• THE AFA POSITION ON US AIRWAYS' SECOND QUARTER PROFIT
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Dear Members,

THE AFA POSITION ON US AIRWAYS' SECOND QUARTER PROFIT

Yesterday US Airways group reported a second quarter net income of $305 million or $3.25 per share. Since we were not allocated any stock in the bankruptcy plan of reorganization the recent stock gains do us no good at all. 

Airline analysts attributed the turnaround to a better revenue environment and merger related efficiencies. On the revenue front, the industry has reduced capacity (mainly through the bankruptcy courts) thus allowing them to charge more for the tickets (very novel indeed). The merger itself has reduced overhead and allowed for a more efficient operation. In a nutshell the profit generated during the second quarter is primarily the result of increased Revenue per Available Seat Miles (RASM) with the main cause of that being an average ticket price increase of 16% due to decreased capacity thus increasing demand for the available seats. Secondarily, increased efficiencies produced by the merger contributed as well. 

Doug Parker was quoted widely in various media stories that while others had expressed skepticism about how well the merger would work he was "happy to report that it's working exceptionally well". He also was quoted as saying that he was happy that the profit posted so far this year had put over $30 million to date into the profit sharing plan for the employee groups. I will discuss how our profit sharing works later in this letter.

Now for the bad news; Mr. Parker also stated in the Company web cast that, "the Company has "valid" contracts on both sides and that the company would combine agreements but only "without increasing costs to the firm at all" and he added, "nothing requires the company to combine agreements". 

While it is true the Company does not have to combine agreements, they can't combine the operations of the two airlines without doing so. The continued belief that labor is only going to share in the financial turnaround through profit sharing is not going to be accepted by AFA. It does not take a financial genius to know that with the airline turning a profit while essentially running two distinct operations the potential for much greater profits exists once the two airlines are completely integrated. A completely integrated airline will only be possible after the labor contracts are merged. If merged contract negotiations do not produce improvements in working conditions, benefits and compensation - a ratified merged contract will never happen. 

Of course a merged contract that contains improvements for both AFA groups will cost the Company money. So be it. The playing field is not the same as it was during and immediately after the US Airways bankruptcy. Revenues have never been higher, the RASM increases over last year are a mind boggling 28% and the potential is for those two indices to grow. The Company is itself surprised by how well they are doing and analysts share that feeling. The point here folks is that the airline is not merely holding its head above water, but lapping the industry. The expectation that the financial gains achieved now and expected gains during the remainder of the year will not translate into contractual gains for labor, is unrealistic. 

Profit Sharing Defined: 

Profit sharing for the labor groups (both contract and non-contract) was negotiated as part of the bankruptcy process. The initial plan was watered down during the bankruptcy to the contractual provision explained below:

• 10% of the Company's pre-tax year end profits go into the profit sharing pool for all labor groups.
• AFA portion of the pool is 14.5%. This figure is established by the percentage of the annual average concessions AFA gave in relation to the total concessions given by all labor groups.
• Each individual Flight Attendants share is determined by such Flight Attendants gross W-2 earnings divided by the gross W-2 earnings of all eligible Flight Attendants.
• That factor is divided into the amount of money in AFA's share of the profit pool and the result is each individual's share of the profit pool. 

For example, let's assume the Company breaks even for the rest of the year and for simplicity round the current profit made by the Company to date to $300 million dollars.

• The pool would be 10% of $300 million or $30 million dollars
• AFA average annual concession amount is $154.7 million. The total average annual concessions by all labor is $1.082 BILLION meaning our part of the total concessions is 14.5%
• 14.5% of $30 million is $4.35 million. That would be the AFA share of the $30 million pool.

Let's stop right there for a minute and examine that figure a bit more closely. We made an investment in the salvation of US Airways which led to the merger which led to the profit. We gave up an annual amount in excess of $154 million in pay, benefits and work rules and will get back in return only $4.35 million. That, my friends is only a return of 2.82% on our annual investment of $154 million. I can do better than that on a six-month Certificate of Deposit at the Credit Union. 

Since the individual profit share amount is based on each Flight Attendants gross W-2, I will, for simplicity, assume we all make the same amount…let's say $ 35,000 per year and use a figure of 8,000 total Flight Attendants. Each individual share would, all things being equal, be $543.75 before taxes ($4.35 million divided by 8000). It is true that this is $543.75 (before taxes) more than each of us has now but hardly an adequate return on our investment. 

We deserve more and will expect nothing less. We will share in this merger or there will be no real merger. 

This example is illustrative in nature and does not factor in two components in determining each share. The first is obviously everyone will not have the same year end W-2 amount. The second is that AFA has the latitude to determine whether those Flight Attendants who had W-2 earnings during the year but retired or took the VFLR are to be considered eligible. The MEC will meet in late August to consider that question. 

The profit sharing formula in the contract is somewhat convoluted so if you will allow me, I will boil it down a bit for management:

PROFIT SHARING + NO COST CONTRACT = NEVER

Thank you,

Mike Flores, President
US Airways MEC AFA-CWA

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AFA Local Numbers

Council 40 PIT 724-695-3329
Council 41 DCA 703-212-8090
Council 69 BOS 781-289-8454
Council 70 PHL 215-492-0840
Council 82 LGA 315-736-3483
Council 89 CLT 704-527-0325

New Hotline Number Toll Free: 866-USA-AFA2
US AIRWAYS Benefits Information 800-872-4780

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