 $105.5/$1.51 $77.79/$1.56 $83.18/$1.19 $79.96/$1.60 $85.93/$1.72 $79.55/$1.59
JetBlue will pay 1.5 times the hourly rate for overtime flying. Any time beyond 70 hours per month will be considered overtime. The carrier's pilots now fly an average 83 hours per month.Sources: Ford & Harrison, Airlinepilotpay.com


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