PROFIT SHARING PLAN QUESTIONS

The MEC has received emails and phone calls from members with questions about the profit sharing plan. The questions have included the following:

• How did the Profit Sharing Plan come about?

• Why are W-2 earnings used to calculate a potential pay out? 

• Are those who retired or accepted a VFLR in 2006 eligible for a payout in 2007?

• When and why did the MEC vote to include the America West Flight Attendants in the profit sharing plan?

In order to address these questions it is necessary to start at the beginning- from the inception of the plan, and work forward. It is also necessary to state both the current and the previous MEC informed the membership at every step of the way regarding the profit sharing plan and the changes to it during bankruptcy as well as the decision of the current MEC to include the America West Flight Attendants in the plan for 2006. It is also important to note the MEC never believed that profit sharing was the sole means to replace what the membership had given up in the three concessionary agreements since 2002. Profit sharing is a thin icing on the cake and the only thing that will replace what we have all sacrificed is a merged contract that contains improvements to our pay, benefits and working conditions. 

HOW DID THE PROFIT SHARING PLAN COME ABOUT?

The profit sharing plan was originally introduced to the employees by the Company, then controlled by the Retirement System of Alabama (remember them), prior to the September 2004 bankruptcy filing. The plan proposed at the time was to pay 10% of the pre-tax profits for margins between zero and 5%, and 25% of pre tax profits for margins above 5% Then CEO, Bruce Lakefield, described the plan as "industry leading", but it would only be implemented if the Company could reorganize outside of bankruptcy. 

Initial Company proposals to all labor groups were so outrageous it became clear there would be a lengthy negotiations process. In short, the initial plan was an attempt to buy the labor groups off. AFA recognized the first contract proposal the Company wanted us to accept was so bad that we would never agree to the terms.

The playing field changed dramatically once US Airways declared bankruptcy in September of 2004. As the bankruptcy case progressed one fact became clear-without outside investors the Company would fail. The profit sharing plan then became contingent on acceptance by any potential investors, and more importantly, became conditional on what is known, in bankruptcy law, as the "Plan of Reorganization" (POR). The Company then watered down the plan in order to satisfy the creditors and investors. The new plan and its terms (what we have today) was offered to the labor groups with the proviso it would only become a reality if the POR was approved. The plan formula and payout stipulations were not the result of negotiations between the Company and AFA or any other labor group but rather the result of the court, the investors and the creditors. The only latitude AFA was afforded was to determine who would be considered "an eligible Flight Attendant" in order to receive a profit sharing payout.

The merger between America West and US Airways ultimately provided the investment opportunity that saved both airlines. The investment community believed the merger would provide a viable airline; the money poured in based on the merger outlook that included, among other "synergies", the watered down version of the original profit sharing plan. The court approved the POR, which included the revised profit sharing plan, based on the merger and the acceptance of the POR by the investors and creditors.

WHY ARE W-2 EARNINGS USED TO CALCULATE A POTENTIAL PAYOUT?

Although the profit sharing plan is in our contract, the provisions of the plan were not the result of a negotiated process. The plan details were the result of the bankruptcy court and the POR. The plan contains the following provisions with regard to plan payments based on W-2 earnings (Contract Section 30.M).

An individual flight attendant's profit sharing payment will be based on such flight attendant's gross W-2 earnings (prior to any elective deferrals) for the prior calendar year divided by the gross W-2 earnings (prior to any elective deferrals) of all eligible flight attendants for the prior calendar year. "Eligible flight attendants" may include retired or furloughed flight attendants who had gross W-2 earnings (prior to any elective deferrals) for the prior calendar year, subject to applicable law. 

The above contract section is a direct result of the approved POR. The contract language was not a negotiated provision. While some may feel that basing each share on W-2 earnings is not equitable the approved plan, reflected in the contract, does not allow a different formula to be administered.

ARE MEMBERS WHO RETIRED OR ACCEPTED A VFLR IN 2006 ELIGIBLE TO RECEIVE A PAYOUT FOR 2006 PROFITS?

There are members who either retired or will retire in 2006. There are also members who have or will accept a VFLR in 2006. The terms of the plan allow the Union the latitude to determine the eligibility of those members. The MEC will have to decide whether to include those members, who were active during part of 2006, in the plan payout. The MEC will hold a meeting on September 14 to decide the question of eligibility for these members. The decision will be based on what the MEC believes is the most equitable way to deal with members who worked a partial year and either retired or accepted a VFLR. There also remains a question of eligibility for those members still on our seniority list who are either in supervisory/management or company business positions. The contract and terms of the plan are silent with regard to these individuals but the MEC will hold their possible participation in the plan in our hands. 

WHEN AND WHY DID THE MEC DECIDE TO INCLUDE THE AMERICA WEST FLIGHT ATTENDANTS IN THE PROFIT SHARING PLAN?

This question has caused the most concern among the membership. The decision was not made in a vacuum nor taken lightly by the members of the MEC. The decision to include the America West Flight Attendants occurred as a direct result of the Transition Agreement negotiations. The Transition Agreement was the result of a three party negotiation-the US Airways Flight Attendants, the America West Flight Attendants and the Company and began on September of 2005. 

The Flight Attendant Transition Agreement was modeled largely after the ALPA Transition Agreement. The ALPA agreement was signed prior to the Company's emergence from bankruptcy and included some protections for US Airways East flying. The agreement protected flying based on the aircraft in the possession of each carrier at the time of the merger announcement. The ALPA agreement also provided that any new aircraft acquired during the period of separate operations would be placed on the US Airways operating certificate and flown by East crews. As you know, the Company will begin to acquire Embraer 190 aircraft later this year. ALPA and the Company agreed the 190 would be placed on mainline with the caveat that the pilot pay rates would be at a substantially lower rates than current mainline rates (even factoring in the gross weight). 

The ALPA Transition Agreement included the America West pilot into the profit sharing plan. 

With that as the backdrop, AFA began Transition Agreement negotiations. The MEC believed that a Transition Agreement was necessary to secure and also believed the agreement had to contain the following key components:

• AFA Mainline rates of pay for the Embraer 190 aircraft.

• The hiring of our involuntary furloughed Flight Attendants at America West rather than "off the street hiring" at AWA during the period of separate operations. This provision would have to include the Company proposal that furloughed East Flight Attendants be entitled to use her/his US Airways longevity for pay and vacation and have immediate access to health and welfare benefits.

• No fence provisions for PHX or any type of slotting for any transfers into PHX after integration

• A commitment from the Company to negotiate a single collective bargaining agreement. We believed (and still do) that would be the best avenue to secure improvements in our contract.

• A provision that the Company would pay the Union the costs and fees associated with the negotiation of single agreement including the Flight Pay loss for the negotiating committee. We did not believe member's dues money should pay for the merger process.

• Reciprocal jumpseat for US Airways and Mid Atlantic Flight Attendants on America West flights.

During the negotiations process the Company agreed to all of the above items. As the negotiations dragged on the major stumbling block became the America West negotiations committee's reluctance to allow involuntary furloughed US Airways Flight Attendants to accept positions under the terms proposed and agreed to by our MEC and the Company. 

The negotiations stalled to the point the Company told both groups that a Transition Agreement was not a necessary step in order to proceed with the merger. While it is true that without a Flight Attendant Transition Agreement our flying would have been protected, NONE of the other agreed to items in the agreement would be secured. All of those items would have to be negotiated at a latter date. The MEC was very concerned that loosing the mainline rates of pay on the EMB 190 would be a very hard to get in a merged contract in light of ALPA's earlier agreement to a lower pay scale for the EMB 190. 

In early January the Company came to the negotiating committee with a proposal to include the America West Flight Attendants in the profit sharing plan. The Company's intent was to offer the America West leadership a benefit they could take back to their members. The America West leadership decided to accept the terms of the Transition Agreement if profit sharing was included for their membership. The negotiating committee weighed the decision to share the profit sharing, thus diluting the pool for our members, against the knowledge that absent that provision, the Transition Agreement would fall apart and we would lose all of the provisions that the committee and the MEC agreed were necessary to obtain.

On January 8, 2006 the negotiating committee informed the MEC of the Company proposal to include the America West Flight Attendants in the profit sharing plan for 2006. During the next 5 days the negotiating committee talked to all members of the MEC and continued to update the MEC with the continuing proposals of the Transition Agreement that contained the profit sharing provision. The negotiating committee reached a tentative Transition Agreement with the Company and the America West negotiating committee on January 13. An MEC meeting was scheduled on January 16, 2006 to vote on whether to accept or reject the agreement. 

In addition to the above mentioned concerns, the MEC also discussed the following during the January 16 meeting:

• While it is certainly true that without labor concessions the Company would have liquidated before the merger took place, absent the merger there would have been no investment in US Airways as a stand alone airline and all the concessions would have been in vain. 

• The thought process at the time was that even with the merger, the profit potential for the new airline was limited in 2006.

• The America West Flight Attendants Section Six negotiations, ongoing for over two years, had been recessed by a federal mediator and rather than being able to negotiate improvements they would now be forced to negotiate a single agreement.

• The undisputable fact that once a merged contract is ratified the former America Flight Attendants will be included in the profit sharing plan. 

On January 16, the MEC met to vote on the final terms and conditions of the Transition Agreement. The MEC voted unanimously to approve the entire Transition Agreement at that meeting. The full Transition Agreement and Transition Agreement discussions were then published on our website on January 18, 2006 and the Transition Agreement was placed in every Flight Attendants mail file the following week.

The MEC understands the tremendous sacrifices the membership has made over the last several years. We also believed that profit sharing would never replace what had been given up. We hope this Eline answers your questions regarding the profit sharing plan and the decisions that we made. Please feel free to contact any of us with your concerns.

Mike Flores, President
US Airways MEC
AFA-CWA