Déjà vu: A Former Western Pilot Looks Back
As a 62-year old retiree, I would normally hesitate to chime in regarding the company's situation, but I sense that some pilots are still in a state of denial, or pointing fingers, or simply wondering how this could happen at one of the world's great airlines. As it happens, I -- along with Jerry Grinstein - have been down that road once before at Western Airlines where I was pilot from 1972 to 1987. For what it is worth, here is some perspective of those times. I write from memory and so am solely responsible for any errors in this somewhat long account.
In that golden era before airline deregulation in 1978, Western had been described in Business Week as a "gem of an operation. Western pilots were among the highest paid in the industry, even better than Delta's. Trip rigs of 1 for 3, duty rigs of 1 for 1 3/4 with 1 1/2 on the backside of the clock. Routes to London, Hawaii, Mexico. Great pension setup. The works. Getting a picture here?
Enter deregulation. Our old-school managers were like deer caught in the headlights. Things went downhill surprisingly fast. The rails were further lubricated by the fact that as a smaller "trunk, we were wrong-sized for the new environment. Flight hours shrank. Eventually 25% of the pilots would be on the street. The old managers left and were succeeded by Neil Bergt, a hardnosed guy from Alaska. He fired about half the middle management and got all the employees to take a 10% pay cut. This was our first round of pain. He also set up an efficient hub at SLC modeled much like Delta's. To his credit, Neil quickly did what had to be done, and certainly no insider could have pulled that off. Alas, he also had an abrasive manner that undermined his leadership. He left while things were still going downhill, although not at the same precipitous rate as before.
The darkest period was the winter of 1983-84. The successor regime began talking the B-word. Many of us pilots wondered how things at this wonderful airline - and it WAS a wonderful place to work - could have gotten into this state. My wife and I had two babies, and we began to plan for the unthinkable. We called it the WALTU Scenario or Western Airlines T(ummy) Up. Could I go back on active duty with the Marines? Find a ground job? Yuck. The economy was in the dumper, and it wasn't a real fun time.
Jerry Grinstein came to Western about this time. (Note: My sequence may be a little off here). Anyway, the company opened the books to ALPA's consultants who were duly appalled at what they found. Their advice: do something and do it right now. Someone discovered that the pilot pension plan was overfunded by about $39 million. Recall that this was the era of Lorenzo, Icahn, Checchi, and other corporate raiders who used airlines' pension funds to leverage themselves into control, rake off large sums, and encumber their companies with huge debt loads. Western's managers were more honorable; they asked first. The MEC quickly agreed to the company's taking it in exchange for ALPA getting the right to manage the B-plan, the variable part of the pension fund which had languished in low interest instruments. That got us through the winter, but we were by no means out of the woods.
The sad fact was that we were still going downhill. By opening the books, we had a true picture of where the company stood financially, and so we fully understood why the company came to its employees for another round of pain. From the pilots, they asked an additional 12.5% pay cut, reduced reserve manning, and dilution of the trip and duty rigs to match those of a certain model of pilot efficiency that was operating out in Atlanta.
The MEC set up a member vote that asked us to decide on one of two options: an 85 hour cap that would require the furlough of about another 15 - 20 percent of the pilots or a no-furlough 70 hour cap - an effective pay reduction of about 22%. This came with liberal pick-up provisions right up to the FAR limits of 100 hours, a provision which brought criticism from ALPA National. The latter was dubbed the "Full Employment option, and that is what the majority voted for. No more pilots were laid off, but there were some other wrinkles.
Narrow-body pilots - B727 and B737-- got the same rates of pay to discourage hopping around equipment. The wide-body pilots on the DC-10 got more. This may have been the first crack in the venerable speed/weight formula at ALPA. In any case, it seemed obvious that the older pilots would take both a pay and pension hit. Not much could be done about the pay apart from the extra amount that the DC-10 pilots got. These captains were mostly the ones closest to retirement. However, in order that that no older pilot would get less than what the pilot had been expecting to receive in retirement, the company and ALPA structured a somewhat complicated defined benefit out of the A-plan assets and turned it over to two large financial companies. I receive money from these funds today, and I am not particularly worried about their future solvency.
Meanwhile, the MEC hired five reputable area asset managers - government securities, equities, bonds, real estate, and so on -- to handle the variable B-plan. Each pilot was given an individual account and an annual statement showing its value and how each sector had performed. Upon retirement, the pilot had the option of rolling the entire amount into an IRA. The B-plan went from a company-managed return of about 3% to a more pleasing rate of about 20%. (To be fair, we were in a rising market). The company also gave ALPA a seat on the board of directors. There were three other employee-directors as well.
In recognition of the employee give-backs, everyone also received ESOP grants of stock that was then going for about $3.75 a share. The number of shares was proportional to one's pay cut in dollars. This wasn't a great sacrifice for the company because the stock had already been greatly devalued; basically, the market had already written Western off. Sound familiar? The employees now held about 33% of the stock, and for better or worse, we employees were all in it together. The company's young CFO, a guy named Tom Roeck - later Delta's CFO after the 1987 merger -- worked a lot of unsung financial miracles in the area of debt equity swaps and leasing arrangements which gave the company additional breathing room.
Of course, nobody liked taking the hits. But, we took them. I myself did some extended soul-searching. I loved flying, and after looking around in the marketplace out in "the real world, I came to the realization that I was likely not to find a job that I liked doing better, even working for half the pay (considering the cuts and seat regression I experienced). To both supplement our income and hedge our futures, many of us took on other work that could fit into our schedules. I had the good fortune to command a Marine Reserve squadron. In addition I ferried airplanes overseas. Others started businesses, and some were so successful that they resigned from the airline. Still others flew 100 hours a month.
As Western struggled to come back, Jerry Grinstein seemed to be everywhere: pilot recurrent training classes (there were some fascinating Q & A sessions there), the cafeteria, the jump seat, and packed LEC meetings. And he came alone. He spoke plainly and freely, patiently answering the same questions he'd already heard a hundred times. Besides getting his message out, I think he was also trying to get the measure of the employees' morale and perhaps do a bit of cheerleading. But the stories got around, and after so many previous managers amid so much turbulence and uncertainty, most of us came to feel that Jerry was somebody we could trust.
Then things started turning around. Cash flows turned positive. The debt equity swaps began kicking in. This diluted the employees' share of the stock down to about 17%. On the other hand, the share price rose steadily. By 1985, most of our debt had been paid off and cash began piling up at a pleasing rate. We ordered new 737s including -300s. We still had the problem - as did the other west-coast carriers such as PSA and AirCal - of being too small for a deregulated environment. We knew we would have to marry up with somebody. As far as most Westerners were concerned, that somebody had its HQ in Atlanta. The routes and equipment were nearly a perfect fit, and we liked the tradition of superb service of the Atlanta outfit. In 1986, the company's profits exceeded all other years since 1926 combined. We were in fact the prettiest belle at the merger ball. (PSA went disastrously to USAir while AirCal went to American). The 1987 merger with Delta has often been cited as one of the most successful in airline history. Thanks to our large pile of cash, the merger made money for Delta on Day One.
Oh, yes. Delta paid off our employee stock. In cash. I made about a 350% profit in little over two years. When I did the numbers, it turned out that I hadn't really taken a pay cut at all. For what it is worth, Delta now seems to be in a remarkably similar situation. I hope it has a similar ending.
Best regards,
Captain Charlie Quilter, LAX 767A Retired