Retaining U.S. Air Force Pilots When the Civilian Demand for Pilots Is Growing Michael G. Mattock, James Hosek, Beth J. Asch, Rita Karam C O R P O R A T I O N For more information on this publication, visit www.rand.org/t/RR1455 Library of Congress Cataloging-in-Publication Data is available for this publication. ISBN: 978-0-8330-9431-5 Published by the RAND Corporation, Santa Monica, Calif. © Copyright 2016 RAND Corporation R® is a registered trademark. Cover image courtesy of U.S. Air National Guard; photo by Maj. Dale Greer. Limited Print and Electronic Distribution Rights This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited. Permission is given to duplicate this document for personal use only, as long as it is unaltered and complete. 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Support RAND Make a tax-deductible charitable contribution at www.rand.org/giving/contribute www.rand.org Preface The research discussed in this report was conducted for a project entitled “Pilot Retention Pay Under New Laws.” The purpose of the project was to consider how changes in external demand from airline hiring will affect Air Force pilot retention and provide estimates of how modifications to the aviator retention pay (ARP) and aviator pay (AP) programs will influence Air Force pilot retention. To accomplish this goal, this research reviews earlier studies, con- siders the supply and compensation of airline pilots, and makes an assessment of the future demand for airline pilots. It extends and estimates RAND’s dynamic retention model for Air Force pilots and runs simulations to find the effects of increases in airline pilot pay and hiring on Air Force pilot retention and determine the changes in ARP and AP that could offset those effects. It also simulates the effects of eliminating AP for pilots assigned to non-flying posi- tions. This document should be of interest to those concerned with special and incentive pays in the military, and specifically those interested in the effect of the commercial airline industry on Air Force pilot retention. The research reported here was sponsored by AF/A1P and SAF/MR and conducted within the Manpower, Personnel, and Training Program of Project AIR FORCE. RAND Project AIR FORCE RAND Project AIR FORCE (PAF), a division of the RAND Corporation, is the U.S. Air Force’s federally funded research and development center for studies and analyses. PAF pro- vides the Air Force with independent analyses of policy alternatives affecting the development, employment, combat readiness, and support of current and future air, space, and cyber forces. Research is conducted in four programs: Force Modernization and Employment; Manpower, Personnel, and Training; Resource Management; and Strategy and Doctrine. The research reported here was prepared under contract FA7014-06-C-0001. Additional information about PAF is available on our website: http://www.rand.org/paf/ iii Contents Preface ........................................................................................................... iii Figures ...........................................................................................................vii Tables ............................................................................................................ ix Summary ........................................................................................................ xi Acknowledgments ............................................................................................ xix Abbreviations .................................................................................................. xxi CHAPTER ONE Introduction ..................................................................................................... 1 CHAPTER TWO Selected Previous Studies ..................................................................................... 3 Studies of Military Pilot Retention ............................................................................ 3 A Forecast Pilot Shortage ........................................................................................ 7 CHAPTER THREE Sources of Pilot Supply ........................................................................................ 9 Civilian Flight Schools .......................................................................................... 9 ATP Certificate Holders Not Working for an Airline ......................................................10 Furloughed Pilots ...............................................................................................12 Small Airlines ....................................................................................................12 Military Pilots ...................................................................................................14 Civilian Airlines’ Seniority System ............................................................................16 CHAPTER FOUR Pilot Pay .........................................................................................................17 Average Annual Salary of Pilots and Co-Pilots ..............................................................18 2014 Pay Schedules at Major Airlines.........................................................................19 A Projected Increase in Pilot Hourly Pay .....................................................................21 Annual Earnings of Veterans Working as Pilots and Non-Pilots ......................................... 24 An Expression for the Expected Present Discounted Value of Civilian Earnings ...................... 28 CHAPTER FIVE Evidence Related to the Demand for Pilots ...............................................................29 Trends in Airline Activity: Passenger and Cargo ........................................................... 30 Regression Models of Passenger and Cargo Miles ......................................................... 34 v vi Retaining U.S. Air Force Pilots When the Civilian Demand for Pilots Is Growing Forecasts of Passenger and Cargo Miles ......................................................................35 Bankruptcies .................................................................................................... 38 The Coming Wave of Civilian Pilot Retirements .......................................................... 38 Pilot Attrition ....................................................................................................39 Closing Comment...............................................................................................39 CHAPTER SIX Dynamic Retention Model Overview, Estimates, and Model Fits....................................41 Special and Incentive Pays for Rated Personnel ............................................................ 42 Dynamic Retention Model Overview ....................................................................... 43 Estimating the Model ..........................................................................................47 Parameter Estimates and Model Fit ...........................................................................49 CHAPTER SEVEN Simulations Results ...........................................................................................53 Retention Effects of Increases in Expected Civilian Pilot Opportunities ............................... 54 Using Aviator Retention Pay to Offset Negative Retention Effects of Increases in Expected Civilian Pilot Opportunities ..............................................................................59 Eliminating Aviator Pay for Non-Flying Assignments......................................................63 Summary ........................................................................................................ 64 CHAPTER EIGHT Concluding Thoughts .........................................................................................69 APPENDIXES A. Civilian Earnings Analysis for Pilots and Non-Pilots .............................................71 B. Present Discounted Value of Earnings ................................................................81 C. Aviator Retention Pay Program, 2000–2013 ........................................................83 D. Simulation Tables .........................................................................................91 References ..................................................................................................... 123 Figures S.1. Simulated Steady-State Effect on USAF Pilot Retention of an Increase in the Probability of Being Hired by a Major Airline from 10 Percent to 50 Percent (from 1,700 to 3,200 Hires per Year) ...........................................................xv S.2. Simulated Steady-State Effect of a Compensating Increase in ARP of an Increase in the Probability of Being Hired