Before the Seniority Integration Arbitration Board Dana E

BEFORE THE SENIORITY INTEGRATION ARBITRATION BOARD DANA E. EISCHEN, ROGER KAPLAN AND DENNIS R. NOLAN

______) In the matter of the seniority ) integration between ) ) THE PILOTS OF CONTINENTAL ) AIRLINES ) ) AND ) ) THE PILOTS OF UNITED AIR LINES ) ______)

______

POST-HEARING BRIEF OF THE CONTINENTAL PILOTS’ MERGER COMMITTEE ______

Daniel M. Katz Gregory R. Shoemaker Grant E. Mulkey Katz & Ranzman, P.C. 4530 Wisconsin Avenue, N.W., Suite 250 Washington, D.C. 20016 (202) 659-4656

Counsel for the Continental Pilots’ Merger Committee

Dated: July 19, 2013

TABLE OF CONTENTS

THE FACTS ...... 1

A. Airline Economics...... 1

1. Continental Earned More Profits and Enjoyed Higher International Yields and Operating Margins ...... 1

2. United Collapsed During the Decade of the Aughts ...... 6

3. Continental Strengthened During the Decade of the Aughts, Especially in Its International Divisions ...... 8

4. Continental’s B757s Allowed It to Expand to More European Markets ...... 12

5. Continental Pilots Were Paid More ...... 13

6. Widebody Superiority Is a Myth...... 15

7. Continental Did Not Undergo an “Out-of-Court Restructuring” in 2004-05 ...... 16

B. History ...... 18

1. The Early Days of Both Airlines ...... 18

2. Recession and September 11th: United Collapsed While Continental Held Steady ...... 20

3. United, Desperate to Merge, Continued to Shrink ...... 22

C. Employment Data ...... 25

1. Continental and United Pilot Hiring, Furlough, Age and Attrition Demographics Differ ...... 25

2. Block Hours Drive Pilot Jobs and Block Hours Were Essentially Equivalent ...... 27

3. United Was Overstaffed ...... 28

4. Continental Pilots Earned More ...... 31

D. Fleet ...... 35

1. Continental’s Fleet Was Superior to United’s ...... 36

2. The United Merger Committee’s Case Regarding Fleet Was Non-Existent ...... 42

E. Continental Was the Larger International Carrier ...... 45

F. Career Expectations ...... 48

1. Pilots Want to Be Captains ...... 48

2. Continental First Officers Had Superior Prospects for Upgrading ...... 48

3. The Continental Pilots’ Pre-Merger Pay Exceeded That of United Pilots ...... 50

4. The Continental Pilots Had Better Scope Protection and Job Security ...... 51

5. Continental Was a Great Place to Work but United Was Not ...... 54

6. Furloughees Were Recalled at Continental, but Pilots Faced Dim Prospects at United ...... 56

G. The Continental Merger Committee’s Proposed Integration ...... 58

1. The 2009 ALPA Merger Policy Revisions ...... 58

2. ALPA Merger Policy Timeline ...... 61

3. The Rationale for the Continental Merger Committee’s Proposal ...... 61

ARGUMENT ...... 64

I. The Continental Merger Committee’s Proposal Is Fair ...... 66

A. The Continental Merger Committee’s Proposed List Appropriately Preserves the Pre-Merger Career Expectations of Both Pilot Groups ...... 66

B. The United Pilots Are Already Realizing Significant Gains from the Merger ...... 72

1. The United Pilots Are Receiving More of the Financial Gains from the Merger ...... 74

2. The United Pilots Are Also Benefiting More from the Merger Than the Continental Pilots in Non-Monetary Areas, Such as Improved Job Security ...... 77

3. The Approximately 1400 Furloughed United Pilots Gain the Most from This Merger ...... 79

C. Only Active Pilots Who Bring Jobs to the Merger Should Be Placed Together on the Integrated Seniority List; Furloughed and Other Surplus United Pilots Should Not Be Intermixed with Active Continental Pilots ...... 80

D. The Proposed Conditions and Restrictions of the Continental Merger Committee Are Necessary and Appropriate to Achieve a Fair and Equitable Merged List...... 84

1. Reciprocal Protection of Continental B787 Flying Matches the United B747/A350 Protection ...... 84

2. “No Bump, No Flush” Protection of Positions Awarded Should Be Included...... 85

3. The Board Should Take Note of the Virtual Fence That United Overstaffing Creates ...... 86

II. The United Merger Committee’s Proposal Is Unfair ...... 87

A. The United Merger Committee’s Proposed Hybrid Methodology Is Unprecedented and Unjustifiable ...... 88

B. The United Merger Committee’s Proposal to Reassign Pilots’ Longevity to Other Pilots on Their Pre-Merger List Is Unprecedented and Unjustifiable ...... 90

C. The United Merger Committee’s Proposed Status and Category List Incorrectly Groups the Jobs Brought to the Merger ...... 93

D. The United Merger Committee’s Proposed Status and Category List Attributes Too Many Jobs to the United Pilot Group and Too Few to the Continental Pilots ...... 96

E. The Board Should Not Apply the Constructive Notice Doctrine to Craig Watts and Jon Yost ...... 99

CONCLUSION ...... 102

ATTACHMENT A

ATTACHMENT B

iii

The Continental Pilots’ Merger Committee submits this post-hearing brief in support of its proposal to integrate the Continental and United pilot seniority lists by merging Captains with

Captains and First Officers with First Officers, as specified in CAL Exh. G-6, subject to appropriate conditions and restrictions, as outlined in CAL Exh. G-9.

THE FACTS

A. Airline Economics

In the decade leading up to the merger between Continental and United, the two carriers

were moving in opposite directions. Continental made money but United lost billions of dollars

and spent more than three years in bankruptcy. Continental expanded its operations, especially

in the international arena, while United contracted. Continental replaced its older planes with

fuel-efficient, next-generation aircraft and had many growth aircraft on firm order; however,

United shed 100 planes in 2008-09 alone and maintained an empty order book. Continental

consistently outperformed United in the decade leading up to the merger, with the result that the

Continental pilots’ career expectations far exceeded those of the United pilots.

1. Continental Earned More Profits and Enjoyed Higher International Yields and Operating Margins.

From 2000 until the merger closed on October 1, 2010, Continental earned a profit of

over $1 billion while United lost over $7.8 billion. CAL Exh. A-1. Continental’s system

operating income was $9 billion greater than United’s. CAL Exh. R-66. Dr. Brian Campbell

testified that United faced “the erosion of their basic core business” and declined “rather

dramatically for the period before bankruptcy, the period during bankruptcy, and the period after

bankruptcy.” Tr. 84. United even lost $343 million between 2006 and 2008, the three years

after it exited bankruptcy, while Continental was earning $841 million. Tr. 88.

In the decade of the aughts, legacy carriers shifted capacity away from domestic service,

where they faced increasing competition from low-cost and regional carriers, toward the more

profitable, international markets. The industry as a whole reduced domestic capacity by 27%

and increased international capacity by 10%. CAL Exh. A-2. The legacy carriers shifted their capacity because their domestic yield (passenger revenue per revenue passenger mile) dropped

8% while international yields increased by 20%. CAL Exh. A-4; Tr. 91. Continental reduced its domestic capacity by 15%, but United cut its domestic capacity by 44%, three times as much as

Continental. CAL Exh. A-3; Tr. 90.

Continental’s international operations earned more profits than United’s. Indeed,

Continental outperformed United in every international division from 2000 to the year ending

September 30, 2010: Atlantic, Latin America and Pacific. CAL Exh. A-5. In the Atlantic

Division, United made a profit of $135 million, but Continental earned $3.9 billion, 29 times as

much. Id.; Tr. 91-92. Continental earned nearly $3 billion in Latin America while United lost

more than half a billion dollars. CAL Exh. A-5. And United lost $400 million in the Pacific

Division, which it considered its stronghold, while Continental made $1.4 billion there. Id.

In the seven quarters immediately preceding the merger, the time period favored by the

United Merger Committee’s expert witnesses, Continental’s international operations earned a $2 billion profit while United earned only $955 million. UAL Vol. 2 Akins at 63, 67; Tr. 1965.

Significantly, in every quarter for the ten years before the merger, Continental posted higher

international operating income and operating margin than United. CAL Exhs. R-73, R-74.

Continental was “more of an international airline than United” and derived more of its

scheduled revenue passenger miles from its international divisions than did United. Tr. 93-94;

CAL Exh. A-6. Its operating margins in the international divisions exceeded United’s

2 significantly, and, as Dr. Campbell explained, “The company with the highest margin has the highest dollars of profit . . . .” Tr. 96; CAL Exh. A-6. As between these two companies,

Continental’s international system was far stronger than United’s.

Not only was Continental stronger internationally in the decade of the aughts, but the combined carrier has followed Continental’s lead in concentrating on international markets.

CAL Exh. A-7. For the year ending September 30, 2012, the combined Company derived 49% of its scheduled revenue passenger miles from its international operations. Id. Dr. Campbell testified that this mix of flying “has been driven . . . entirely by Continental’s focus in the international [divisions].” Tr. 97.

In addition to Continental’s higher operating margins and profits in the international divisions in the decade before the merger, it also served more international markets than United in that time period. CAL Exh. A-8. For example, Innovata schedules for a mid-week in July showed that “Continental had substantially more international markets than did United.” Tr. 98.

In 2010, Continental served 76% more international markets than United: 127 to 72. Id.; CAL

Exh. A-8. Dr. Campbell selected a time in the middle of July to get “an unbiased comparison between the two companies” that avoided “seasonal fluctuations.” Id. at 98-99. The markets were unique airport pair markets. Id. at 264.

In the Atlantic Division, Continental’s earnings were “consistently and significantly and in every year substantially greater than United in terms of operating margin.” Tr. 99; CAL Exh.

A-9. Continental’s Atlantic Division outperformed each of United’s divisions. CAL Exh. R-80.

In the year ending in the third quarter of 2010, Continental’s margin was 19.4% as compared to

United’s 13.0%. CAL Exhs. A-9, A-6. Continental never sustained a loss in the Atlantic

Division, “which is rather astounding considering all the problems that went on in the U.S.

airline industry during that decade.” Tr. 99. Moreover, Continental dramatically increased the

number of markets it served in the Atlantic and has served more Atlantic markets than United

since 2003. CAL Exh. A-10. Dr. Campbell attributed this “very substantial growth” to

Continental’s investment in making its B757 fleet capable of serving transatlantic markets,

which is discussed more fully below. Tr. 100; see infra Fact Section A.4.

The differences between Continental’s and United’s operations in Latin America were

even more dramatic than in the Atlantic Division. Continental’s Latin America Division

outperformed each of United’s divisions. CAL Exh. R-87. United lost money in Latin America

almost every single year, but Continental consistently posted 20-30% operating margins. CAL

Exh. A-11; Tr. 101. Since the merger, the combined Company has enjoyed “outstanding”

operating margins, and Dr. Campbell testified that Continental is the reason for that performance.

Tr. 101-02. Continental had “an awful lot of pricing power” from Houston into Latin America

because it did not have nonstop competitors on 50 of its 53 routes. Tr. 102; CAL Exh. A-11a.

Moreover, Continental always served at least twice, and usually close to “three times as many

markets in Latin America as United.” Tr. 104; CAL Exh. A-12. In 2010, Continental served 62

Latin America markets as compared to United’s 24. CAL Exh. A-12.

Similarly, in the Pacific Division, “Continental’s operating margin exceeded United’s by

a wide margin every year since 2000.” Tr. 104; CAL Exh. A-13. United had losses in four of the years, but Continental never experienced a loss. Tr. 105. And once again, the combined

Company’s high operating margins demonstrate that “Continental has been able to lift United up to something closer to itself.” Id. Continental’s Pacific Division outperformed each of United’s divisions. CAL Exh. R-94. Continental also served more Pacific markets than United in each

year of the decade leading up to the merger. CAL Exh. A-14. In 2010, Continental served 35% more Pacific markets than United: 31 to 23. Tr. 106; CAL Exh. A-14.

Morris Garfinkle tried to focus on the carriers’ domestic operations, asserting that “a strong domestic network . . . [is] the backbone of being able to operate successfully internationally.” Tr. 1271. During the decade of the aughts—a time period when, as Dr.

Campbell said, “[e]verybody lost a lot of money among the legacy carriers in the domestic

marketplace”—United and Continental each lost about $7 billion in its domestic operations.

CAL Exh. A-5; Tr. 92. However, Continental was able to use its domestic network “to grow, to

support, to enhance, to leverage its growing and profitable global network,” as it earned $8.2

billion in its international divisions and more than $1 billion system-wide. Tr. 2979; CAL Exh.

A-5. United, by contrast, was unable to exploit its domestic network “to operate successfully

internationally.” See Tr. 1271, 2979. It lost $800 million in its international divisions and nearly

$8 billion system-wide. Tr. 2979-80. As Dr. Campbell concluded, “United’s domestic hub

structure touted by Mr. Garfinkle really was of little or no value [in] saving the Company.” Id.

The result of Continental’s strength in the international arena relative to United is that, in nearly every year since 2000, Continental has earned a greater system yield than United. CAL

Exhs. A-15, R-69; see UAL Vol. 1 Garfinkle at 36-1 (showing Continental’s higher international yield in 2009). System yield includes all of the airlines’ divisions: Domestic, Atlantic, Latin

America and Pacific. In only two years did United’s system yield exceed Continental’s: in 2000, when United surpassed Continental by 0.1%, and in the year ended September 30, 2010, when

United did 0.2% better. Tr. 106. Dr. Campbell concluded that United’s recently improved

system profitability was only a “blip” in a long-term trend of losses. CAL Exh. R-67.

2. United Collapsed During the Decade of the Aughts.

United performed poorly during the decade of the aughts, and was “a carrier in long-term

decline.” Tr. 83. This was true before its bankruptcy, during its bankruptcy, and even after its

bankruptcy. CAL Exh. R-1. Coming out of its bankruptcy, United “should have been able to

reduce its costs significantly and get on with rebuilding the airline,” but that did not happen. Tr.

257. Rather, United shed a large number of aircraft, block hours and pilot jobs and lost a

staggering amount of money, all of which negatively affected the United pilots’ career

expectations. CAL Exhs. R-1, R-2.

United’s finances were in shambles during the aughts. In December 2002, the Air

Transportation Stabilization Board (ATSB) rejected United’s application for a loan guarantee.

See CAL Exhs. B-25, B-26. As a result, United immediately entered bankruptcy and was unable

to emerge for more than three years. See UAL Vol. 1 Garfinkle at 11-3, 11-5. United applied

for another ATSB loan in 2004 and was once again denied. See id. at 11-4. As Mr. Garfinkle

conceded, “I wouldn’t exactly call that positive for United.” Tr. 1449.

Additionally, in 2008 United wrote down $91 million in advance delivery deposits for 42

A319s and A320s because it was no longer in a position to acquire those aircraft. CAL Exh. X-

2; Tr. 1467-68. United was also forced to finance its operations with debt for which it paid a

very high rate. In 2009, it paid 17% to borrow $175 million, which Mr. Garfinkle admitted was

“obviously quite high.” Tr. 1476; CAL Exh. X-3. As he explained to the media, by the middle of 2009, United’s game plan was simply to survive. CAL Exh. X-4.

According to Mr. Garfinkle, “United remain[ing] a standalone entity really wasn’t an

option in [CEO Glenn Tilton’s] menu of options.” Tr. 1492 (emphasis added). Indeed, Mr.

Garfinkle admitted that “a less than perfect merger with US Airways was better for United than a

standalone future for United.” Tr. 1498. Mr. Tilton’s testimony in a 2010 federal district court

case reiterated this point:

If United remains a standalone entity, the company’s profitability and market share, which have trended downward over the past decade, will in all likelihood continue to suffer from strategic gaps in the company’s network position, which its lack of profitability prevents the company from addressing with its own financial resources. . . .

If the proposed transaction [with Continental] is not consummated, and United remains a standalone entity, the company expects ongoing trends in its financial performance to continue. . . . If United remains a standalone entity, the company expects its ability to sustain sufficient profitability to return a reasonable return on its capital base across the economic cycle to continue to be at risk.

CAL Exh. X-6.

From 2000 until the date of the merger, United’s fleet declined by 258 aircraft (42%).

CAL Exhs. A-16, A-19; Tr. 110. And during this period, United removed almost 43,000 seats

from its inventory (40.3%). CAL Exh. A-17; Tr. 111. Because United did not take delivery of a

single airplane after 2002, its fleet aged “at a much faster rate than Continental’s.” Tr. 111.

During the decade of the aughts, United’s fleet aged 3.8 years, a figure that would have been

much worse if United had not retired all 94 of its B737 Classics. CAL Exh. A-18; Tr. 111-12.

In addition to jettisoning over 40% of its fleet, United’s block hours “came down precipitously” during the decade. Tr. 126; CAL Exh. A-23. This decline is significant because block hours determine “the pilot job career expectations, expectations for promotion and growth.” Tr. 137. In 2000, United flew 2,318,000 block hours. CAL Exh. A-23. However, by the time of the merger, United flew only 1,445,000 annual block hours. Id. Over that same period of time, system block hours for the entire industry dropped by 14%, but United’s dropped by 38%, or 24 percentage points worse than the industry. CAL Exh. A-24. So, “United was shrinking much faster than the industry.” Tr. 130.

United’s capacity reduction can be measured by more than just aircraft counts and block

hours. In addition to reducing revenue block hours by 37.7%, United reduced available seat

miles by 31.1%, departures by 50.1%, available ton miles by 28.4% and revenue aircraft miles by 33.6%. CAL Exh. A-34. Looking at any of these capacity measures shows the system-wide

contraction that was taking place at United in the decade leading up to the merger.

But perhaps the most relevant metric for purposes of this proceeding is the number of active pilots. On this metric, too, “United, once again, was in decline.” Tr. 139. United began the decade with 9,855 full-time equivalent (FTE) pilots in 2000, but ended with just 5,527 in

2010. CAL Exh. A-35. That 44% reduction equates to 4,328 FTE pilots. Tr. 139.

Simply put, by the time of the merger, United had collapsed and was a shell of its former self. Its FTE pilots, revenue block hours, departures and capacity all declined by 30-50%. CAL

Exh. R-5. Its stature in the domestic industry as measured by Mr. Garfinkle plummeted. CAL

Exh. R-6. It eliminated 100 aircraft in 2008 and 2009 with no plans to replace them. CAL Exh.

R-12 (confidential). Its revenues decreased by 21% in constant dollar terms, and it was much

weaker financially than Continental. CAL Exhs. R-14, R-17.

3. Continental Strengthened During the Decade of the Aughts, Especially in Its International Divisions.

Unlike United, Continental remained steady during the aughts and actually grew. Its

growth was “strategically very sound,” “reorient[ed] its focus toward the international market,”

and “moved away from the domestic market to the extent it needed to while it was growing the

international.” Tr. 84. Continental earned more than $1 billion at a time when United, Delta,

Northwest and US Airways all went through bankruptcy; Delta and Northwest merged; US

Airways and America West merged; fuel costs spiked several times; and low-cost carriers

increased their share of domestic capacity. CAL Exhs. R-9 thru R-11.

Continental increased its seat capacity slightly during the aughts, and removed only 8% of its aircraft from its fleet, not 42%, as with United. CAL Exhs. A-16, A-17; Tr. 110-11. And the average age of Continental’s fleet increased by only one year because “Continental [was] engaging in some fleet renewal . . . especially with the 737-NGs.” Tr. 112; CAL Exh. A-18. In

2000, Continental had 381 aircraft in its fleet compared to United’s 617. CAL Exh. A-19. By the day the merger closed, “the two carriers were only ten airplanes apart in fleet size, 349 for

Continental, 359 for United.” Tr. 114; CAL Exh. A-19.

Additionally, at the time of the merger, Continental had 66 aircraft on firm order, for delivery through 2015. CAL Exh. A-20. Dr. Campbell testified that this was the appropriate timeframe to consider for aircraft deliveries because “in these career expectation considerations, five years is about as far out as you tend to go.” Tr. 116. Thus, a key part of the Continental pilots’ positive career expectations in 2010 was the arrival of 66 firm-order aircraft through

2015, 35 of which were replacement aircraft and 31 of which were for growth. Tr. 116; CAL

Exh. A-20. Twenty-three of these 31 growth aircraft were B787s. Tr. 116. By contrast, as of

October 1, 2010, United had no aircraft on order for delivery through 2015. CAL Exh. A-20.

In addition to its more stable fleet than United, Continental closed the gap during the aughts in system revenue block hours. CAL Exh. A-23. Continental began the decade 38% smaller than United in terms of block hours. Id. While “United’s block hours . . . came down precipitously,” Continental’s remained “relatively stable.” Tr. 126-27. Thus, in the year before the merger, Continental system-wide block hours were only 9% less than United’s. Tr. 127.

Moreover, Continental’s block hour trend over the course of the decade was better than the industry average. CAL Exh. A-24.

During this decade, international flying was a growth sector for the airline industry, as

legacy carriers grew their international block hours by 20%. CAL Exhs. R-34, R-35.

Continental’s international block hours grew by 50% during this period, but United’s shrank by

10%. CAL Exh. R-36. United’s international block hour decline partially resulted from its off- loading of routes that it had previously acquired from Pan Am, such as its JFK to London

Heathrow route, which it sold to Delta in 2006. CAL Exh. R-40. United also failed to exercise its Fifth Freedom rights, and instead outsourced international flying to Lufthansa, ANA and its

other alliance partners. CAL Exhs. R-40, R-41, R-43; Tr. 2957-58. In 2010, United flew

431,000 international block hours, but Continental flew 562,000, 30% more. CAL Exh. E-19.

In the Atlantic Division, Continental passed United in block hours in 2005, “coincident with the winglet modifications on the 757s,” and continued to grow significantly. Tr. 131-32;

CAL Exh. A-26. Continental’s growth in the Atlantic was much greater than the industry as a whole; the industry grew 16% during the decade while Continental grew 73%. CAL Exh. A-27;

Tr. 132. This expansion resulted from Continental’s strategy of “right-sizing aircraft to the

market.” Tr. 132.

In the Latin America Division, Continental began the decade twice the size of United in

block hours and ended it four times United’s size. CAL Exh. A-28, R-49 thru R-51; Tr. 133-34.

Continental increased its Pacific block hours by 39% and the industry stayed about the same, but

United decreased its block hours by 13%, and “continued to drop in the Pacific even in the

postbankruptcy period.” Tr. 135; CAL Exh. A-31. In the Domestic Division, Continental’s

block hours declined by 28%, but that was less than United’s, which dropped by nearly 45%.

CAL Exhs. A-32, A-33; Tr. 135-36.

Continental grew relative to United on every “measure of production or output you look

at.” Tr. 137; CAL Exh. A-34. Its block hours were 29.3 percentage points higher, its available

seat miles were 42.5 percentage points higher, its departures were 21.4 percentage points higher,

its available ton miles were 47.0 percentage points higher and its revenue aircraft miles were

32.5 percentage points higher. CAL Exh. A-34. Dr. Campbell concluded that “Continental . . .

was significantly greater than United on any measure.” Tr. 137-38. Moreover, Continental also

remained relatively stable in FTE pilots, in view of the turbulence in the industry, declining by

only 10%. CAL Exh. A-35; Tr. 138. In sum, Dr. Campbell concluded, “Continental was a

stronger carrier. It was growing. . . . And the [career] expectation[s] of the Continental pilots

would have been substantially better at the time of the merger than they were for the United

pilots who were still left with the Company.” Tr. 141-42.

The result of Continental’s growth during the aughts was that, by the time of the merger,

it had become much stronger financially than United, which was highly illiquid, overleveraged

and suffered from almost $2 billion in negative net worth. CAL Exh. R-8. By contrast,

Continental had a net worth of over $1.1 billion. Id. United’s total liabilities were 62% higher

than Continental’s. Tr. 2920; CAL Exh. R-8. Continental’s net working capital, which is a

company’s “current assets minus current liabilities,” was more than $1 billion, while United

suffered from a negative net working capital of $1.2 billion. Tr. 2920; CAL Exh. R-8. United

had slightly more unrestricted cash, but its future transport liabilities were $4 billion greater than

Continental’s, so Continental’s cash position net of those liabilities was $1.8 billion, which was

$4 billion better than United’s negative $2.2 billion. CAL Exh. R-8; Tr. 2919-20. As Dr.

Campbell concluded, the balance sheets at the time of the merger demonstrate that “United was highly [illiquid]. Continental was not.” Tr. 2920.

4. Continental’s B757s Allowed It to Expand to More European Markets.

A large part of Continental’s continued stability and growth during the decade of the aughts was due to its utilization of B757s in its Atlantic Division. Continental has used B757s in the Atlantic since the mid-1990s, and it increased the number of European routes served with the aircraft in 2005. CAL Exh. A-21 at 1. Since that time, Continental served at least one-half of its

European markets with B757s. Id. at 2.

Dr. Campbell noted that Continental’s tremendous growth in the Atlantic during this period “was really a result of . . . Continental making the decision to invest in its 757 fleet so that it could serve the small Transatlantic markets that were too small to support the economics of a large . . . widebody, but yet had an awful lot of traffic potential for a 757.” Tr. 100; see CAL

Exh. A-10. Continental ETOPS-certified its B757-200s and operated them out of Newark “to a lot of medium size markets in Europe that couldn’t support a 777 or a 747, or even a large 767.”

Tr. 100. By September 2010, Continental flew 20 of its 31 European routes (65%) with B757s, but United did not serve any European destinations with B757s because it “did not make that investment to make it an international airplane.” CAL Exh. A-21; Tr. 117-18.

The effect of Continental right-sizing its European markets with B757s can be seen in the superior operating margins it achieved in the Atlantic Division. See CAL Exh. A-9. The reason this approach succeeded is that “it gives more passengers the opportunity to fly nonstop from their point of origin to their point of final destination,” especially if that destination is a smaller

European city that cannot support profitable service with larger aircraft. Tr. 119-20.

Continental’s success explains why 25% of its system traffic comes from its Atlantic Division, as compared to only 18% of United’s. Tr. 120; CAL Exh. A-6. And, “it helps to explain why

Continental’s operating margin is so much greater than United’s on the Atlantic.” Tr. 120.

Utilizing B757s to Europe also explains why Continental’s Atlantic block hours

increased 73% during the decade, while United’s increased only 8.4%. CAL Exh. A-26. As Dr.

Campbell explained, “Block hours convert[] to jobs. If you’re expanding your block hours,

you’re hiring more pilots.” Tr. 121. Utilizing its B757s in this way also gave Continental

flexibility when deploying its B767s and when adding frequencies on its European routes in peak

summer months. Tr. 122. From a pilot job perspective, and from a fleet-planning and profit-

generating perspective, utilizing the B757s in the Atlantic proved to be a sound investment.

5. Continental Pilots Were Paid More.

From 2000 until November 30, 2012, when the Joint Collective Bargaining Agreement

(JCBA) pay rates went into effect, Continental pilots were paid more than United pilots. CAL

Exh. A-36. Dr. Campbell calculated average wages per FTE pilot for the Continental and United

pilots using DOT Form 41 data. Id.; Tr. 139. He found that in nine out of the ten years prior to

the merger, with 2002 the lone exception, “Continental pilot pay was significantly better than

United’s pay.” Tr. 138-40; CAL Exhs. A-36, see also CAL Exhs. R-19 thru R-23. In the period

of time after United exited bankruptcy, the pay differential continued to increase in favor of the

Continental pilots. Tr. 139-40. For the year 2010, the Continental pilots earned $40,000, or

32%, more than their counterparts at United. Id. at 140.

In his analysis, Dr. Campbell focused solely on wages to arrive at an apples-to-apples comparison of the compensation for the two pilot groups. Id. He “look[ed] at the total compensation package,” and found that “Continental was ahead of United every year,” but that was mixing apples with oranges. Id. His analysis focused on the amount of money that the pilots earned, not money that the Company set aside for benefits for the pilots that they might never receive any value from. Id. at 140-41.

Daniel Akins attempted to compare the wages paid to both pilot groups in 2009 based on

Form 41 data, but he performed the calculations incorrectly. See UAL Vol. 2 Akins at 4. He

erred in excluding $29 million in wages earned by Air Micronesia (Air Mic) pilots, even though they were Continental pilots, working under the ALPA Collective Bargaining Agreement (CBA),

flying from Continental’s Guam pilot domicile. See Tr. 1682-83. As Dr. Campbell explained,

“The Air Micronesia Form 41s do not have any entry for number of pilots because it’s all

Continental Airlines.” Tr. 2939-40. He added that a careful analysis should have included the

wages earned by the Air Mic pilots to show a full picture of the earnings generated by the entire

Continental pilot group because “Guam is just a base in the Continental system.” Tr. 2940-41;

CAL Exh. R-22. Despite his mistake, Mr. Akins still found that the Continental pilots earned

higher wages than the United pilots in 2009. UAL Vol. 2 Akins at 4, 6; see Tr. 1887-89.

An analysis of the average wages for 2010, instead of 2009, would have shown an even

greater disparity between the two groups. The pay gap in favor of the Continental pilots was

32% in 2010, but only 25% in 2009. Tr. 2939; CAL Exh. R-20. Mr. Akins’ choice of the 2009

numbers instead of those for 2010 was methodologically unnecessary, and misleadingly

understated the Continental pilots’ advantage in earnings. See Tr. 2938-39.

Mr. Akins also included a sampling of the top-of-scale pre-merger hourly wage rates, but

these charts are incomplete because they do not include the significantly higher rates that

Continental pilots earn for the B737-800s and -900s and the B767s. UAL Vol. 2 Akins at 14, 16.

Only 18% of Continental’s B737 Captains were paid at $150 per hour, as he depicted; the

remaining 82% were paid at $169.33 per hour, or 25% more than the pay rate for United’s small

narrowbody aircraft. Tr. 1942. Nor does his chart reveal that Continental B767 Captains earned

$193.15 an hour, 20% more than their United counterparts. Id. at 1943. Even with his

misleading examples, his charts nonetheless show that the Continental wage rates exceeded the

United wage rates in every comparison he chose to make. UAL Vol. 2 Akins at 14, 16.

On redirect, opposing counsel posed a question to Mr. Akins based on an alleged

“truism[] . . . of the pilot world,” that “widebody aircraft are paid more [per] hour than narrowbody aircraft.” Tr. 2004-05. Mr. Akins agreed that his exhibit showed that. However, on cross-examination, he conceded that Continental’s B737-800s and -900s, which are narrowbody aircraft, were paid at $169.33 per hour, more than United’s B767 rate, and thus in that instance the Continental narrowbody pay was higher than the United widebody pay. Id. at 2005.

6. Widebody Superiority Is a Myth.

The United pilots asserted on numerous occasions that its fleet mix, with 31% widebody

aircraft, was preferable to Continental’s fleet mix of only 17% widebody. See, e.g., Tr. 1667-69.

But the notion of widebodies as better than narrowbodies is a myth. The four most profitable

U.S. carriers in 2009 did not operate a single widebody aircraft. See UAL Vol. 2 Akins at 65; Tr.

1962. However, the five worst performing carriers in 2009 were “all network carriers operating widebodies.” Tr. 1963-64. Continental was the only one of the depicted airlines operating widebodies that has not been in bankruptcy since 2000. CAL Exh. R-25 at 1.

The analysis remains the same when examining the period from 2000 until the merger closed. The four most profitable carriers in that time operated only narrowbody aircraft. CAL

Exh. R-25 at 2. The four least profitable airlines were network carriers operating widebodies.

Id. Three of these four worst-performing airlines were the so-called “Big Three”: United,

American and Delta. Id.

Further dispelling the widebody myth was the analysis done on pilot bidding patterns at various airlines, which shows that pilots are less interested in the size of the aircraft they fly than

in the amount of money they earn to fly it. CAL Exh. R-134. At UPS, where the pay is the same for all aircraft, all of the pilots who fly as narrowbody Captains could also hold a widebody

Captaincy. Id. At Delta, 98% could do so, but it is slightly more lucrative to fly a widebody at that carrier than a narrowbody. Id. The same is true at Continental and at American. Id.

Indeed, United is the only carrier at which the percentage of pilots who fly as narrowbody

Captain but could hold widebody Captain (60%) drops below 93%, as United is the carrier with the greatest pay gap between widebody and narrowbody Captain positions. Id.

The United pilots’ fixation on the supposed preeminence of widebody aircraft ignores a very obvious and, for them, inconvenient fact: B747s are going away. Japan Airlines, one of the

B747’s most prolific operators, retired its last B747 more than two years ago in favor of newer, more fuel-efficient aircraft. CAL Exh. R-135. Moreover, on December 8, 2009, when United announced that it was placing its first aircraft order since 1998 for 25 B787s and 25 A350s to replace its international fleet of B747s and B767s, the carrier lauded its expected financial

“benefit from the smaller gauge and longer range of these aircraft, which match the right aircraft size and range capability to the right market.” CAL Exh. D-1 at 4.

7. Continental Did Not Undergo an “Out-of-Court Restructuring” in 2004-05.

Contrary to the United Merger Committee’s contention, Continental did not undergo an

“out-of-court restructuring” in 2004-05. There is no factual support for this attempt to classify

Continental’s ongoing business conduct as a restructuring akin to the actual bankruptcy court

restructurings that occurred at United and many other carriers in the decade of the aughts.

Mr. Akins sponsored an exhibit entitled “Continental’s Quiet Restructuring in 2004 &

2005.” UAL Vol. 2 Akins at 39. He said that Continental did not go through a Chapter 11 proceeding, but engaged in “an internal restructuring to cut costs that amounted to about [$]1.6

16 billion.” Tr. 1610. On cross-examination, however, he admitted that some unknown portion of the $1.6 billion included “revenue generating initiatives,” which he had incorrectly termed “non- labor concessions.” Tr. 1914-16. On cross-examination during his rebuttal testimony, Mr. Akins further conceded that he was “not suggesting that Continental was heading towards bankruptcy in 2004/2005.” Tr. 3770.

Not a shred of evidence supports the notion that Continental went through an out-of-court restructuring in 2004-05. An analysis of Continental’s stock price confirms the absence of any such event. Dr. Campbell examined the quarterly low stock price of Continental leading up to, during and after the quarter in which Continental’s out-of-court restructuring supposedly occurred. CAL Exh. R-30. He compared these prices to the periods of time before, during and after other air carriers declared bankruptcy. Id. Continental’s quarterly stock price contrasts sharply with those of the bankrupt carriers; the bankrupt carriers’ stock prices dropped precipitously, but not Continental’s. See id. Moreover, Continental’s losses in 2004 and 2005 were modest and did not cause alarm. CAL Exh. R-32. It lost $278 million on a revenue base of

$22 billion, a negative profit margin of only 1.3%. Id. As Dr. Campbell testified, “No corporation is close to bankruptcy . . . when it loses 1.3 percent of revenue.” Tr. 2951.

Furthermore, since the Continental Pilots’ Retirement Plan was spun off from the

Company’s combined plan in 2005, the Company has contributed significantly more to the plan than legally required. See CAL Exh. R-33. During 2005 alone, Continental contributed $131 million more than required. Id. As Dr. Campbell testified, “No company approaching bankruptcy would be doing that.” Tr. 2952. Quite simply, Continental was not involved in an out-of-court restructuring in 2005. It was running its business as normal and making revisions to its operating model as necessary.

B. History

1. The Early Days of Both Airlines.

Continental and United shared similar histories. Both were born of the same parent,

Walter Varney, early in the Twentieth Century. Tr. 629; CAL Exhs. B-1 at 1, B-2. In 1959,

Continental became the first commercial U.S. carrier to begin flying jets, using the B707. CAL

Exhs. B-1 at 1, B-3. A few months later, United followed suit, introducing DC-8 jet service at the carrier. CAL Exh. B-1 at 1. By 1969, Continental became the first U.S. carrier to operate an all-jet fleet. CAL Exh. B-53 at 2-3.

Continental began international service before United with the award of route authority to operate in the Micronesia Islands in 1967. CAL Exhs. B-1 at 2, B-5. United did not begin international service until 1983, with its Seattle to Tokyo route. CAL Exh. B-1 at 2. That same year, People Express began international service between Newark and London, operating B747 aircraft. CAL Exhs. B-1 at 2, B-6. In 1988, Continental also formed the industry’s first global

alliance with Scandinavian Airlines System. CAL Exh. B-1 at 4.

The Airline Deregulation Act of 1978 transformed the airline industry. New York Air

began operations as a subsidiary of Texas Air Corporation (TAC) in 1980. CAL Exh. B-8. A

few months later, in 1981, People Express began service, changing the face of the industry with

its low fares. See CAL Exh. B-1 at 2. TAC assumed control of Continental in 1981. Id.; CAL

Exh. B-8. Later, People Express acquired Frontier, followed by Britt Airways and

Provincetown-Boston Airlines. CAL Exh. B-1 at 3. This began a series of acquisitions by

People Express and Continental, culminating with TAC acquiring People Express and the assets of Frontier. Id.; CAL Exh. B-8. By 1987, Continental, People Express, Frontier and New York

Air were jointly marketed under the Continental name, while Rocky Mountain and Britt were

jointly marketed as Continental Express. See CAL Exhs. B-1 at 4, B-8.

The year 1983 began a dark period for the employees of Continental and for ALPA.

Continental went into Chapter 11 bankruptcy and Frank Lorenzo abrogated the pilots’ CBA, the

first such use of the Bankruptcy Code in the airline industry. CAL Exh. B-1 at 2; Tr. 706.

ALPA went on strike, but the strike ended in 1985, with the Company refusing to recognize

ALPA as the pilots’ bargaining representative. See CAL Exh. B-1 at 3. The United pilots experienced their own labor strife, which led to a strike in 1985 over the issue of B-scale pay rates for new hires. CAL Exh. B-7. Thus began an era of highly contentious labor relations for the United pilots, which continued through the announcement of the merger. E.g., CAL Exhs. B-

7, B-13, B-18, B-25, B-32, B-41, B-43 thru B-45.

In 1989, the United pilots began efforts to purchase United Air Lines. CAL Exhs. B-1 at

4, B-10. In 1994, United’s pilots and mechanics succeeded in starting an employee stock ownership plan (ESOP) and swapped 15-25% of their salaries in exchange for 55% of the

Company’s stock. CAL Exhs. B-1 at 5, B-13. In 2002, however, United’s Chapter 11 bankruptcy rendered the stock worthless. CAL Exh. B-28 (“[United’s] common stock has little or no value and likely will be canceled under any court approved reorganization.”).

Both Continental and United attempted to compete with the low-cost carriers by establishing airlines within airlines. Continental established Continental Lite in 1993 and discontinued it in 1995. CAL Exh. B-1 at 5, 6. United launched Shuttle by United in 1994 and ended that operation in October 2001. Id. at 5, 7; CAL Exh. B-19. United took a second unsuccessful run at this concept in 2003, with its Ted operation. CAL Exh. B-30. Ted lasted until June 2008, when United terminated it and announced a reduction of 100 aircraft and

furloughs, which ultimately reached 1447 pilots. CAL Exh. B-42. Both carriers’ attempts at the

airline-within-an-airline concept were unsuccessful, but the demise of Continental Lite was

merely a marketing event, or in the words of United management, “a non-event for pilot

staffing.” Conference Call with United Management, Merger Counsel and the Arbitration Board

(June 17, 2013). At United, however, Shuttle by United ended in the wake of the September

11th terrorist attacks, CAL Exh. B-1 at 7, and the demise of Ted resulted in the shrinking of the

United fleet and additional furloughs. CAL Exh. B-42.

2. Recession and September 11th: United Collapsed While Continental Held Steady.

As the United pilots’ fortunes were shrinking, the Continental pilots’ were expanding.

The Continental pilots were again represented by a union—first, the IACP and then ALPA.

CAL Exhs. B-12, B-16. Continental began garnering numerous awards as employee morale and

customer service soared. CAL Exhs. B-15, B-20. Labor relations at United continued to

deteriorate as United’s $292 million second quarter loss in 2001 forced it to “cease all growth.”

CAL Exhs. B-1 at 7, B-17, B-18.

The September 11th terrorist attacks were a tragedy for the country and the airline industry and for United in particular. In the wake of the attacks and their subsequent impact on the airlines, United furloughed 2172 pilots, CAL Exh. B-18, while Continental furloughed about

100. CAL Exhs. B-1 at 7, B-18. The United furloughs lasted for a longer period of time than

Continental’s. CAL Exh. B-1 at 7. United suffered unprecedented financial losses and, in

October 2001, then-CEO James Goodwin sent a letter warning the employees that “United will perish sometime next year” if it did not stop “hemorrhaging money.” CAL Exh. B-21. During the same timeframe, only two major airlines posted profits, Continental and Southwest. CAL

Exh. B-20 at 3.

In 2002, the United pilots made $2.2 billion in annual concessions in order to stave off a

Chapter 11 filing by the carrier, but United’s situation worsened with the ATSB’s rejection of its

application for a loan guarantee, which crushed United’s hope of avoiding bankruptcy. CAL

Exhs. B-25 thru B-27. United endured the longest bankruptcy in the history of the airline

industry, suffered the rejection of a second application for an ATSB loan guarantee, terminated

its ESOP, closed its Latin America gateway in Miami, and ceased funding and effectuated a distressed termination of the pilots’ defined benefit pension plan. CAL Exhs. B-1 at 8-9, B-28,

B-32, B-35, R-49, R-50.

By contrast, Continental continued to prosper while improving its labor relations and

customer satisfaction. CAL Exhs. B-31, B-34, B-36. In 2003, Continental continued to fund its

defined benefit pension plan (contributing $372 million, which was $283 million more than

required). CAL Exh. B-31. Continental also began ordering its B787s. Id.

In its 2005 Annual Report, Continental reported that the year “brought hope for the

42,000 employees of Continental, while it brought despair to the employees of many of our

network competitors.” CAL Exh. B-36 at 2. Although the United pilots made the largest

concessions of all U.S. airline pilots, Continental pilots took the smallest pay cut among ALPA

carriers during this period of extreme turbulence in the industry. CAL Exhs. B-18, B-25, B-37.

Continental grew its international capacity and, in 2005, had the highest percentage of

mainline capacity dedicated to international flying of any U.S. carrier. CAL Exh. B-36 at 3.

Continental’s investment in high-technology aircraft, including adding winglets on its B757-200s

to extend their range, enabled it to serve smaller cities in Europe non-stop from New York. Id. at

4. Continental reported to its stockholders:

Our competitors . . . are forced to use larger and more expensive aircraft in order to make the mission from inland hubs like Atlanta or Chicago. This, coupled with

the fact that we are the only network carrier with a full-service hub in the huge New York market, gives us a natural advantage to continue our international growth to Europe.

Id. (emphasis added). The trajectories of Continental and United thus continued in opposite

directions during the decade of the aughts.

3. United, Desperate to Merge, Continued to Shrink.

United’s fortunes continued to plummet even after it emerged from bankruptcy. In 2007,

then-CFO Jake Brace stated that United “would like to combine with another airline that is

strong in the Atlantic and needs a southern-tier hub to strengthen its service to the Caribbean and

Latin America, where it has a smaller presence than other U.S. airlines.” CAL Exh. B-38. Delta

had already rejected United’s overture for a merger in 2005. Id. Airline consultant Bob Mann noted that Mr. Brace was “basically saying the same thing that (CEO Glenn) Tilton’s been saying for a long time, which is ‘Please, someone write us a big check.’” Id.

In 2008, United and Continental engaged in merger talks. CAL Exh. B-39. But

Continental abandoned those talks in favor of remaining independent. CAL Exh. B-40. Then-

CEO Larry Kellner and President Jeff Smisek advised their employees that “the risks of a merger at this time outweigh the potential rewards, as compared to Continental’s prospects on a standalone basis.” Id. United’s staggering $537 million loss during the first quarter of 2008 certainly contributed to Continental’s decision to abandon the potential merger. Id. With no one to rescue it, United announced further cuts and eliminated 1000 more jobs. Id.

United’s survival was again in doubt. Indeed, United’s financial health was “an issue that has hovered around United since it emerged from bankruptcy protection in early 2006. That concern was a reason talks between Delta and United . . . never gained traction.” Id. Consistent with “hanging out the equivalent of a ‘for sale’ sign,” United immediately turned its sights to US

Airways after being spurned by Continental in 2008. CAL Exh. B-41a. United was desperate to merge because, “[d]espite spending more than three years in bankruptcy, United’s costs remain[ed] high compared with those of other major airlines.” Id.

United’s “contentious relationship with its unions, especially its pilots,” persisted through this period. Id. The United MEC opposed management’s merger talks with US Airways. CAL

Exh. B-41b. In a press release on April 29, 2008, United MEC Chairman Steve Wallach warned:

“[W]e do not view a marriage with US Airways as anything remotely resembling a solution.” Id.

Captain Wallach further advised that “United should take a page from Continental, and turn its

attention inward. United is the only carrier in the industry with no aircraft on order or optioned.

That is not a long-term plan for survival.” Id. (emphasis added).

United and US Airways announced a month later that they would not merge. CAL Exh.

B-41c. The United pilots’ opposition apparently killed the deal. Id. Captain Wallach observed

in a press release that Mr. Tilton, having been “jilted by both Delta and Continental,” was

“[d]esperate for a merger partner, – ANY merger partner.” CAL Exh. B-44. Thus,

Tilton attempted to steer United Airlines straight into the arms of US Airways . . . . Only an outcry from the Air Line Pilots Association and the subsequent negative reaction from the financial community prevented Tilton from embarking on the potentially suicidal mission of a merger with US Airways.

Id. Captain Wallach added, “United Airlines is but a shell of its former self.” Id.

On June 4, 2008, a few days after the end of the United-US Airways merger talks, United

announced that it was grounding its entire fleet of 94 B737 Classics, as well as six B747s, eliminating Ted and reducing mainline capacity 17%-18% for 2008-09. CAL Exh. B-42. The

Company explained to its employees that these steps were “necessary ‘to assure United’s long- term viability.’” Id.

The following month, Aviation Daily reported that United had sued ALPA, alleging that

the United pilots were engaging in an illegal sick-out “in retaliation for the airline’s plan to

reduce its fleet size and furlough pilots.” CAL Exh. B-43. The article stated:

United’s ALPA unit has raged against the company for more than a year, repeatedly calling for the resignation of top management, and posting unflattering videos of Chairman, President and CEO Glenn Tilton on its Web site. In an MEC posting called “The Beatings Will Continue Until Morale Improves,” the MEC told its members that the company “will work your heinies off for the summer with maximum hours and minimum days off (flex months) and then fire you.”

Id.

Further inflaming relations between United and its pilots was what management called an

“‘innovative’ partnership,” which involved flying “an Aer Lingus aircraft with neither United nor Aer Lingus [pilots].” CAL Exh. B-45. As United had just furloughed additional pilots, the outsourcing of these jobs was akin to throwing gasoline on a raging fire. See id. The United pilots, however, were operating under a 2008 injunction issued by a U.S. district court that barred them from engaging in sick-outs, slow-downs or similar illegal activities. See Tr. 678-79;

CAL Exh. B-43. The United pilots’ scope clause did not prevent United from outsourcing either this work or the flying done by United’s Express partners in 70-seat jets. See Tr. 682, 969; CAL

Exh. F-21b.

United continued to furlough pilots in 2009 until 1447 pilots had lost their jobs. See CAL

Exhs. C-5, B-47. United eventually ordered some aircraft at the end of 2009, but, as Captain

Wallach observed, this order for 25 B787s and 25 A350s to be delivered starting in 2016 was

“for replacement aircraft and not growth aircraft.” CAL Exhs. B-46 (emphasis added); X-32.

Mr. Tilton continued to seek a merger as he had since he took over as CEO in 2002.

CAL Exh. B-48. United had had only one profitable year under his leadership. Id. On April 8,

2010, reports of merger talks between United and US Airways began to surface again, which was

at least their third attempt in recent years. Id. As the New York Times noted:

Perhaps more puzzling . . . is why United, and Mr. Tilton, are still purs[u]ing a merger with US Airways. After all, that airline is not the preferred candidate for United. Continental Airlines would seem a more likely partner since its routes and international network are a far better match. United actively courted Continental in 2008, but Continental eventually walked away from a deal because of United’s poor financial health.

Id. (emphasis added). United’s pilots were against it, again, as a United-US Airways

combination was no more attractive the third time around and they openly favored a deal with

Continental. Id. Finally, the United pilots and Mr. Tilton got their wish when the merger

agreement between Continental and United was announced on May 3, 2010. CAL Exh. B-49.

Following the merger announcement, United and Continental announced that the “legacy

Continental operating certificate” would survive, due to its “enhanced technology

authorizations.” CAL Exh. B-51. Thus, United transitioned to the Continental operating

certificate. Id. And, according to an SEC 8-K report filed in 2013, “United merged with and into Continental, with Continental continuing as the surviving corporation of the Merger and

changing its name to ‘United Airlines, Inc.’” CAL Exh. B-52 (emphasis added).

C. Employment Data

1. Continental and United Pilot Hiring, Furlough, Age and Attrition Demographics Differ.

Continental and United have had dissimilar hiring patterns, as one carrier has often done substantial hiring when the other did not. CAL Exhs. C-7, C-8. As a result, even though both

carriers have hired pilots at the same age, CAL Exh. X-34, age distributions are now dissimilar

due to the historic hiring patterns. CAL Exh. C-9. A significant fact for evaluating the

promotional prospects of the pilots on the two lists is that Continental pilots will experience

greater cumulative age-65 attrition until 2025. CAL Exh. C-10.

As a result of this differential in attrition and Continental’s acceptance of next-

generation, high-technology aircraft that it had on firm order for years prior to the merger,

Continental needed to hire additional pilots since the merger—some 631 as of April 1, 2013—

while United was able to recall only 38 of its 1447 furloughed pilots by that date. CAL Exhs. C-

5, C-6, C-15; Tr. 402-03. Continental new-hire job opportunities under Section 7-B of the

Transition and Process Agreement (T&PA) were accepted by 531 United furloughees from

2011-13. CAL Exh. C-20.

When it comes to analyzing furloughs, moreover, the United pilots have historically suffered deeper and longer job cuts than the Continental pilots. CAL Exhs. C-11, C-12, C-15 thru C-18. As shown on CAL Exh. C-15, for instance, the Continental pilot group has experienced 232,096 furlough days as of April 1, 2013, with no one remaining on furlough, whereas the United pilots have suffered nearly twenty times as many furlough days (4,467,932) and 1392 United pilots were still on furlough on that date. Id. The good news for these United furloughees is that the Continental pilots’ attrition will bring them back to work three years faster than they would have been recalled absent the merger, regardless of their placement on the combined seniority list. CAL Exh. C-19; Tr. 413-14.

However “longevity” is calculated, the Continental and United pilot groups’ average is about the same. CAL Exhs. C-31, R-102, X-33. The comparison varies from a few months up to a maximum of a little more than a year, depending on whether the calculation is done based on the Continental Merger Committee’s Certified List or on one of the alternative databases suggested by the United Merger Committee. CAL Exhs. C-31, R-102, X-33.

When the merger was announced, Continental also announced the recall of 15 of its 148 furloughed pilots and the return to active status of more than 100 pilots who had taken voluntary

leaves. CAL Exh. B-50. The Company explained that this recall was due to an increase in

international flying and the attrition of older pilots. Id. Continental announced the recall of its

remaining furloughees in September 2010, prior to the consummation of the corporate merger

with United. CAL Exh. F-19d.

2. Block Hours Drive Pilot Jobs and Block Hours Were Essentially Equivalent.

As Captain Scott Butcher explained, a carrier’s aircraft block hours determine the number

of pilot jobs, and the two airlines each brought an equivalent amount of flying to the merger as measured by block hours. CAL Exhs. C-21 thru C-23; Tr. 418-19.

All three expert witnesses confirmed this point. Tr. 121-22, 1414, 1987-88, 2914-15; CAL Exhs.

A-23 thru A-35, R-10. The point was clearly reaffirmed by Captains Jim Brucia, Tony Montalto and Kenneth Torrance. CAL Exhs. G-4, R-107, R-108; Tr. 880-81, 1211, 1233, 3107. Even the

United pilots’ witnesses conceded the point. E.g., Tr. 3876-77 (Captain Jeffrey Nooger), 4127-

28 (First Officer Jeffrey Ruark).

3. United Was Overstaffed.

United was carrying hundreds of surplus pilots at the time of the merger. CAL Exhs. C-

24 thru C-26, C-29, C-30. United’s Crew Resources Director conceded in his December 2009

publication, The Flight Plan, that “we still have more pilots than we need to fly the schedule.”

CAL Exh. C-24 at 1. The process of planning to staff the airline to cover the busy schedule for

the summer of 2010 was upon them, and he explained that management “anticipate[d] . . .

continued excess staffing on the 320s through the summer.” Id.

Captain Butcher showed that the staffing for United’s A320 First Officers had increased

by 25.2% over the 16 months prior to the merger announcement, which was nearly ten times the change over the same period of time as had occurred for United’s A320 Captains (an increase of

only 2.6%). CAL Exh. C-25. Despite the disproportionate increase in the A320 First Officer

staffing, the block hours used to staff both positions increased by the same amount because

United did not augment any of the flying on the A320; that is, only one Captain and one First

Officer flew each A320 block hour. Tr. 606. Captain Butcher hypothesized that the Company

was carrying the surplus pilots as A320 First Officers because that was the lowest paid position

at the airline. Tr. 427; see also Tr. 1229-32.

United was overstaffed with too many A320 Captains as well, especially as compared to

Continental’s B737 Captains. CAL Exh. C-26. Using the average number of block hours flown

per Captain over the 12 months prior to the merger, Captain Butcher calculated that Continental

would have required 116 additional B737 Captains if it had staffed at United’s A320 levels. Id.

at 2. Or, if United had staffed at Continental’s B737 levels, United would have needed 86 fewer

A320 Captains. Id. Based on this overstaffing, Captain Butcher concluded that “what United is

bringing to the merger is part-time jobs.” Tr. 428.

The differential in staffing is partially explained by the significantly greater reserve

coverage United has utilized. Tr. 438-39; CAL Exhs. C-29, C-30. For the 12 months leading up

to the merger, Continental’s reserve Captain staffing was 13.8% of the total Captain staffing,

while United carried more than double the Captain reserves (32.3%). CAL Exh. C-29; Tr. 438-

39. As Mr. Ruark agreed on cross-examination during rebuttal, one provision of Letter of

Agreement 23 to the JCBA requires that ALPA agree to additional work rule concessions valued at up to $45 million per year if the overall reserve ratio does not drop to 16.6%. Tr. 4124-26; Jt.

Exh. F.7 at 441-44. The overstaffing at United obviously has a long way to go in rectifying this excessive reserve coverage in order to avoid this penalty.

The analysis of Captain Torrance, the Continental pilots’ staffing expert, confirms the

testimony of Captains Butcher and Brucia. CAL Exhs. R-112 thru R-115. Although the

Company has yet to post a consolidated bid pursuant to the requirements of the JCBA, Captain

Torrance’s analysis matches with the two separate “Min/Max” vacancy bids the Company distributed to both sides’ staffing experts on April 9, 2013. Tr. 3125-29; CAL Exh. R-112. As he and Captain Brucia explained, the “min” number indicates the Company’s desired level of staffing; a surplus exists whenever the actual staffing exceeds the “min” level. Tr. 3133-34;

CAL Exh. R-112 at 6. Even Captain Nooger, the United Merger Committee’s staffing expert, agreed that the “min” number is the “desired number by the staffing management team.” Tr.

3818 (emphasis added). The analyses distributed by management on April 9 therefore suggest

the existence of more than 200 Captain vacancies at Continental and surpluses of at least that amount at United. See, e.g., CAL Exhs. G-4 at 6, R-115 at 3; Tr. 1135-53, 3133-37. Although

the Company has termed the work distributed at the April 9 meeting “illustrative,” CAL Exh. R-

113, the analysis of Captain Torrance shows that it illustrates the overstaffing at United. See Tr.

3129-44.

Other evidence in the record corroborates the testimony of Captains Butcher, Brucia and

Torrance that United was overstaffed. One way to analyze the relative staffing of the two pilot

groups is to look at the average block hours each Captain produces. Since there is one and only

one Captain for each aircraft block hour, see Tr. 435-36, this analysis remains unaffected by the augmentation rates of the carriers.

A comparison of CAL Exhs. C-5 and C-23 at 2 shows that, in March 2013, there were

2586 United Captains, who performed 118,408 block hours of flying, an average of 45.8 hours each; at Continental, by contrast, 2299 Captains produced 119,233 block hours, averaging 51.9 hours each for the month (13% more). The same point appears from an examination of the 2010 figures. CAL Exhs. C-5, C-22 at 2. Thus, at United, 2574 Captains performed 1,525,210 block hours for the year, an average of 49.4 hours per month, while 2081 Continental Captains produced 1,347,247 block hours, a monthly average of 54.0 block hours (9% more).

These calculations match those of Dr. Campbell. His testimony showed that Continental

pilots flew 19% more block hours than United’s in 2010. Tr. 130; CAL Exh. A-25.

Another basis for comparison is to use CAL Exhs. C-5 and D-1 to derive the ratio of

Captains per airplane at the two operations. United operated 359 airplanes at the time of the merger, yielding a ratio of 7.2 Captains per aircraft. Continental’s 349 airplanes were Captained by 2081 pilots, a ratio of only 6.0 Captains per aircraft. This analysis indicates that United was staffed 20% fatter than Continental.

United’s staffing did not get any tighter during the period following the merger. The

same exhibits reveal that United had eight fewer airplanes on April 1, 2013 (351), but added

twelve additional Captains (2586), producing a ratio of 7.4 Captains per aircraft. Continental’s

ratio, at 6.5 Captains per aircraft, remained significantly leaner than United’s. See infra Fact

Section D.2 (explaining the correct number of aircraft at Continental on April 1, 2013).

Accordingly, no matter what form of analysis is utilized or when it is applied, the United pilots

were grossly overstaffed as compared to the Continental pilots.

4. Continental Pilots Earned More.

Captain Butcher also carefully examined pilot pay on a comparative basis and concluded

that the Continental pilots’ jobs paid more, on a variety of analyses. E.g., Tr. 449-50, 465-66;

CAL Exhs. C-34 thru C-38. The pre-merger Continental hourly pay rates were higher for every comparable aircraft. CAL Exh. C-34. For example, United B767 Captains earned an hourly rate of $160.53, while Continental B767 Captains made $193.15, 20% more. Id. At Continental,

1554 Captains earned an hourly rate greater than $169, compared to only 604 Captains at United.

Id. Regardless of how the pay rate information as of October 2010 is displayed, the same

conclusion applies: Continental pilots earned more than United pilots. CAL Exh. R-105 at 2; Tr.

3074-79.

The Company provided actual payroll information for every pilot on either of the two

lists for the years 2009 and 2010 (although the information was delinked from individual pilots

in order to preserve their privacy). Starting with the Company-supplied wage data, Captain

Butcher added on the defined contribution payments for the respective carriers (16% for United

and 12.75% for Continental), and he then aggregated the data in a variety of ways for analytical

purposes. CAL Exhs. C-36 thru C-38. He found that in 2010, Continental Captains earned an average of $210,083 as compared to $177,211 for United Captains. CAL Exh. C-36 at 2.

Not surprisingly, Continental Captains flying the B737, the lowest paying airplane, earned substantially more than United A320 Captains in every quintile. CAL Exh. C-37 at 1. In the top 20% of the Captains flying these aircraft types, for instance, the Continental pilots out- earned the United pilots by 37%, $244,828 to $178,641. Id.

It may have been less predictable, however, that in every 20%-bracket the Continental

B737 Captains out-earned the entire population of United Captains (including B747, B777 and

B767/757 Captains). Id. at 2. For example, the middle 20% of all United Captains received

wages and DC contributions of $176,134 in 2010, but the middle 20% of Continental B737

Captains made an average of $203,938, 16% more. Id.

Captain Butcher also analyzed the Company-provided payroll data based on the pilots’

relative standing on the seniority list. And, again, the 2010 analysis showed Continental pilots

earning more at every level of the list. CAL Exh. C-38. Thus, in the middle, 41-50% bracket,

Continental pilots earned $182,065, 31% more than those in the same seniority slice at United,

who made only $138,775. Id. at 3. In the bottom 10% of the seniority list, the Continental pilots

earned an average of nearly $70,000 in 2010, but the United pilots earned nothing at all because

they were all furloughed. Id. at 5. Captain Butcher concluded that the Continental pilots had higher earnings in every position and at every level of the seniority list. Tr. 466-68.

The United pilots received enormous pay raises on November 30, 2012, when the JCBA hourly pay rates became effective. CAL Exh. R-130. The United pilots essentially received a two-step pay raise at once: one increase to the pre-merger Continental levels, which were higher in every case, and a second jump up to the JCBA rates. Id. For example, the pre-merger twelfth

year B767 Captain pay rate at United was $160.53, while the Continental rate was $193.19. Id. at 1. So, when the JCBA pay rate ($195.82) became effective, the United B767 pilots received a

20.3% raise to the Continental pre-merger rate, and then another simultaneous 1.4% raise to the

new JCBA rate. Id. This two-step pay raise applied to every aircraft type at United. Id. at 2.

ALPA’s Economic & Financial Analysis (E&FA) Department determined that, over the life of the JCBA, these pay raises are generating increases for the United pilots of $1,047,154,978 (a

36% increase), while the Continental pilots will receive only $639,800,988 (a 26% increase).

CAL Exh. C-35 (corrected).

UAL % increase CAL % increase Total AIP $ UAL AIP $ above Current CAL AIP $ above Current Increases * Increases * Book Increases * Book

JCBA AIP* $ 275,834,886 2013 $ 181,431,940 24.9% $ 94,402,946 15.5% JCBA AIP* $ 414,974,017 2014 $ 258,692,308 35.6% $ 156,281,709 25.4% JCBA AIP* $ 470,233,248 2015 $ 288,278,484 39.6% $ 181,954,764 29.3% JCBA AIP* $ 525,913,815 2016 $ 318,752,246 43.8% $ 207,161,570 33.2% TOTAL $ / AVG% $1,686,955,967 $1,047,154,978 36.0% $639,800,988 25.9%

*FIGURES ABOVE DO NOT INCLUDE VARIABLE FRINGE

Mr. Akins speculated that the airline industry might someday return to “pattern

bargaining,” which in his opinion would have permitted the United pilots to reach pay parity

with the Continental pilots in the future. UAL Vol. 2 Akins at 40-47; Tr. 1613-16. That is

wishful thinking. The reality is that the United pilots have struggled relentlessly to recover the

ground they lost in the Company’s 2002-06 bankruptcy, to no avail. By contrast, Continental’s management offered the Continental MEC the Delta pilots’ hourly rates plus $1 in March 2010, but the Continental MEC rejected that proposal and, subsequently, the announcement of the merger with United halted the Continental pilots’ negotiations for pay improvements. CAL Exh.

R-101; Tr. 2868-74. Only when the United pilots aligned themselves with the Continental pilots

in joint negotiations for a merged contract were the United pilots able to achieve the pay

increases they had been seeking for nearly ten years.

The JCBA also contained a $400 million lump sum payment provision, of which

Arbitrator Ira Jaffe allocated $225 million to the United pilots and $175 million to the

Continental pilots. Tr. 456-57. In resolving the dispute over the allocation of this lump sum

payment between the pilot groups, Arbitrator Jaffe emphasized that “the [United] pilots were

paid at significantly lower pay rates than the [Continental] pilots.” Att. A at 24 (Jaffe Award).

In calculating the total JCBA financial gains for each pilot group, Captain Butcher

aggregated each group’s share of the lump sum amount and added it to the pay raises and

Company-paid Defined Contribution retirement plan contributions. CAL Exh. C-35 (corrected).

In sum, the United pilots are receiving over 58% of the total JCBA financial gains while the

Continental pilots are receiving only 42%, even though active United pilots comprised only 54%

of the combined pilot group as of April 1, 2013. CAL Exhs. C-5, C-35 (corrected).

Captain Butcher also compared various pairs of pilots coming to the merged carrier from

the two pre-merger operations. CAL Exh. C-39; see also Tr. 469-81. Matching pilots was most

illustrative when done by their seniority numbers on the certified lists as of April 1, 2013. At

seniority number 950, for example, Continental pilot Donald Peterson is a B737 Captain in

Houston, hired on December 5, 1985, approximately four months before United pilot Thomas

Peraro, an A320 Captain in Denver. CAL Exh. C-39 at 4. But the Continental pilots in

Peterson’s base, equipment and status (BES) earned 24% more in 2010 than the United pilots in

Peraro’s BES. Id. Similarly displayed are two B767 Captain lineholders, George Reis and Keith

Lotan, each of whom is seniority number 1272. Id. at 6. The Continental pilot was hired two

months later, but his 2010 BES earnings were 19% higher. Id.

D. Fleet

United and Continental had similar fleets in terms of total number of aircraft (359 to 349

respectively) and aircraft types at the time the merger closed. CAL Exh. D-1 at 1-3. But their

fleets were dissimilar in terms of aircraft capabilities, technological advancements and average

ages. CAL Exhs. D-14, D-15, D-18. Over the last thirteen years, United’s and Continental’s

fleets moved in opposite directions. CAL Exh. R-12 (confidential). While Continental was

implementing plans for fleet regeneration and growth, United was deferring basic maintenance

and upgrade programs, cancelling aircraft orders, forfeiting large cash deposits, and declining to

order any aircraft until late-2009. Tr. 819, 832-33; CAL Exhs. D-1 at 4-5, 8, D-18, R-109

(confidential), X-2. Even then, United’s orders were for replacement-only aircraft. CAL Exh.

D-1 at 4-5 (“United expects to take delivery of the aircraft between 2016 and 2019; at the same

time it will retire its international Boeing 747s and 767s.” (emphasis added)). The chart below

shows the historical fleet numbers for both carriers, as well as firm orders and scheduled

retirements as of the date of the merger (CAL Exh. D-1 at 8):

Captain Nooger testified on rebuttal that he was unable to duplicate this chart using SEC 10-K

filings. Tr. 3798-99. But Captain Spence Kershaw did not perform his analysis on the basis of

10-K reports. See id. at 737-40. Attached is a one-page summary of the underlying data in the record that he used to construct the chart. Att. B.

1. Continental’s Fleet Was Superior to United’s.

Captain Kershaw testified about Continental’s superior fleet composition and fleet

renewal program as compared to United’s. Tr. 829-33; see also Tr. 112, 975. Continental was

ordering and taking delivery of about 18 new aircraft per year over the last thirteen years, which

Captain Kershaw testified was slightly more than the optimal rate of 14-15 per year for a fleet of

about 350 aircraft. Tr. 3384-85; see also CAL Exhs. D-17, R-109 (confidential), X-15. He

further testified that “normally, if you have a fleet of aircraft, technology changes . . . . So in

order to keep up with the technology you have to have some sort of fleet replacement program if

you are going to remain competitive.” Tr. 819.

In addition to Captain Kershaw’s extensive testimony on the subject, Dr. Campbell testified that, at the time of the merger, United had just suffered through a “decade of decline, decay, and demoralization.” CAL Exh. R-17; Tr. 2934-37. In particular, Dr. Campbell discussed how United’s economic demise impacted its fleet composition from an airline economics perspective. He testified about the reduction of aircraft at United (-42%) and its decline in overall seat capacity (-40%) since the year 2000, while Continental’s numbers have remained steady. Tr. 110-17; CAL Exhs. A-16, A-17, A-19; see also CAL Exhs. R-2, R-10, R-

17, R-18 (illustrating United’s “perpetual decline” from 2000 to the date of the merger and its pilots’ negative career expectations compared to Continental’s consistency during this period and its pilots’ positive career expectations). He also testified that United’s decline was related, in

36 part, to its extensive capacity reductions in 2008, two years after exiting bankruptcy, in which

United parked all 94 of its older and fuel-inefficient B737 Classics and six B747-400s. See CAL

Exhs. B-46, R-12 (confidential) (comparing United’s capacity reductions with Continental, which replaced its B737 Classics with fuel-efficient B737-NGs); Tr. 141-42 (noting

Continental’s firm orders for growth and replacement aircraft as an element of the Continental pilots’ superior career expectations).

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By comparison, Continental has continued its fleet-renewal program since the merger,

and has taken delivery of 38 next-generation aircraft that the airline had placed on firm order

years prior to the merger, including North America’s first B787s. CAL Exhs. D-17 at 1-2, D-13;

see also CAL Exh. A-20 (listing Continental’s firm orders for 66 aircraft as of October 1, 2010,

for delivery through 2015). United still has not taken delivery of a single aircraft—growth or

replacement—since 2002. Tr. 749, 819; CAL Exh. D-17 at 3.

In rebuttal, Mr. Garfinkle blamed United’s lack of aircraft orders on the Merger

Agreement, which was “mutually restrictive on the merger parties and the actions they could

take and the actions they could not take from the time the Merger Agreement was signed until

the consummation of the merger. And that is equally true with respect to aircraft acquisitions . . .

.” Tr. 3638 (emphasis added); UAL Vol. 6 Garfinkle at 9, 16. But the terms of the Merger

Agreement restricted United’s and Continental’s ability to order aircraft only “from the time the

Merger Agreement was signed until the consummation of the merger,” that is, from May 3

through October 1, 2010. The Merger Agreement thus fails to explain the lack of any United

orders for aircraft between 1998 and 2009, or the total absence of any aircraft deliveries to

United since 2002. See Tr. 749, 819; CAL Exhs. D-1 at 4, D-17 at 3.

Continental’s fleet-renewal program has produced a fleet that was five years younger

than United’s at the time of the merger. CAL Exhs. D-15 at 2 (pictured below); see also CAL

Exh. A-18; Tr. 111-12.

An airline’s average fleet age carries important implications for its pilots’ job security, and

Continental’s younger fleet thus has particular significance here.

Not only are Continental’s aircraft younger, moreover, but they are also more fuel-

efficient and technologically advanced than United’s. Tr. 830-45; CAL Exhs. D-15, D-18 at 17-

18, D-20 at 9; see also CAL Exh. A-18; Tr. 1633-34 (testimony of Mr. Akins that Continental’s

“fleet complement has shifted hugely away from 737-500s [Classics] to more modern 737[-NG]s

that are more fuel efficient and updated as far as cabin design and wi-fi. . . . They’re newer,

better, more fuel efficient, more capable 737s.”). While Continental has regularly been replacing its older aircraft with next-generation aircraft that are more fuel-efficient, not until July 2012, well after the merger, were any orders placed for replacements for United’s narrowbody aircraft

(which comprise 69% of its fleet). CAL Exh. D-8 at 7 (“These new aircraft will allow us to replace older, less fuel-efficient aircraft, beginning with subsidiary UA’s 757-200s, which we fly domestically.”).

As Captain Kershaw explained, “what Continental Airlines has been doing for the last ten

to 15 years, . . . [n]ow we got to start all over again with United’s airplanes.” Tr. 796-97

(emphasis added). United CEO Smisek also confirmed management’s plan to replace United’s out-of-date, fuel-inefficient aircraft: “Take the [legacy United] 757s that we fly domestically . . . we’re turning all those into beer cans and we will replace them with modern and fuel-efficient

Boeing narrow-body aircraft, 737-900ERs in particular.” CAL Exh. D-20 at 9.

Continental also invested in many aircraft upgrade programs prior to the merger,

including technological improvement to its aircraft avionics, electronics, radios, navigation and

mechanics. CAL Exh. D-18 (detailing Continental’s upgrades as compared to United’s).

Captain Kershaw testified that “Continental has always had an ongoing upgrade program for

everything from interiors, avionics, upgraded future navigation systems, sat coms, everything,

winglets, audio/video on demand systems.” Tr. 832-33. But now the combined carrier is

spending hundreds of millions of dollars in order to upgrade United’s fleet to Continental’s level.

United CEO Smisek summarized some of these problems at a J.P. Morgan conference on March

4, 2013:

[United] had been bankrupt and had actually deferred a lot of things just like if you lost your job, you wouldn’t remodel your kitchen, right? Well, we’ve had to do a lot of remodeling . . . things we’ve had to invest in, to bring the fleet up to and the product up to a globally competitive level.

CAL Exh. D-20 at 7-9; see also CAL Exh. D-18.

Captain Kershaw testified that United’s post-merger fleet improvements “exploded,” with

investments in “[m]assive upgrades for everything from cabins to avionics to navigation

capability.” Tr. 832-33. One essential upgrade came about as a result of a new rule that, starting

in 2014, “the [N]orth Atlantic organizations are requiring two future navigation systems, one automatic dependent surveillance, the other controller pilot datalink communications . . . .

[S]tarting next year, if your aircraft don’t have it, you can’t fly in the North Atlantic [and t]he

United Airlines 767s have none of that.” Id. (emphasis added); see CAL Exh. D-18 at 1-2, 7.

This was obviously an overdue upgrade, which United had by necessity chosen to defer.

The United pilots complained to the Federal Aviation Administration about the lack of

GPS upgrades on their B747s and B767s. Tr. 840; CAL Exh. D-18 at 13. Captain Kershaw

testified that many of United’s widebody aircraft “don’t even have GPS. And the stuff they do

have is out of date. . . . I would actually say, I’m holding in my hand [my iPhone with] more

aviation GPS navigation technology than the entire 747 fleet, the 767 fleet, 757 fleet at United

Airlines combined.” Tr. 840 (emphasis added).

Unlike Continental’s fleet, which were all capable of flying internationally over water,

and virtually all of which were ETOPS-certified, only 136 of United’s 359 aircraft (38%) were

able to fly more than an hour away from land. CAL Exh. D-14 at 1. Captain Kershaw explained: “To be ETOPS certified, it is absolutely the configuration of the aircraft. And they have [to] be maintained to a higher level. They have to have different things onboard. So

ETOPS allows you to go further, more than an hour from land.” Tr. 791. As a result, nearly two-thirds of United’s pre-merger fleet were domestic-only aircraft and lacked the flexibility and

interchangeability that was a hallmark of Continental’s fleet. See CAL Exh. D-14 at 3. As Dr.

Campbell explained, “[Y]ou [cannot] fly from Newark to Lisbon once or twice a day with a 747-

400 . . . the market wasn’t big enough. But yet, it would support the 757[, and] Continental [had the] flexibility to use a 767, for example, in the peak summer months.” Tr. 122.

Following the merger, the combined carrier started using Continental’s ETOPS-certified

B757s to “right-size the fleet to be more profitable” on certain international routes that United’s aircraft could not fly. Tr. 794-95 (“United just announced they will fly 757s [from] Washington

to Europe. What [that] means is that it’s Continental 757s because United’s can’t do it.”); CAL

Exh. D-8 at 4-6. The combined carrier used Continental’s aircraft for these routes because they can take off with more weight, carry more gas and fly farther. Tr. 795; CAL Exh. D-16, D-8 at

4-6. United did not upgrade its aircraft. Tr. 795; CAL Exh. D-8 at 4-6.

2. The United Merger Committee’s Case Regarding Fleet Was Non-Existent.

The United Merger Committee chose not to cross-examine Captain Kershaw and largely

failed to address the fleet issue during its rebuttal case. See Tr. 860, 3795-96, 3800. Captain

Nooger—relying on Captain Kershaw’s evidence—asserted that Continental had 349 aircraft at

the time of the merger and that it also did on April 1, 2013. Tr. 3797; compare UAL Vol. 6

Nooger at 5-6, with CAL Exh. D-1 at 1-2. Captain Nooger’s testimony was offered to rebut

Captain Kershaw’s Aircraft Trends exhibit, CAL Exh. D-1 at 8, and Captain Butcher’s testimony

that Continental’s firm-order aircraft drove its post-merger growth. See Tr. 3794-95, 3798-3800.

However, Captain Nooger misunderstood Captain Kershaw’s and Captain Butcher’s evidence

and ignored the testimony of Captain Torrance. See Tr. 3214-21 (confidential).

First, it is undisputed that Continental took delivery of 38 aircraft between October 1,

2010, and April 1, 2013, including 28 B737-900ERs, four B737-800s and six B787s. CAL Exh.

D-17 at 1-2. However, Captain Kershaw’s summary charts—on which Captain Nooger relied—

reflect an arithmetical error: the omission of the four additional B737-800s that Continental took

delivery of between December 2010 and August 2011. Compare CAL Exh. D-1 at 6-7 with D-

17 at 1; Tr. 823-24. Adding these four airplanes to the charts, CAL Exh. D-1 at 6-7, the evidence shows that Continental had 353 aircraft on hand as of April 1, 2013, as compared to United’s 351

aircraft. The evidence to correct this mistake is in the record and is properly before the Board.

See CAL Exhs. D-17, D-21, D-22; Tr. 823-24 (“These are the new aircraft delivered since

October 1, 2010. And we see the first four listed are 737-800s.”).

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Moreover, Section 7-A of the T&PA prevented the Company from furloughing any pilots until one year after the operational merger date. Jt. Exh. C § 7-A. And management therefore used Continental’s post-merger aircraft deliveries to replace Continental aircraft, rather than

United’s older, more obsolete aircraft. See Tr. 3215-21 (confidential). Retiring United aircraft as Continental’s deliveries arrived would have exacerbated United’s overstaffing problem. See

Jt. Exh. C §§ 7-A, 7-C.

Captain Nooger’s testimony also failed to rebut Captain Butcher’s testimony that the delivery of these 38 aircraft was the driving force behind Continental’s block hour growth and increased hiring. See Tr. 3797-98. As discussed above, Captain Nooger failed to account for the four additional B737-800s delivered to Continental between October 1, 2010, and April 1, 2013.

See CAL Exh. D-17. Although he admitted that Continental’s mix of aircraft changed when it took delivery of its 38 next-generation aircraft and retired its B767-200s and B737 Classics,

Captain Nooger erroneously concluded that this was a “no aircraft growth situation.” Tr. 3797-

99. Just the opposite is true.

Continental’s addition of four B737-800s represented growth aircraft, and replacing 28

B737 Classics with 28 B737-900ERs also stimulated significant block hour growth for

Continental due to the increased capabilities of the B737-900ERs. See CAL Exhs. D-17, X-31;

Tr. 1634, 3885 (testimony of Mr. Akins and Captain Nooger). The B737-500 daily utilization was 9.0 hours, while the B737-900ERs achieved 11.6 hours, an increase of 2.6 hours per day

(29%). CAL Exh. X-31. For the 28 B737 Classics that were replaced by B737-900ERs, that 2.6

hours a day produces an increase of 72.8 daily aircraft hours, the equivalent of eight more

airplanes. Tr. 3890. Captain Nooger conceded that this could have created “a whole lot of 737

pilot jobs.” Id. at 3891. In reality, it did. See Tr. 379; CAL Exh. C-22.

E. Continental Was the Larger International Carrier

During opening statements, counsel for the United Merger Committee described United

as “an international behemoth.” Tr. 41-42. Although that statement was not accurate, even

twenty years ago, Continental was clearly the bigger international carrier in 2010, with more

international departures and block hours than United. CAL Exhs. E-18, E-19, E-21. As

discussed above, Dr. Campbell showed that Continental was more profitable as an international

carrier throughout the decade of the aughts, earning $8.2 billion in operating income in its

international divisions, compared to United’s $806 million loss over the same period. CAL

Exhs. A-5, R-71, R-72. And as shown in CAL Exhs. R-73 and R-74, Continental’s international

operating profit and operating margin exceeded United’s in every quarter of the decade.

Despite the United Merger Committee’s nostalgia for the early 1990s, Continental was

the bigger international carrier at the time of the merger. Captain Montalto testified in great

detail about the expansion of Continental’s international divisions over the last forty years. See

Tr. 904. He explained that, by time of the merger, Continental had more annual international

departures than United: 99,480 to 51,577 (66%-34%). CAL Exh. E-18. Captain Montalto also

testified that Continental had more annual international block hours—the metric that drives pilot

jobs—than United: 562,133 to 431,097 (57-43%). CAL Exh. E-19. From 2000 through 2010,

United’s international departures shrank by 10% and its international block hours shrank by 7%,

while Continental’s grew by 24% and 55%. See CAL Exhs. E-18, E-19.

The United Merger Committee failed to establish that United was ever “an international behemoth.” Prior to 1985, United had no measurable international presence, especially not as compared to Continental. CAL Exhs. E-2, E-7, E-12. United’s preferred method of international growth over the last thirty years was through the acquisition of Pan Am routes. Its purchase of

Pan Am’s Pacific routes (1985), London routes (1990) and Latin America routes (1992) allowed

it to participate in these markets, but it never became an “international behemoth.” See Tr. 878,

893, 905. Mr. Akins described United’s merger with Continental as United’s only “international

solution.” CAL Exh. X-17 at 2.

Moreover, United began to shed many of the routes that it acquired from Pan Am soon

after it bought them. See Tr. 886-87, 893; CAL Exhs. R-49 thru R-51. United also failed to

exercise fully the Fifth Freedom rights that it acquired from Pan Am in Japan and England. See

Tr. 2957-61. Prior to the merger, United sold its London Heathrow routes to Delta and never

resumed operating any of those routes, even after the United States and the United Kingdom

entered into an Open Skies agreement in 2007. Tr. 1471, 2957-58; CAL Exh. R-40. United used its Fifth Freedom rights in the Pacific to only four destinations beyond Japan at the time of the merger. Tr. 2961. Less than a month after the merger, the United States signed an Open Skies agreement with Japan, thereby diminishing any remaining value in United’s underutilized Fifth

Freedom rights. See Tr. 1471.

The undisputed evidence of Captain Montalto demonstrated that Continental was the carrier with the greater international reach throughout the decade of the aughts. See CAL Exhs.

E-3 at 18, E-8 at 17, E-13 at 17, E-21. Continental’s Latin America Division was always bigger than United’s—even after United purchased Pan Am’s Latin America routes—in terms of destinations, total departures and block hours. CAL Exh. E-2. At the time of the merger,

Continental had more than triple the number of destinations in Latin America (41) as United

(13). CAL Exhs. E-3 at 18, E-5 at 22. Continental served all Central American and six South

American countries. CAL Exh. E-6.

Continental’s Atlantic Division was also larger than United’s at the time of the merger.

CAL Exh. E-7. Although United had more total departures and block hours through the first five

years of the decade, Continental surpassed United by 2004 and 2005, respectively, in these

measures. Id. at 4-5. Continental’s Atlantic Division has served more destinations than United’s

since 1996, id. at 2, and served more than double the number that United served at the time of the

merger (31 to 15). CAL Exh. E-8 at 17.

The Pacific Division was the only one in which United held an edge over Continental at

the time of the merger in terms of total departures and block hours. CAL Exh. E-12. But

Continental still served more than twice as many destinations as United at the time of the merger

(26 to 12), and—unlike United—Continental operated profitably in the Pacific throughout this

period. CAL Exh. E-13 at 17; see also CAL Exhs. A-5, A-13.

Continental’s success in the Pacific was due, in part, to its Guam hub and lucrative Air

Mic operation. CAL Exh. E-16. The Air Mic operation was a large part of Continental’s Pacific

Division and was staffed by Continental pilots who bid into Guam exactly as they bid into any other base. Tr. 635-36. Captain Montalto testified that, in 2010, Continental’s “Guam hub had over 10,000 departures . . . but United’s Narita hub had just 8,000 departures.” Tr. 914.

Mr. Garfinkle claimed that he excluded Air Mic from his analysis on the theory that it

was “essentially isolated from the rest of the Continental route network.” Tr. 1387-88. On

rebuttal, however, Dr. Campbell explained that no good reason existed for excluding Air Mic

flights from the analysis, and suggested that Mr. Garfinkle did it “to downplay the presence of

Continental in the Pacific, but it’s all one company.” Tr. 2962 (emphasis added).

F. Career Expectations

1. Pilots Want to Be Captains.

Pilots upgrading from First Officer to Captain on the same airplane receive a 46.4% pay

increase under either pre-merger CBAs or the JCBA. See Jt. Exhs. F.1 § 3, F.4 § 3, F.7 § 3. The

increase in pay is commensurate with the increase in stature, responsibility and authority that the

Captain assumes as the pilot in command. CAL Exh. F-1a. The pilot in command “has full

control and authority in the operation of the aircraft, without limitation,” according to the Federal

Aviation Regulations. Id. The Captain can declare an emergency, refuse to take an aircraft for a variety of reasons or order the removal of anyone on the plane. See CAL Exh. F-1c. The

Captain is also expected to mentor First Officers. Id.; Tr. 945. In short, First Officer Neal

Schwartz testified that pilots want to be Captains. Tr. 942.

Airlines also want their pilots to be Captains. Continental hired pilots “with the intent to eventually serve as a Captain.” CAL Exh. F-1c. The Company did not intend “to employ

‘permanent’ first officers. All pilots are expected to attain proficiency and judgment to the extent necessary for checkout as captain.” CAL Exh. F-1b.

2. Continental First Officers Had Superior Prospects for Upgrading.

Continental First Officers had greater prospects than their United counterparts for upgrading to Captain and enjoying the corresponding increase in pay, stature, responsibility and

authority. The junior Continental Captain on the April 1, 2013, seniority list was hired in

November 2005 and stood at the 67.3% point on the seniority list. CAL Exh. F-2a. The junior

United Captain on April 1, 2013, was a March 1996 hire whose position was at 68.3% of the

non-furloughed United pilots on the list, but who stood at the 55.8% mark on the total seniority

list. Id. Thus, the junior Captains on the pre-merger lists hold essentially the same relative

position among non-furloughed pilots, yet their dates of hire are nearly ten years apart. Id.; Tr.

946. The fact that the junior Continental Captain has been on the property for a little more than

seven years while his United counterpart has been on the property for seventeen years

demonstrates that the Continental First Officers have superior prospects for upgrading to Captain and enjoying everything that goes with that job.

Job prospects for First Officers can also be analyzed by examining the relative positions on the pre-merger lists of pilots hired at the same time. For instance, a May 1998 hire at

Continental is in the 50th percentile of active pilots and therefore has more bidding power than one-half of the pilots on the list. CAL Exh. F-2c; Tr. 946-47. A United pilot hired in May 1998, by contrast, is in the 90th percentile of active pilots on the United seniority list and must compete for whatever remains available for the bottom one-tenth of the active pilots. CAL Exh. F-2c; Tr.

947.

The result of this disparity is that, prior to the merger, the Continental First Officers could look forward to flying as Captains for twice as long as United First Officers. CAL Exhs. F-2f, F-

2g, F-2j. This Captain expectancy measurement was “the number of years that a pilot has at or above the seniority number” corresponding to the number of Captains at his or her carrier on

May 17, 2010. Tr. 948-49. Because the Continental First Officer who was immediately junior to the junior Continental Captain had a higher relative position on his seniority list than the corresponding United First Officer, the Continental First Officer’s pre-merger career expectations were greater. United’s shrinkage and stagnation clearly had a deleterious effect on the United First Officers’ prospects of upgrading to Captain and the number of years they can expect to fly as Captains at United. CAL Exhs. F-2e thru F-2j; Tr. 953-54.

Also vastly different were the pre-merger Captain expectancies of the pilots on furlough

at both carriers as of May 17, 2010. Only 7% of the Continental furloughees had zero years of

Captain expectancy compared to 20% of the furloughed United pilots. CAL Exhs. F-2h, F-2i.

Indeed, 13.5% of Continental furloughees could expect to spend eleven years flying as Captains

“despite the fact that they have some furlough time.” Tr. 957; CAL Exh. F-2h.

3. The Continental Pilots’ Pre-Merger Pay Exceeded That of United Pilots.

The Continental pilots’ hourly pay rates were higher in every equivalent pay category

than those of the United pilots, and the Continental pilots actually earned considerably more than

the United pilots. CAL Exhs. F-3a thru F-3d; see supra Fact Section C.4 (detailing the

Continental pilots’ superior wage rates and actual earnings). Additionally, according to ALPA’s

E&FA Department, the United pilots took the largest hourly pay cut of the network carriers

between 2001 and 2007—over 40%—while the Continental pilots took the smallest cut at less

than 10%. CAL Exh. F-3e. Due to the resulting large pay disparity between the two carriers, the

JCBA pay increase for United A320 Captains was 36% compared to the 12% increase for

Continental B757-200 Captains. CAL Exh. F-4. J.P. Morgan analysts recognized that “[l]egacy

United pilots stand to gain more from the new contract than do legacy Continental pilots.” Id.

The pre-merger Continental and United contracts also demonstrate that the Continental

pilots accrued superior vacation benefits. See CAL Exh. F-6. For example, at the 18-year

longevity mark, the Continental pilots received $7000 more in vacation pay than the United

pilots. Id. At that same longevity, the Continental pilots received up to 35 days per year of

vacation, five more than the United pilots received. Tr. 965.

The United pilots have already gained substantially as a result of the merger with

Continental. See infra Argument Sections I.B.1-2. Simply moving up to the Continental pay

rates would have been a large raise for the United pilots. CAL Exh. R-130 at 2 (pictured below).

But they are also gaining more from the JCBA than the Continental pilots. See supra Fact

Section C.4. Thus, it is undeniable that the United pilots have already received a substantial windfall as a result of the merger. See, e.g., CAL Exh. C-35 (corrected).

4. The Continental Pilots Had Better Scope Protection and Job Security.

Prior to the merger announcement, the carriers sought to implement revenue sharing

synergies, but the Continental pilots’ scope clause prohibited it. Tr. 966-67; CAL Exh. F-7. The

Continental pilots “h[e]ld an effective veto over the deals as a result of a clause in their contract that bar[red] the Houston-based carrier from entering into a revenue-sharing agreement with another U.S. carrier.” CAL Exh. F-7a. The strength of their scope clause gave the Continental pilots leverage in their dealings with management. Id.; Tr. 972. They felt strongly enough about maintaining this scope protection that they turned down a tentative agreement that included

“profit sharing, a slight pay raise, as well as some other contractual improvements.” Tr. 967-68;

CAL Exh. F-7b.

The Continental pilots’ scope clause also prohibited the Company from outsourcing

flying to regional operators using jets with more than fifty seats. See CAL Exh.F-7c. Mr.

Schwartz testified that “the Continental pre[-]merger contract was more protective of the pilot[s’] interest in this regard than the United pilots[’] pre[-]merger contract” and was “at the top of the legacy contracts.” Tr. 969-70; CAL Exh. F-7c at 2 (“Continental has one of the industry’s most restrictive pilots’ deals, effectively barring it from operating regional jets with more than 50 seats, while the legacy United is able to outsource flying of larger 70-seat aircraft.”). Arbitrator

Richard Bloch found that management violated the Continental pilots’ CBA when it placed the

“CO designator code” on seventy-seat regional jet flights that were prohibited by the Continental pilots’ scope clause. CAL Exh. F-7d. Their stronger scope clause enhanced Continental pilots’ job security.

The Continental pilots’ job security was also superior to that of the United pilots because

Continental had aircraft on firm order prior to the merger, “both for fleet renewal as well as growth.” Tr. 975; see CAL Exh. F-9 (“Continental said [in February 2008 that] it now has firm commitments for 111 new Boeing aircraft during the next six years, as well as options for an additional 102.”); supra Fact Section D.1. The Continental pilots’ career expectations included more jobs, more upgrades and more furlough protection because of these aircraft. United’s stagnation, by contrast, equated to limited promotional opportunities, driven only by attrition, and vulnerability to further furloughs.

Continental needed to hire and train pilots due to aircraft deliveries. Bid 11-05, which was issued shortly after the announcement of the merger, included “42 Captain vacancies

resulting from recent pilot retirements and flying increases in Guam.” CAL Exh. F-19a

(emphasis added). Mr. Schwartz testified that the increased Guam flying was not the result of

the merger. Tr. 998-99. System Bids 12-03, 12-05 and 12-08 included additional positions due

to B787 and B737 deliveries planned well before the merger. CAL Exhs. F-11a, F-19d, F-19e;

Tr. 977. System Bid 12-05 also described a B737 base opening in Los Angeles—which was

contemplated by the T&PA and covered flying already being done out of Cleveland—that would

have opened “with or without this merger.” CAL Exh. F-19e; Tr. 1001-02. As a result of these aircraft deliveries and attrition, Continental needed more pilots and System Bid 12-08 offered employment to “up to 200 furloughed United pilots.” CAL Exh. F-11a. These offers were made pursuant to Section 7-B of the T&PA. Id.

The next bid, System Bid 13-04, “ha[d] more vacancies, more growth, again, due to 787

deliveries, 737 deliveries, as well as more [pilot] retirements.” Tr. 977. It accounted for the

anticipated delivery of five B787s and additional staffing for a sixth. CAL Exh. F-11b.

Continental also continued to “increase staffing on the 737 in response to new 737 aircraft

deliveries and the associated block hour increase for the summer.” Id. Mr. Schwartz testified

that these new-hire vacancies—which were again offered to furloughed United pilots under

Section 7-B of the T&PA—were “being produced by plans that Continental had in place” before

the merger. Tr. 978; CAL Exh. F-11b. Likewise, System Bid 13-08 showed additional

vacancies and staffing for the B737 and B787. CAL Exh. F-11c.

Finally, System Bid 14-02 was issued on January 23, 2013, and it showed more vacancies

due to additional pre-merger B737 deliveries, 86 retirements of Continental pilots and the

implementation of certain JCBA provisions. CAL Exh. F-11d. Both the “min” and “max” for

Captains were 2223, requiring 210 additional Captains. Id.; Tr. 980. Mr. Schwartz was awarded

a Captain position on this bid. CAL Exh. F-11e; Tr. 981.

The Continental pilots’ career expectations were also superior to those of the United

pilots because of the amount of international flying done by Continental. CAL Exh. F-12; supra

Fact Sections A.3-4, E. This prescient business strategy provided the Continental pilots with better career expectations than their counterparts at United, which had reduced its international service in the decade before the merger. One year before the merger was announced, for instance, Captain Wallach stated, “United has cut its international destinations by 23%, shed 40 wide-body international aircraft and reduced its workforce by 46% . . . and the losses will continue with no end in sight.” CAL Exh. F-18.

5. Continental Was a Great Place to Work but United Was Not.

Continental was a great place to work, and employee morale was high. Gordon Bethune

utilized a down-to-earth management style to motivate employees, improve the quality of

service, increase morale and turn Continental into an award-winning airline. CAL Exh. F-15a;

Tr. 983-86.

Continental received numerous accolades and prestigious awards from 1996 through

2010. For example, Continental was named Fortune’s “No. 1 World’s Most Admired Airline” in

2008 and 2009, and the “No. 1 U.S. Airline” for nine consecutive years. CAL Exhs. F-15a, F-

15g at 2. Continental was also named one of Fortune’s “100 Best Companies to Work For” in

1999, 2000 and 2002. CAL Exh F-15c thru F-15e. In its 2009 rankings, Aviation Week & Space

Technology noted that Continental had weathered the storm of 2008 and was among “the best of the U.S. majors,” while “[t]he current leading contenders for extinction would be United Airlines and US Airways, which are lodged at the foot of the major carriers’ table.” CAL Exh. F-15f.

Continental was thriving as a stand-alone carrier and its employees were benefitting from its

elevated position in the industry. When the merger was announced, Continental was flying high.

After the merger, Continental continued to rank higher than United, but customers feared that

“the merged airline’s customer service will slip to an inferior United standard.” CAL Exh. F-

15h.

Those fears may have been founded in the very different working culture that existed at

United, which was plagued by disappointing labor relations with its pilots. Even after the ESOP,

“rather than establish a new model for working together, labor and management at United have

reverted to a familiar groove” of contentious interactions. CAL Exh. F-16a. The pilots warned

United that they “would no longer try to foster a spirit of cooperation at the airline.” Id. A decade later, United emerged from Chapter 11 bankruptcy with pilots who were angry that they had made massive concessions and had their defined benefit retirement plan terminated, but the

Company’s survival was still “debatable.” CAL Exh. F-16b at 2.

By 2008, as Bloomberg Businessweek reported, “Employee morale [at United] is now worse than ever, especially among the pilots, who are openly hostile to Tilton’s regime.” CAL

Exh. F-16c. After exiting bankruptcy, Mr. Tilton “had no plan except selling the Chicago airline.” Id. This industry analyst pointed to Continental as a model that United could follow to

“rise from the abyss.” Id. (“[Continental] morphed into one of the country’s most successful large carriers. Now Continental is enjoying solid financial returns, improved customer satisfaction, and stronger employee relations.”).

United, however, did not follow Continental’s example. Instead, its contentious labor relations continued, leading to nearly fifty times as many pending System Board of Adjustment cases as the Continental pilots. CAL Exh. F-17.

6. Furloughees Were Recalled at Continental, but Pilots Faced Dim Prospects at United.

On May 18, 2010, two weeks after the merger announcement, Continental issued System

Bid 11-05 “reflect[ing] the recall from furlough of fifteen pilots.” CAL Exh. F-19a. Continental planned to recall the rest of its furloughed pilots by the end of 2010 and to bring back the 111 pilots who took voluntary leaves in 2008. CAL Exhs. F-19b, F-19c. The recall of these pilots was announced in System Bid 12-03, which had “sufficient vacancies to provide positions for all remaining furloughed pilots.” CAL Exh. F-19d. The bid was posted and closed prior to the merger closing, and the vacancies were due to B787 deliveries and pilot retirements. Id.

By contrast, the future was grim for United pilots, especially the furloughees. In 2008,

United announced that it was grounding all 94 of its B737 Classics, parking six B747s and

eliminating its Ted operation. CAL Exh. F-20a. According to United’s 2009 10-K, this fleet

reduction would “eliminate unprofitable capacity and divest the company of assets that did not

provide an acceptable return.” CAL Exh. F-20b at 37. Moreover, “[t]he Company reduced its

workforce by approximately 9,000 positions during 2008 and 2009, through a combination of

furloughs and furlough-mitigation plans, such as early-out options. There can be no assurance

that the Company’s initiatives to reduce costs and increase revenues will be successful.” Id. at

22 (emphasis added). The United pilots’ flying and the fleet shrank while the Company

outsourced its flying to regional carriers. CAL Exh. F-21a; Tr. 1006-07.

United MEC Chairman Wendy Morse addressed this outsourcing in her congressional

testimony on June 16, 2010: “United Airlines management stripped significant scope protections thereby allowing them to outsource flying, and eliminate jobs as they deemed fit. The process allowed United Airlines to outsource approximately 50 percent of its domestic flying to low cost,

subcontracted, often unknown carriers.” CAL Exh. F-21b at 3. She further explained the detrimental effects of this outsourcing on United pilots:

Currently, we have 1437 pilots on furlough while United continues to outsource to low-cost, subcontracted carriers, and foreign airlines. Today, we have a foreign airline, Aer Lingus, using foreign crews that are based right here in Washington D.C., flying a route to Spain with United marketing and sales enabling this joint venture. Revenue earned by United Airlines should be generated by United Airlines pilots. This continued outsourcing has cost United pilot jobs.

Id. (emphasis added).

The merger significantly improved the otherwise bleak career expectations of the United

furloughees. Continental age-65 retirements alone will expedite the return of the United

furloughees by almost three years. CAL Exh. F-22. And every pilot on furlough from United

was offered a position at Continental pursuant to Section 7-B of the T&PA. In November 2012,

United MEC Chairman Jay Heppner advised the furloughed pilots to accept these offers:

It should be obvious by now that the prospects of being recalled at legacy United were dim and getting dimmer. We are not receiving any new aircraft in the near future, there are indications the 757-200s will begin leaving the property in 2013 . . . . We already have furloughees . . . who have surpassed the ten year mark and are dropping off the recall list. The only available openings are at [Continental], and they are prepared to hire new-hires off the street.

CAL Exh. F-22c; see also Tr. 1012.

The difference in the career expectations of the two pilot groups is well-illustrated by

comparing similarly situated pilots at Continental and United. Julian Vazquez is a Continental

B757/767 First Officer based in Newark. CAL Exh. F-23. He is a lineholder in the 66th

percentile of the seniority list, and his BES earnings in 2010 were $110,153. Id. Mr. Vazquez

was hired at United in 2000 and was furloughed in 2003. He was hired at Continental in 2005

and chose to bypass United’s offer of recall in 2006. Id. He made the right choice to stay at

Continental. Christopher Cannon was also hired by United in 2000 and was furloughed in 2002.

Id. He was hired at Continental the same day as Mr. Vazquez. However, Mr. Cannon accepted

United’s recall offer in 2006, and he was furloughed again in 2009. Id. In 2013, Mr. Cannon

accepted employment at Continental at the bottom of the seniority list as a Section 7-B hire. Id.

Mr. Cannon’s BES earnings in 2010 were zero, he was furloughed from United almost twice the

amount of time that he worked there and he suffered a seven-year loss in Captain expectancy

compared to that of Mr. Vazquez. See id.; Tr. 1013-17. Mr. Vazquez’s career expectations are superior to those of Mr. Cannon.

Similarly, John Pappas and Darren Cockell were hired at Continental and United,

respectively, one day apart in 2001. CAL Exh. F-24. United furloughed Mr. Cockell twice— first, from October 2001 until February 2007, and, then again, in January 2009, after less than

two years back on the job. Id. Mr. Cockell has suffered through 9.5 years on furlough from

United and worked there for only 2.5 years. Id. He had no BES earnings at United in 2010,

while his Continental counterparts earned an average of $90,761 that year. Id. Captain Pappas,

hired one day after Mr. Cockell, upgraded to Captain in April 2012. Id. Mr. Schwartz testified

that Captain Pappas has more than

2,000 people junior to him on the Continental list, and is again, in my opinion, fairly well insulated from furlough. Mr. Cockell has more than 1,000 pilots senior to him that are also furloughed. And consequently still has, in my opinion, a very high risk of furlough again if and when he is recalled.

Tr. 1019. A comparison of these two pilots thus illustrates the superior pre-merger career expectations of the Continental pilots.

G. The Continental Merger Committee’s Proposed Integration

1. The 2009 ALPA Merger Policy Revisions.

Captain Brucia served on the Merger Policy Review Committee (MPRC) and attended all

of the MPRC sessions. He testified with authority about the revisions to ALPA Merger Policy

that were accomplished in 2009. See Tr. 1074-1110; CAL Exh. G-1. He was informed at the

outset of his service on the MPRC that no changes were sought, only clarifications of existing

policy. Tr. 1077. The controversy surrounding the US Airways-America West merger led the

MPRC to recommend several clarifications of the Merger Policy. For one, the apparent lack of

awareness of the Merger Policy’s functioning had led to widespread misunderstanding of the

final and binding nature of arbitration under Merger Policy, which indicated a need for improved

communications, both within the affected MECs and from the MECs to the membership. Tr.

1085-92. Also, an option was needed to allow the MECs representing the merging pilot groups

to conclude their JCBA prior to finalizing the integrated seniority list. Tr. 1082-83, 1089, 1095-

96.

The MPRC was further engaged to “neutralize” the factors specified in Merger Policy for

Merger Representatives and arbitrators to consider in order to clarify that the standard for

merging seniority lists was the historical “fair and equitable” test. Tr. 1106-07. The “common considerations” of “career expectations,” “longevity” and “status and category” should be considered alongside all other factors deemed relevant, but no particular consideration should

dominate the integration of seniority lists, and no single factor inherently deserved greater weight

than any other. See Tr. 1089-90, 1104-08. Thus, current ALPA Merger Policy states:

The merger representatives shall carefully weigh all the equities inherent in their merger situation. In joint session, the merger representatives should attempt to match equities to various methods of integration until a fair and equitable integrated seniority list is reached. Factors to be considered in constructing a fair and equitable integrated seniority list, in no particular order and with no particular weight, shall include but not be limited to the following:

• Career expectations. • Longevity. • Status and category.

CAL Exh. G-1 at 17-18 (emphasis added). Captain Brucia testified that the MPRC found that the three specified factors existed in every pilot seniority integration case and that they were

“just common. They’re not prioritized. They’re not emphasized. They’re not anything. They’re just common.” Tr. 1106.

He also testified that the goal of the MPRC was to clarify that merger representatives and arbitrators “should consider everything.” Tr. 1107.

F[air] and equitable is your goal. . . . We didn’t emphasize anything. . . . [W]e just neutralized everything. . . . [T]hese things are part of the considerations. If we went and actually gave you a list of all the things that a panel or the merger representatives have to . . . consider, . . . it could be 20, 30, 40, 50 items long. . . . The bottom line is it has to be fair, balanced, equitable when it’s all over. . . .

Tr. 1107-08. Captain Brucia explained that the MPRC achieved those objectives. See CAL Exh.

G-1 at 17-18.

United Captain David Smith also served on the MPRC, and he attended some of the

MPRC meetings, but not others. Tr. 1739-45. He confirmed on cross-examination that the objectives outlined by Captain Brucia were indeed the goals of the MPRC and that they were achieved through the 2009 revisions. See Tr. 1746-57.

For instance, Captain Smith testified that the MPRC redefined the “goals” previously identified under ALPA Merger Policy to be “factors . . . to be considered in constructing a fair and equitable seniority list.” Tr. 1754 (emphasis added). He said that the MPRC clarified that these enumerated “factors” were not to be considered in any particular order or with any particular weight:

Q [A]bout this additional language . . . . Did that mean . . . that there might be other factors that the merger representatives or the Arbitration Board would want to consider and it would be appropriate for them to do so?

A Correct. We left it up to them.

Q And did it also mean that since it was no particular weight, that some of these factors could be considered and then not used in the final decision of the merger representative or the Arbitration Board, if they felt that was necessary to accomplish a fair and equitable merged list?

A Correct.

Tr. 1754-56 (emphasis added). Captain Smith’s testimony thus supports Captain Brucia’s

recollection that the revised Merger Policy opened the door for consideration of any factor

deemed relevant, without attributing any particular emphasis to any possible item.

2. ALPA Merger Policy Timeline.

Captain Brucia also presented a helpful timeline of ALPA Merger Policy that highlighted

the various formulations it had gone through over the decades, as well as the arbitral decisions

handed down under each version of the Merger Policy. CAL Exh. G-2. His conclusion from this

review was that the emphasis on length-of-service and date-of-hire had varied over the years in

terms of the language of the Merger Policy, but that these variations had resulted in very little

change, if any, in the decisions implementing the policy. See Tr. 1110-25. From the earliest days of ALPA integrated seniority list arbitrations, lists were merged to preserve career expectations through the use of ratios, even when the Merger Policy provided for a heavy presumption in favor of date-weighted lists. Tr. 1112-13; CAL Exh. G-2 at 2.

3. The Rationale for the Continental Merger Committee’s Proposal.

Captain Brucia explained the basis for the Continental Merger Committee’s proposal to

integrate Captains with Captains and First Officers with First Officers, the derivation of the

numbers of Captains and First Officers to be used in the ratios and the conditions and restrictions

that were required to ensure the fair and equitable implementation of the merged list. See CAL

Exhs. G-1 thru G-8; Tr. 1073-1196. The major themes of the Continental Merger Committee’s

case are also outlined in the video presented during opening arguments, the transcript of which

appears as CAL Exh. B-53. We encourage the Arbitration Board to take the time to watch the

video again so that it will be clear that we proved everything we set out to.

Captain Brucia’s testimony concerning Volume G was supplemented during the rebuttal

phase of the hearing with the evidence offered by Captains Torrance and Kershaw. Their

testimony about both committees’ proposals primarily addressed the impact of conditions and

restrictions on the fair and equitable allocation of jobs as between the two pilot groups. See CAL

Exhs. R-122, R-140; Tr. 3179-87, 3406-09.

As discussed in Fact Section C.2, supra, a carrier’s aircraft block hours determine the

number of pilot jobs, and the two airlines each brought an equivalent amount of flying to the

merger as measured by block hours. See CAL Exhs. C-21 thru C-23; Tr. 1153-54. The number

and quality of the aircraft brought to the merged carrier likewise imply that Continental is

contributing at least one-half of the pilot jobs that will be available for bidding by those on the

combined seniority list. See CAL Exhs. D-1 thru D-22; Tr. 1210-13, 1232-34. The Continental

Merger Committee has therefore proposed an integrated list that alternates Continental pilots and

United pilots, on a one-for-one basis, throughout the Captain range on the list. See CAL Exhs.

G-6, G-7.

The First Officer status requires an adjustment due to the slightly greater level of augmented flights at United. A ratio of 944 Continental pilots to one thousand United pilots appropriately reflects this differential. CAL Exhs. C-28, G-5; Tr. 1155-59, 1172-73.

There is no need to subdivide the fleet into categories. Continental Captains flying

B737s, the lowest paying aircraft in the Continental fleet, earned more in 2010 than all United

Captains. CAL Exh. C-37 at 2; Tr. 1127-28. Thus, merging Captains with Captains and First

Officers with First Officers provides a fair and equitable manner of constructing the combined

seniority list.

Furthermore, although a status and category methodology has sometimes been used to protect premium flying brought to the merger by one pilot group or the other, the proposed conditions and restrictions of the Continental Merger Committee equitably protect the flying on the highest paying aircraft in an even-handed and reciprocal fashion. CAL Exhs. R-140; G-9.

We have simply adjusted the United Merger Committee’s proposed condition designed to protect

the B747 and A350 jobs United brought to the merger so that it also protects the B787 jobs

Continental brought to the merger in exactly the same manner and for exactly the same period of

time. See UAL Vol. 6 Ruark at Tab 5; Tr. 4094-99 (Cross-Examination of Mr. Ruark)

(confidential).

In light of the undeniable evidence of overstaffing at United, e.g., CAL Exhs. C-24 thru

C-26, C-29, C-30, R-114, R-115, the number of Continental and United pilots actually holding positions as Captains and First Officers should not be determinative of the ratios utilized to construct the integrated seniority list. As Captain Brucia explained in describing the proposal of the Continental Merger Committee, the merged list is the mechanism for allocating positions within the combined pilot group in the future in a fair and equitable manner. See Tr. 1154, 1156-

59. That fair and equitable allocation will occur through the JCBA, which has replaced the distinctly different work rules in the pre-merger CBAs. See id. at 4122-24. The JCBA will require different reserve coverage requirements, for instance, than either of the two pre-merger airlines. Id. at 4124-26. Having each brought an equivalent share of the block hours, aircraft and flying to the merger, the two pre-merger pilot groups should likewise share equally in the allocation of jobs to be accomplished through the JCBA and the merged seniority list. See id. at

1153-54, 4127-28. That is the principle upon which the Continental Merger Committee’s

proposal rests.

Captain Torrance’s testimony on the Continental Merger Committee’s proposed

conditions and restrictions further corroborated the evidence adduced by Captain Brucia

regarding the appropriateness of the “no bump, no flush” provisions in our proposal. CAL Exh.

R-122. As Captain Torrance explained, these are standard fixtures of integrated seniority list

arbitration awards, which ensure that the merged list operates prospectively only. See Tr. 3179-

87. In order to protect the expectations of pilots awarded positions on an outstanding bid, and for the benefit of the Company in its planning and managing of pilot training schedules, the implementation of the merged list is not to be the occasion for the displacement or bumping of pilots from positions they then hold, nor should pilots be deprived of positions for which they have trained, commenced training or received a bid award, regardless of the positions they are actually flying on the date the merged list is first implemented. Id.; see also Tr. 3869 (Captain

Nooger agreeing that the Company “may have some issues with” shutting out United pilots or

Continental pilots who hold bid awards but who have not made it to the schoolhouse by the time the merged list is implemented).

ARGUMENT

We demonstrate in Argument Section I below that the Continental Merger Committee’s

proposal is supported by the evidence adduced at the hearing, comports with the outstanding

arbitral precedent and is fair and equitable. The Continental pilots’ superior pre-merger career expectations deserve some consideration and our proposal, unlike the United Merger

Committee’s, seeks to accomplish that goal in a reasonable manner, as outlined below in

Argument Section I.A. Moreover, as shown in Argument Section I.B, the United pilots are

64 already receiving huge benefits from the merger, wholly apart from the integration of seniority lists, another factor worthy of consideration in the case at bar. In Argument Section I.C, we remind the Board of the incontestable proposition, recognized consistently throughout the history of airline mergers, that the pilots who brought jobs to the merger on either side of the transaction should be integrated with each other; those who came to the merged company lacking employment as pilots should be placed on the integrated seniority list immediately senior to the constructive notice pilots, so that any exposure to future furloughs falls upon them, rather than upon those who did not bring furlough vulnerability to the merger.

In a way, the substantive differences between the parties’ proposed lists can be understood as mainly technical. The core of both proposals is a ratioed list, in which Captain entitlement-holders are merged with Captain entitlement-holders and First Officer entitlement- holders are merged with First Officer entitlement-holders. The ratioed lists of both sides integrate the involuntary furloughees junior to the Continental pilots who were actively flying prior to the merger.

The primary differences between the parties’ proposals lie in two areas. Although these differences create significant gaps between the parties’ proposals, viewing them as two basic areas of disagreement may simplify the Board’s task.

First, the United pilots seek to blend a longevity-based list with the component of their proposal comprised of their ratioed list. As we show in Argument Sections II.A and B below, this methodology is unprecedented and unjustifiable, for many reasons. For example, the representatives of the United pilots have conceded that no precedent exists for combining a date- based list and a ratioed list, as they seek to do in order to lift their furloughed pilots into the ranks of those who brought jobs to the merger, nor for attributing the length-of-service of one pilot to

another one on his or her pre-merger list, as they propose as a means of avoiding the

impossibility of building a true date-weighted list in the present case. In addition, as discussed in

our accompanying memorandum on longevity issues, the United pilots’ supposed length-of- service list rests on incorrect and unreliable data, in contradiction to the requirements of the parties’ Protocol Agreement and ALPA Merger Policy.

Secondly, the United pilots propose to utilize sub-groupings within the ranks of Captains that would construct the portion of the list corresponding to Captain entitlement-holders in multiple levels using varying ratios based on the different aircraft types making up the pre- merger fleets; however, we demonstrate in Argument Sections II.C and D below that their proposed sub-groupings are irrationally conceived and unduly favor the United pilots by attributing 276 too many Captain jobs to them and 232 too few to the Continental pilots. In a related defect, their proposal omits entirely any input in consideration of the pilot groups’ pre-

merger career expectations, a key factor in virtually all prior cases.

I. The Continental Merger Committee’s Proposal Is Fair.

A. The Continental Merger Committee’s Proposed List Appropriately Preserves the Pre-Merger Career Expectations of Both Pilot Groups.

Preserving pre-merger pilot career expectations has served arbitrators as a fundamental

goal throughout the history of seniority list integration cases. The very first arbitral decision

stated that integrating seniority lists “should be done in such a way that no pilot on either line

should gain or lose by such merger.” Braniff-Mid-Continent at 3 (1953) (Douglass, Arb.). The

arbitrators’ role, Arbitrator Frank Douglass explained, is to ensure that all of the pilots

on the two lists would retain all they had prior to the merger, would accrue those things which they would have had without the merger, and at the same time be in a position on the integrated list to permit them to share equitably in any promotional opportunities which will arise as a result of the merged operation.

Id. at 4; see also Flying Tiger-Slick at 14 (1954) (Aaron, Arb.) (“[P]rimary attention must be directed to the preservation of the jobs brought by each pilot group to the new enterprise.”).

Or, as Arbitrator David Cole noted in Mackey-Eastern at 6 (1967), “The essential object of our exercise is to prevent impairment so far as possible of the job security and the earning and promotional opportunities which each of the pilot groups had on its own air line prior to the merger.” In Delta-Northwest, the Board sought to “disrupt as little as possible the valid career expectations of pilots who have staked their professional lives on service to their respective companies.” Delta-Northwest at 14 (2008) (Bloch, Eischen, Horowitz, Arbs.).

Under the current ALPA Merger Policy, the seniority list integration process “both anticipates and accommodates custom tailoring a list that is responsive to observed ‘equities’ of the respective parties.” Pinnacle-Colgan-Mesaba at 3 (2011) (Bloch, Arb.). Arbitrator Bloch reasoned: “The reference to weighing ‘equities’ in the ALPA merger policy contemplates a wide range of potential considerations. As a general matter, however, merger representatives and neutrals have frequently applied this mandate by reviewing what the respective parties have

‘brought to the table.’” Id. at 5.

On October 1, 2010, Continental was a growing airline with profitable operations and a solid balance sheet. CAL Exhs. A-1, C-22, R-8, R-11, R-14. The carrier had survived the turbulent times of the 2008-09 recession in a financially sound and operationally steady manner and was regularly replacing its older aircraft to build the youngest, highest-technology fleet in the United States. CAL Exhs. A-20, D-1 at 8, D-15, D-18. The prospects for the careers of the

Continental pilots were bright. Continental planned to expand and had years earlier placed firm orders for dozens of high-technology, fuel-efficient aircraft, including next-generation B737s and

B787s. CAL Exhs. D-17, D-18. United, by contrast, had only recently placed an order for some

replacement aircraft and planned to use those planes to down-gauge its widebody fleet when they

began to arrive in 2016. CAL Exhs. D-1 at 4-5, D-17 at 3, D-20. United has not accepted delivery of a new airplane since 2002. CAL Exh. D-1 at 4.

At the time of the merger, the promotional opportunities driven by age-65 attrition for

Continental First Officers exceeded those of United First Officers through the year 2024. CAL

Exh. C-10 at 1. Since the merger closed, no fewer than 197 Continental pilots have retired or otherwise left the seniority list, while only 136 pilots at United have exited. CAL Exh. X-35.

The concept of merging Captains with Captains and First Officers with First Officers incorporates fundamental elements of fairness by recognizing the status of the pilots being integrated with one another and by further recognizing that active pilots should be placed alongside other active pilots in the construction of the merged seniority list. The Continental

Merger Committee’s proposal follows the overwhelming majority of ALPA Merger Policy arbitral decisions, which have integrated pilot seniority lists by ratio, beginning from Braniff-

Mid-Continent and Flying Tiger-Slick in the early 1950s, through Mackey-Eastern, Alaska-

Alaska Coastal and Airlift-Slick in the 1960s, and including Flying Tiger-Seaboard, Continental-

Texas International, Air Wisconsin-Mississippi Valley and Jet America-Alaska in the 1980s, on to US Airways-US Airways Shuttle, Polar-Atlas, US Airways-America West, Delta-Northwest,

Pinnacle-Colgan-Mesaba and ATI-CCI in recent years. See CAL Exh. G-2. These decisions have all placed importance on preserving the pilots’ relative position on their pre-merger lists because pilots bid using their relative standing on the list for all of the privileges that are available to them through seniority. Id. As Arbitrator Cole emphasized, “[T]he main concern

[is] the protection that is afforded against the possible loss of one’s job, earning opportunity, or chance of promotion by one’s position on the seniority list.” Mackey-Eastern at 6.

Furthermore, arbitrators have often adopted a simple ratioed structure for the combined

list in order to produce a result that will be understood as logical and coherent to the pilots

involved in the merger. Thus, in Continental-New York Air (1986) (Bloch, Arb.) at 4, 7-8, 168

New York Air Captains were ratioed with 853 Continental Captain entitlement-holders on a ratio of 1:5.077, followed by First Officers, ratioed on a 1:7.59 basis. Arbitrator Bloch recognized that the most senior New York Air pilots were hired when the carrier began operations in 1981 and he placed the senior 651 Continental pilots at the top of the merged list, “essentially, although not entirely,” because of their dates of hire between 1951 and 1972. Id. No comparable disparity exists at the top of the Continental and United lists, so Arbitrator Bloch’s essential formula of merging Captains with Captains and First Officers with First Officers applies fully in the case at bar.

In Polar-Atlas (2006) (Harris, Arb.) at 10-11, similarly, pilots hired before the

constructive notice date were merged using a 7:3 ratio for both Captains and First Officers. A

single ratio made sense in that case because it was impossible to say that one pilot group had

superior career expectations over the other. Id. at 10. Both pilot groups flew the same equipment, B747s, and, unlike in the present case, neither group’s pay was substantially greater that the other’s, and neither carrier augmented its flights with additional First Officers at a greater rate, as here. In the instant case, as in Continental-New York Air and Polar-Atlas, the appeal of merging Captains with Captains rests on fundamental principles of fairness and the

Captain status of more than two thousand Continental pilots, as well as on the pilots’ relative career expectations.

The superior career expectations of the Continental pilots also provide the foundation for the selection of 2299 as the appropriate number of Captain entitlement-holders from each side to

be ratioed together at the list at the top of the integrated seniority list. See supra Fact Section

C.3. Each pilot group brings to the merger the same number of aircraft in its fleet, the same

amount of block hours of flying, and an equivalent body of pilot work. See supra Fact Section

C.2. And a conservative measure of the pilot jobs supported by that reservoir of flying is the

figure of 2299 Captaincies actually employed in Continental’s operations on April 1, 2013. See

supra Fact Section C.3. That number reflects the minimum level of flying that Continental

would have done as of that date absent the merger, as well as the maximum staffing that the

United pilots could expect under contractual arrangements similar to those utilized at

Continental. Id. The comparison is thus one of apples to apples, unlike a simple count of jobs at

the two carriers at a point in time when United’s overstaffing padded the payroll at that carrier.

For First Officers, of course, our proposal anticipates the concern of the United pilots that

a slightly greater percentage of their flights require augmentation with additional cockpit crew

members. See supra Fact Section G.3. The Continental Merger Committee has accordingly

constructed its proposed list using the differential in augmentation rates (944 Continental First

Officers for every 1000 United First Officers), a method that favors the United pilots. CAL Exh.

C-28; Tr. 434-38, 1156-57.

Using a snapshot date of October 1, 2010, would not imply that the Board should ignore

the 232 Continental Captaincies added after the merger closing date or consolidating lists known to include 197 Continental pilots and 136 United pilots who have retired, died or otherwise permanently left the airline. Rather, the Board’s award should take into account known attrition and the new positions held by Continental pilots as a result of post-merger attrition and the delivery of aircraft that Continental had on firm order for years prior to the merger. See supra

Fact Sections C.1, D.1.

In this context, it is important to recall that the number of 2299 Continental Captains is the actual count for April 1, 2013, and not a projection of any sort. That is the minimum number of Captains that Continental would have required absent the merger, and the merger has not in any way inflated the Continental job counts on the certified, updated list as of April 1, 2013.

The airplanes that have arrived at Continental since the merger were on firm order for many years, and the carrier has now retired all of its B737-500s—the oldest aircraft in its fleet— and most of its B767-200s. CAL Exh. D-15. The daily aircraft utilization of the B737-900ERs that replaced Continental’s B737-500s has added 2.6 hours per day on average to the flying on the 28 airplanes of this type that were inducted into the fleet between October 1, 2010, and April

1, 2013. CAL Exh. X-31. This is the equivalent of eight additional aircraft. Furthermore, the

Company’s aircraft and manpower planners have staffed for the replacement of all 35 of the

B737-500s that were in the fleet at the time of the merger, as well as for the delivery of additional B737-900ERs to further fuel the airline’s growth. See CAL Exh. R-109 (confidential).

Moreover, as discussed supra in Fact Section D.2, Continental has placed four additional

B737-800s into service since the consummation of the merger that are growth aircraft. CAL

Exh. D-17 at 1. And similar block hour growth is occurring in the widebody fleet as

Continental’s B787s are delivered. CAL Exh. R-124 and the underlying bids, CAL Exhs. F-11,

F-19, clearly show the gradual expansion of planned B787 flying as Boeing has worked out the kinks in its production and delivery of these airplanes.

Nor, contrary to the United Merger Committee’s contention, have the route readjustments arising from the merger adversely affected the United job counts. Captain Nooger’s staffing list shows 2575 Captains for United as of October 1, 2010, and the updated, certified list shows eleven more United Captains, 2586, as of April 1, 2013. CAL Exh. C-5. So, however many

Continental flights now operate out of former United domiciles, and however many United

airplanes have required painting, repairs and maintenance to be brought up to Continental

standards, management has continued to maintain an identical level of staffing for United pilot

operations since the merger closed. It follows as certainly as the sun rising in the East that the

Continental pilots have not gained any flying at the United pilots’ expense. As Captain Torrance

explained, the Company utilizes its fleet resources to the maximum extent, and the determinants for pilot needs are the number and type of aircraft that are available and the block hours they can be flown, not the routes the aircraft fly. Tr. 3222-23.

In reality, management would likely have preferred to retire some of the older, fuel-

inefficient United aircraft before the Continental planes that have actually been parked, but that

would have created even greater surpluses on the United operation and required the hiring of

even more Continental pilots. See CAL Exh. D-20 at 9-10. Consequently, the Company sold

Continental B767-200s and retained United B767-300s in order to avoid adding to the already excessive staffing at United. Id. Crediting both pilot groups with the same number of Captains is therefore more than generous to the United pilots’ career expectations.

B. The United Pilots Are Already Realizing Significant Gains from the Merger.

A careful analysis of the equities in this case reveals that the Continental pilots brought

jobs to the merger that were worth substantially more than the United pilots, and that the United

pilots have reaped significant gains as a result of the merger. Well-established arbitration

precedent recognizes that the Board should take into consideration these significant gains in

reaching a fair and equitable integrated seniority list.

Arbitrator George Nicolau explained in Federal Express-Flying Tiger (1990) that

arbitrators generally consider “the benefits, monetary and otherwise, that pilots of a weaker

carrier attain by virtue of a merger with one more stable even when, as here, it cannot be said

that the more stable actually rescued the other from an imminent demise.” Id. at 29.

Specifically, he wrote that “[b]y any objective measure, the jobs FEC pilots brought to the

merger were worth substantially more than those of Tiger.” Id. at 49. Because the Federal

Express pilots’ jobs were worth more, the Tiger pilots “by far, gained the most from this merger.” Id. at 38.

In Chautauqua-Shuttle America (2005), similarly, Arbitrator Richard Kasher adopted the

Chautauqua pilots’ proposal, explaining that their equities outweighed those that the Shuttle

America pilots brought to the merger. See id. at 16. The Chautauqua pilots’ equities included the fact that their pay rates were “far superior to those found in the Shuttle America Pilots’ collective bargaining agreement.” Id. at 17. Arbitrator Kasher therefore adopted the Chautauqua pilots’ proposal as “more fair and equitable.” Id. at 18-19.

In Delta-Northwest at 22 n.20, the Board stated that it had considered the Delta pilots’ higher pre-merger pay rates and the Northwest pilots’ increased wages as a result of the merger.

The combined seniority list thus reflected the differences in the pre-merger pay rates of the two pilot groups and the 9.5% average wage gains that the Northwest pilots achieved from the merged contract, id., which were far less than those the United pilots are achieving here.

Also, in US Airways-America West at 25-26 (2007), Arbitrator Nicolau found that raising the US Airways pilots to America West’s A320/B737 pay rates “will result in a collective benefit to US Airways pilots.” The predicted US Airways pay increases were far less than those which the United pilots are already receiving, and they were far more speculative, as evidenced by the fact that they never arrived. Arbitrator Nicolau nonetheless found that the A320/B737 pay

differentials and the poor financial condition of US Airways warranted ratioing active pilots with active pilots, and then end-tailing all of the US Airways furloughees. Id. at 25-28.

1. The United Pilots Are Receiving More of the Financial Gains from the Merger.

The United pilots are gaining far more financially from the merger than the Continental

pilots, and substantially more than the Northwest and US Airways pilots gained in their mergers

with Delta and America West. See supra Fact Sections A.5, C.4, F.3; CAL Exh. C-35

(corrected). Prior to the merger, the Continental pilots enjoyed significantly higher hourly pay

rates and higher annual salaries. See CAL Exhs. C-34 thru C-38. Captain Butcher testified that the hourly rates at Continental were higher than United’s. Tr. 449-50; CAL Exhs. C-34, R-105.

His analysis also revealed that, in 2009 and 2010, all Continental Captains earned an average annual salary of about $32,000 (19%) more than all United Captains. CAL Exh. C-36. Captain

Butcher’s analysis further revealed that, when broken down by actual earnings per quintile,

Continental’s B737 Captains earned considerably more than all United Captains in the same

quintile. CAL Exhs. C-37 at 2 (pictured below), C-38.

In an unsuccessful attempt to neutralize the superior wage rates and annual earnings of

the Continental pilots, the United Merger Committee argued that a large disparity existed in pre-

merger fringe benefits. For example, Mr. Akins testified that United’s annual cost of benefits per

pilot was $50,000 while Continental’s was only $29,000. Tr. 1157. However, on cross-

examination, Mr. Akins admitted that his calculations were based on DOT Form 41 data, an

unreliable source of benefits information, and that he used data for 2009, an anomalous year. Tr.

1855, 1876-85; CAL Exh. X-12. During the United Merger Committee’s rebuttal case, First

Officer Fred Greene confirmed that the Joint Negotiating Committee did not use DOT Form 41 data when negotiating the JCBA, contrary to Mr. Akins’ earlier testimony that such data were a standard source of information for collective bargaining. Tr. 3624.

During the Continental Merger Committee’s rebuttal case, Captain Dave Earnest showed that the average cost to the Company per pilot actually favored the Continental pilots, contrary to

Mr. Akins’ testimony. Tr. 2772-73; CAL Exh. R-100 at 20-23. Captain Earnest also explained that the Continental pilots’ benefits were more valuable than those of their United counterparts.

See Tr. 2773-76 (“[I]t’s conclusive that the United pilot . . . earns substantially less, including benefits, than the Continental pilot.”); CAL Exh. R-100 at 22-23.

For example, the Continental pilots’ defined benefit pension plan (DB plan) was frozen in

2005, while United’s DB plan was terminated during bankruptcy in 2004. Tr. 2728-30. Captain

Earnest testified that at the time of the merger there were still 3268 Continental pilots who were entitled to DB benefits upon retirement. Id.; CAL Exh. R-100 at 2. He testified that pilots in his seniority range are receiving “a million dollar lump sum” as they retire. Tr. 2828.

Captain Earnest also testified that the Continental pilots’ long-term disability plan, which was the model for the new JCBA plan, was far better than the plan at United. Tr. 2747-49, 2753;

CAL Exh. R-100 at 7-9. Mr. Greene confirmed Captain Earnest’s testimony. Tr. 3585-92; CAL

Exh. X-25 (“The new plan is worth approximately 155% of the old [United] plan.”).

The United Merger Committee failed to prove that the United pilots’ fringe benefits made

up the chasm between the United and Continental pilots’ hourly pay rates and annual salaries.

To paraphrase Arbitrator Nicolau in Federal Express-Flying Tiger, “by any objective measure, the jobs [Continental] pilots brought to the merger were worth substantially more than those of

[United],” so the United pilots, “by far, gained the most from this merger.” Id. at 38, 49.

We anticipate that the United Merger Committee will also argue that the Continental pilots earned 19% more in annual salary because they flew 19% more block hours than the

United pilots, implying that the United pilots could have made up the difference in annual earnings by flying more block hours. See Tr. 3358-59. However, the Continental pilots’ pre- merger contract allowed for greater productivity and flexibility than the pre-merger United contract, which accounted for the 19% difference in block hours. Tr. 321, 555-56. The United pilots’ pre-merger contract would not have allowed them to fly 19% more block hours, even if

United had somehow discovered 19% more block hours that it could profitably fly. See Tr. 606-

07.

Furthermore, despite flying more block hours per year, as Captain Torrance testified, the

Continental pilots spent less “Time Away From Base” (i.e., hours away from home on trips) than the United pilots for the same or similar aircraft. Tr. 3157-61; CAL Exh. R-118. Continental pilots thus made more money across the board than United pilots while spending less time away from home. Tr. 3160-61.

As discussed in detail in Fact Sections C.4, F.3, supra, the United pilots received huge pay raises when the JCBA hourly pay rates became effective. CAL Exh. R-130. The JCBA also

76 contained a $400 million lump sum/retroactive payment provision, which Arbitrator Jaffe allocated $225 million to the United pilots and $175 million to the Continental pilots. Supra

Fact Section C.4. In sum, Captain Butcher determined that the United pilots are receiving $356 million more in JCBA gains than the Continental pilots, or 58% of the total gains compared to only 42% for the Continental pilots, even though active United pilots comprised only 54% of the combined pilot group as of April 1, 2013. Id.; CAL Exhs. C-5, C-35 (corrected). We submit that the arbitral precedent referenced above supports taking into account these significant and disproportionate financial gains that the United pilots are reaping from the merger.

2. The United Pilots Are Also Benefiting More from the Merger Than the Continental Pilots in Non-Monetary Areas, Such as Improved Job Security.

In addition to considering monetary gains, arbitrators in seniority integration cases have also paid attention to the non-monetary gains enjoyed by each pre-merger pilot group. See, e.g.,

Federal Express-Flying Tiger at 29 (placing weight on “the benefits, monetary and otherwise, that pilots of a weaker carrier attain by virtue of a merger with one more stable”). In the present case, not only are the United pilots gaining more financially from the merger, but they are also benefiting in terms of overall job security—something that cannot be measured strictly in dollars and cents.

Dr. Campbell testified about the collapse of United during the decade preceding the merger. CAL Exhs. A-5, A-24, R-1 thru R-8. The uncontroverted evidence showed that United pilots worked for a deteriorating airline that endured the longest bankruptcy in the history of the airline industry. CAL Exhs. A-23, A-24, R-1. Worse yet, United was unable to fix its financial problems while under the protection of the Bankruptcy Court. At the time of the merger, four years after emerging from bankruptcy, United had no growth aircraft on order or option, it had

1447 pilots on furlough and its CEO, Glenn Tilton, was seeking to merge with any airline that

would listen to his sales pitch. CAL Exhs. B-38, B-41a, B-41b, B-42, F-21b, R-106. By contrast, the Continental pilots worked for a financially stable and growing airline. CAL Exhs.

A-1, C-22, E-19, R-9, R-11, R-36.

United outsourced its pilots’ jobs to regional affiliates flying jet aircraft with seventy or more seats and through a joint venture with Aer Lingus, practices that the United pilots’ scope clause allowed. Tr. 682, 969, 1008; CAL Exhs. B-45, F-21b. United also failed to exercise its

Fifth Freedom authority at Heathrow and Narita, and, “[i]nstead, . . . has chosen to turn that traffic over . . . to its codeshare partners, and this has done nothing for the pilots at United

Airlines.” Tr. 2957-58; CAL Exhs. R-40, R-41, R-43. Nor have the United pilots “seen any of the benefits” of United’s membership in the Star Alliance. CAL Exh. F-18. Instead, as Captain

Wallach stated, “[T]he [Star] Alliance has expedited the outsourcing of American jobs, and most, if not all, of the increases in flying have gone to overseas carriers.” Id. Unlike the United pilots, the Continental pilots negotiated stronger protections that prevented such outsourcing. CAL

Exhs. F-7a, F-7b, F-7d.

Another factor that contributed to the Continental pilots’ superior job security was

Continental’s younger and more fuel-efficient fleet. See Tr. 830-45. Prior to the merger, United

had not taken delivery of a single new aircraft since 2002. CAL Exhs. D-1 at 4, 8, D-17 at 3.

Nor did it even invest the necessary capital to maintain and upgrade its aircraft avionics, electronics, radios, navigation and mechanics. See Tr. 830-45; CAL Exh. D-18 (detailing upgrades that Continental performed pre-merger, as compared to United’s upgrades, which are

being done post-merger). The merged carrier has been compelled to spend hundreds of millions

of dollars in order to bring United’s fleet up to Continental’s level. See, e.g., CAL Exh. D-18.

CEO Smisek recently explained to securities analysts that these expenditures were

necessitated by United’s practice of deferring maintenance, analogizing United’s bankruptcy to

someone who lost his job not undertaking to remodel his kitchen. CAL Exh. D-20 at 7-9. Mr.

Smisek colorfully added with respect to United’s B757-200s that “we’re turning all those into beer cans and we will replace them with modern and fuel-efficient Boeing narrow-body aircraft,

737-900ERs in particular.” Id. at 9.

The technological shortcomings of the United fleet, when coupled with its advanced age and associated reliability problems, posed a tangible threat to the United pilots’ pre-merger job security. See Tr. 853-56; CAL Exh. D-20. This threat was neutralized by the merger, as Mr.

Smisek explained, to the benefit of the pre-merger United pilots.

During its case-in-chief, the United Merger Committee contended that United’s seven domiciles would provide job opportunities to the Continental pilots as a result of the merger, implying that these bases constituted an equity that the United pilots brought to the merger. Tr.

2473-75; UAL Vol. 5 Ruark at 14-15. However, as Captain Torrance and Mr. Schwartz explained in rebuttal, it will be a long time before positions in these domiciles will become available to the Continental pilots because a “virtual fence” around these domiciles will arise as a result of United’s overstaffing. Tr. 3177-80, 3313-14; CAL Exhs. R-114, R-115, R-121.

3. The Approximately 1400 Furloughed United Pilots Gain the Most from This Merger.

Among the United pilots who are benefiting as a result of the merger are the roughly

1400 United pilots on furlough. Although we will go into greater detail later about the lack of

equities brought to the merger by these furloughees, they are indisputably benefiting as a result

of the merged carrier’s combined age-65 attrition. Captain Butcher explained that adding

Continental’s age-65 attrition to United’s will accelerate the recall of the furloughed United

pilots by nearly three years. Tr. 413-14; CAL Exh. C-19; see also Tr. 2616-17 (testimony of Mr.

Ruark agreeing with Captain Butcher’s analysis). This advancement in recall dates will occur for the United furloughees even if they are placed in a block on the merged list immediately senior to the constructive notice pilots. Tr. 414; CAL Exh. C-19.

All of the United furloughees gained as a result of the merger when they were offered the opportunity to fly as pilots at Continental pursuant to Section 7-B of the T&PA. That provision required that if either carrier “intends to hire new Pilots, it will first offer employment to fill such positions in seniority order to Pilots on furlough from the other Airline.” Jt. Exh. C. As a result of Continental’s influx of next-generation aircraft, its attrition and its increased hiring needs, all of United’s furloughed pilots received job offers to fly as new-hire pilots at Continental, and 531 accepted these offers while remaining on furlough from United. Tr. 415; CAL Exh. C-20.

Without Continental’s influx of next-generation aircraft—for example, replacing its B737-500s with B737-900ERs, thereby producing substantial block hour growth—these furloughed United pilots would have been without employment at United or Continental to this day. CAL Exhs. C-

22, X-31. They have already benefited greatly from the merger.

As discussed in our pre-hearing statement, preserving pre-merger pilot career expectations is an elemental principle in seniority list integration cases. See, e.g., Braniff-Mid-

Continent at 3; Mackey-Eastern at 6. Indeed, as Arbitrator Bloch recognized in Republic-

Hughes Airwest at 33 (1981), “furloughs [are] an important (and one of the few) objective indices of carrier performance. As between two carriers, the fact that one keeps its work force

working is significant. This had been recognized in virtually every arbitrated dispute in this

area.”

Arbitrators have consistently merged active pilots only with other active pilots. For

example, in Trans Caribbean-American at 54-55 (1974), Arbitrator Russell Smith determined that integrating Trans Caribbean furloughees with active American pilots “would be unfair to the

American pilots,” despite the greater length-of-service of some of the furloughed Trans

Caribbean pilots, because of the Trans Caribbean furloughees’ dim prospects of recall due to their carrier’s poor financial condition. The expectation of the United furloughees was also for continued periods of extensive furlough time, with the likelihood of additional United pilot furloughs creating even dimmer prospects for recall to active duty.

Arbitrator Marcia Greenbaum similarly rejected one party’s proposed integration because it “incorporate[d] furloughed [Continental] Pilots with working [Texas International] Pilots.”

Continental-Texas International at 29 (1983). As described in our pre-hearing statement, at the bottom of the merged list were 400 Continental pilots who were either already furloughed at the time of the merger or who “had less in the way of job equity [than the active TXI pilots] and absent merger would probably have been furloughed due to adjustments for deregulation, general economic factors, change in mix of fleet and route structure.” Id. at 43-45.

Arbitrator Nicolau likewise integrated 1691 furloughees below the active pilots, finding that “the totality of pre-merger career expectations weigh[] in favor of active pilots.” US

Airways-America West at 28. The lengths of the furloughs and the lack of recently hired pilots,

Arbitrator Nicolau concluded, confirmed that the furloughees had less in the way of career expectations. Id. at 30. And, as here, the contrast of furloughees on one side and none on the other, as well as the differing prospects that these airlines faced absent the merger, proves that

“merging active pilots with furloughees, despite the length of service of some of the latter, is not

at all fair or equitable under any of the stated criteria.” Id. at 28. Arbitrator Nicolau stated the

applicable rule: “[I]t is far more appropriate to combine those who brought jobs to the merger,

particularly when the protection of career expectations is of such overriding concern.” Id. at 31.1

Here, approximately 1400 United furloughees came into this merger without piloting work provided for them by United. See supra Fact Section C.1. To be sure, more than 500 have found employment at the bottom of the Continental seniority list as new hire pilots, pursuant to

Section 7-B of the T&PA. See supra Fact Section F.6. But their willingness to serve in this capacity confirms the appropriateness of integrating them junior to all of the pilots on the certified Continental seniority list as of May 17, 2010, all of whom did bring jobs to the merger.

If the Section 7-B pilots were not the ones hired at Continental, other pilots would have been hired off the street, and they would have filled these jobs that were generated by the attrition of

Continental pilots during the last three years and by the delivery of aircraft on firm order to

Continental prior to the merger.

The United Merger Committee’s status and category list integrates the 1400 United furloughees junior to all but 148 of the pre-merger Continental pilots, and Continental had extended offers of recall to all of these 148 Continental pilots prior to the consummation of the merger. CAL Exhs. B-50, F-19. Their status as active pilots and their career expectations exceeded any equities the United furloughees brought to the table. CAL Exhs. F-2h, F-2i. And

1 Captain Steve Gillen and Captain Brucia served as pilot neutrals in that case. Captain Gillen agreed with Arbitrator Nicolau. Captain Brucia’s separate opinion addressed the specific facts of that case, including that hundreds of US Airways furloughees had already returned to active flying as a result of the attrition of pilots senior to them and that the furloughees had up to sixteen years of active service at US Airways as compared to only one month of service for America West pilots placed senior to them. Such extreme conditions are not present here. 82

superior placement on the integrated seniority list is accordingly mandated for all Continental pilots, including these 148, who now have some 600 pilots bidding junior to them at Continental.

Placing all of the pre-merger Continental pilots senior on the merged list to the 1400 or so furloughed United pilots would be accomplishing the integration, as Arbitrator Douglass said,

“in such a way that no pilot on either line should gain or lose by such merger.” Braniff-Mid-

Continent at 3. If the merged carrier experiences a contraction, as sometimes occurs following a merger, the constructive notice pilots, and then the furloughed United pilots, should properly be the ones exposed to the effects of such a reversal of fortunes. Even the 148 most junior pilots at

Continental in 2010 brought no similar vulnerability to furlough, as they were being recalled when the merger closed and are now senior to approximately 600 pilots at Continental. See CAL

Exhs. B-50, F-19.

In the case at bar, as Arbitrator Nicolau found in US Airways-America West at 28, “the totality of pre-merger career expectations weigh[] in favor of active pilots.” The active pilots include all of the pilots on the 2010 Continental seniority list and most of those on the United list. One of the virtually universal axioms of seniority list arbitrations, Arbitrator Bloch explained in Republic-Hughes Airwest at 33, is that “furloughs [are] an important (and one of the few) objective indices of carrier performance.” For the minority of United pilots who did not bring jobs to the merger, fairness dictates that they, rather than the junior Continental pilots, who were being recalled and did not share that risk at the time of the merger, should shoulder the exposure to future furloughs.

D. The Proposed Conditions and Restrictions of the Continental Merger Committee Are Necessary and Appropriate to Achieve a Fair and Equitable Merged List.

1. Reciprocal Protection of Continental B787 Flying Matches the United B747/A350 Protection.

The United Merger Committee is unfairly seeking to protect their B747/A350 flying

while simultaneously attempting to take Continental’s B787 flying. Tr. 3407. The United

Merger Committee proposed a five-year fence to reserve all B747 and A350 flying for the pre- merger United pilots. CAL Exh. R-140. They also proposed reserving B787 flying from

“historic” United pilot bases for pre-merger United pilots. Id.; Tr. 2564-65. Thus, if the

Company moved B747s from San Francisco to Newark and opened a B787 base in San

Francisco, the United Merger Committee’s proposal would require that pre-merger United pilots fly all of those B747s and B787s. Tr. 2686-87. However, absent the merger, United would not

have taken delivery of a single B787 until at least 2016, at the earliest. CAL Exh. X-32; Tr.

2689. As Captain Kershaw testified, it is “absolutely not fair” to allow the United pilots to fly

Continental’s B787s simply because the Company “ha[s] to put our airplanes in their market

because that’s where they’re needed the most.” Tr. 3407.

Instead, the Continental Merger Committee proposed a reasonable condition and

restriction that would treat the B787s that Continental brought to the merger in the same manner

as the B747s/A350s that United brought to the merger. CAL Exhs. G-9; R-140. Because

Continental ordered the first thirty B787s, a fence around the B787s should reserve that flying for the Continental pilots for a period of five years or until the 31st B787 is delivered, whichever occurs first. CAL Exhs. G-9; R-140; Tr. 3408. This proposal is more equitable and “much

easier to deal with” than the United Merger Committee’s proposal, and it finds support in the

Award issued in Delta-Northwest. Tr. 3408-09; CAL Exh. R-140.

****CONFIDENTIAL SECTION BEGINS****

REDACTED

****CONFIDENTIAL SECTION ENDS****

2. “No Bump, No Flush” Protection of Positions Awarded Should Be Included.

In addition to the “no bump, no flush” language that both sides propose, the Continental

Merger Committee’s proposal includes additional language to ensure that awarded positions are protected. See CAL Exh. G-9 § 1.b-c. This additional language is nothing “new or radical.” Tr.

1186. It has been used repeatedly by other arbitrators, including George Nicolau and Richard

Bloch, to ensure the fairness and equity of other integrated seniority lists. See CAL Exh. R-122

(documenting that our proposed condition and restriction has previously been a part of the awards in Delta-Northwest, Republic-Frontier, ATI-CCI and Federal Express-Flying Tiger).

The Continental Merger Committee’s proposal expressly includes in the stipulated “no

bump, no flush” protection those pilots who have been awarded a position but have not yet

arrived at the schoolhouse. Id.; Tr. 3181-82. Absent this clarification, in Captain Nooger’s

opinion, pilots “would have to be [in training] for [their] bid award to be available still after

ISL.” Tr. 3836. His view is that even if pilots were “awarded the bid and had a training

assignment but weren’t in training, they would not get to keep the bids under the TPA.” Tr.

3839.

Captain Nooger’s testimony reveals the necessity for this provision. Continental has experienced a shortage of pilots and unavoidable delays in the training schedule have occurred.

The Board should make it clear that the award protects United and Continental pilots who have been awarded Captaincies but have not yet commenced training, an occurrence that is usually due to circumstances beyond the pilots’ control. See Tr. 3183. At both Continental and United, pilots’ starting positions for a new vacancy bid “ha[ve] always been their current bid position, whether they have been trained in advance or not.” Tr. 3182. Thus, this proposed condition simply makes the award consistent with the manner in which both sides have done things in the past. Id. Moreover, clarifying the extent of this protection would avoid the possibility of future disputes and align this award with the many awards in the past that have explicitly included such protection. See ATI-CCI at 9-10 (2013) (Bloch, Arb.); Republic-Frontier at 48 (2011) (Eischen,

Arb.); Delta-Northwest at 30 (2008); Federal Express-Flying Tiger Award at 2 (1990) (Nicolau,

Arb.).

3. The Board Should Take Note of the Virtual Fence That United Overstaffing Creates.

In the United Merger Committee’s case-in-chief, Mr. Ruark asserted that United has more domiciles than Continental, and that this was “a good deal that United was bringing for

Continental pilots.” Tr. 3178; see UAL Vol. 6 Ruark at 14-15. He testified that the Continental pilots would have “42 other places they can go to.” Tr. 2474. A Continental pilot would then have “the opportunity to make significant wide ranging choices between aircraft types, seats, and cities depending upon his or her personal desires and his or her desire to map out his [or her] career.” Tr. 2475.

However, the notion that these additional bidding options would benefit the Continental pilots is misleading. As Captain Torrance testified, a “virtual fence” exists that precludes

Continental pilots from bidding into those bases because of United’s overstaffing. Tr. 3178.

Keeping in mind that the “min” level of staffing designates the Company’s desired staffing, as he

and Captains Brucia and Nooger explained, Tr. 1135-53, 3818, United’s overstaffing and the “no bump, no flush” clause in the conditions and restrictions compel the result that “Continental pilots are locked out until United pilots voluntarily reduce the[ir] number[s] [in] those categories down to the min level.” Tr. 3179. Thus, “while those bases all exist and . . . United pilots are there and flying . . . if a vacancy bid were published, even if a Continental pilot was number one, he couldn’t go to any of them.” Tr. 3178. Due to the restriction preventing a “system flush,” the overstaffed United pilots will remain in their domiciles until they choose to leave. Tr. 3179-80.

II. The United Merger Committee’s Proposal Is Unfair.

The United Merger Committee’s proposal is fatally flawed for many reasons. We have

summarized a few of our objections below and in our accompanying memorandum concerning

longevity issues. Because their case was short on evidence and long on unproven assumptions

and rhetoric, the United pilots’ proposal fails for many other reasons than those we have

mentioned. When the Arbitration Board convenes to deliberate, we ask that it consider those

additional deficiencies, which were brought out during the hearing.

A. The United Merger Committee’s Proposed Hybrid Methodology Is Unprecedented and Unjustifiable.

Attempting to blend a length-of-service list and a status-and-category list would be a mistake. The line pilots at the airline might understand and accept an arbitral determination that followed one rationale or the other, but an attempt to mix the two would be seen as confused and

indecisive. A merged list that preserved pilots’ relative percentage standing on their own pre-

merger list might satisfy some; a list that preserved pilots’ placement based on length-of-service

might, if it were possible, satisfy others. A list that achieved neither of these goals would simply

antagonize everyone. The theoretical appeal of such an approach—whatever appeal that might be—would be undermined by its inability to reflect a transparent process or to yield a logical result. Both Captain Richard Harwood and Mr. Ruark admitted on cross-examination that they knew of no prior arbitral decision done in this manner. Tr. 2417-18, 2580-81. Experimenting with an untried approach, using a group of more than 12,000 airline pilots as guinea pigs, would be a recipe for disaster.

Moreover, the United Merger Committee’s use of a longevity component in creating its proposal produced a merged list in which large clumps of United pilots separate Continental

pilots who were previously adjacent to each other and therefore had virtually identical bidding

power at Continental. For example, on cross-examination during the presentation of the United pilots’ proposed list, Mr. Ruark conceded this point with respect to Captains Stephen Delaney

(Continental Sen. No. 2005) and James Moorey (Continental Sen. No. 2006), both of whom

show dates of hire of October 9, 1989. Tr. 2587-89. But they were given seniority numbers

4935 and 5437 on the United pilots’ proposed list and have more than 500 United pilots

separating them. See UAL Vol. 5 Ruark, United Merger Committee Proposal at 80-88. As a

result, this proposed list would modify their essentially identical pre-merger bidding power for

88 no reason other than that it was the undecipherable output of the arithmetical formula the United

Merger Committee fabricated to develop its proposal. That would be impossible to explain satisfactorily to Captain Moorey, who would lose 4% of his bidding power as against Captain

Delaney, according to the United Merger Committee’s calculations. Id.

Captain Butcher testified about this problem with date-weighted lists and pointed out that the significant gaps in date-of-hire between adjacent pilots on both lists were the culprit for this inequity. CAL Exh. C-33; Tr. 446-49. A related concern addressed by Captain Butcher in this connection is that pilots bid on a daily, monthly and annual basis using their seniority numbers, not their dates of hire. Tr. 446-49. Captain Butcher noted the eloquent comment of Arbitrator

Harry Abrahams in United-Capital at 8:

Once a pilot has established a seniority position, and been placed on a seniority list, the date after his name has no significance insofar as his seniority within his own Company. It is the pilot’s position on that list that determines his seniority rights and privileges relative to the other pilots.

As another of Captain Butcher’s exhibits shows, Continental’s monthly base bid lists show no date of hire, but only each pilot’s seniority rank in the base. CAL Exh. C-32; see Tr. 441-42.

Nor does the present case cry out for such an idiosyncratic methodology to resolve the parties’ seniority integration dispute. Recent arbitration decisions have demonstrated that acceptability can be accomplished with ratioed lists. Indeed, no date-based integration has been decreed since the Roberts Award in Republic-Northwest (1986). That decision necessitated complex conditions and restrictions, which remained in effect until 2006, and which generated

24 interpretive arbitrations and numerous other legal proceedings. A simple ratioed list, easily understood by the rank-and-file pilots, would more likely gain the widespread acceptance that the parties mutually seek in order to move forward together as a unified pilot group.

B. The United Merger Committee’s Proposal to Reassign Pilots’ Longevity to Other Pilots on Their Pre-Merger List Is Unprecedented and Unjustifiable.

Also unprecedented is the United Merger Committee’s proposal to attribute one pilot’s

longevity to another pilot on his or her pre-merger list. Both Captain Harwood and Mr. Ruark admitted on cross-examination that they knew of no prior arbitral decision done in this manner.

Tr. 2417-18, 2580-81. This attempt to resolve the impossibility of merging the Continental list with the United list on a date-based methodology is far too clever to be acceptable.

Using a “stovepipe” analysis of jobs brought to the merger has some utility because pilots can employ their seniority standing as a coin of exchange to bid for higher pay, a preferred domicile or an airplane they want to fly. Analyzing a personal characteristic like length-of- service on this basis, however, is nonsensical. Like a dog walking on its hind legs, to paraphrase

Samuel Johnson, the proposal to “stovepipe” longevity is amazing for its novelty, but does not work very well. The notion that an integrated seniority list should recognize a pilot’s working time at an airline might have some theoretical appeal in the right case, but, realistically, passing a pilot’s length of service to another pilot does not offer even a superficial attractiveness. The sounder course, as Arbitrator Bloch followed in ATI-CCI, in which he dealt with a similar controversy over the appropriate calculation of longevity under ALPA Merger Policy, is to construct a ratioed list. See Tr. 1124. This has the advantage of implementing a transparent approach that carries both meaning and logic for the pilots on the merged list.

Moreover, contrary to the contention of the representatives of the United pilots, arbitrators in prior seniority list integration cases have often looked at particular evidence about actual pilots and their real-life situations, and have not always determined the fair and equitable placement of pilots onto the consolidated seniority lists using the theoretical, analytical technique referred to as “stovepiping.” See Tr. 3979 (Mr. Ruark testifying that seniority integration is

about groups of pilots, not individuals). For example, in Alaska-Alaska Coastal at 4 (1969),

Arbitrator Lewis Gill rejected the Alaska Coastal pilots’ length-of-service proposal because it would have placed one of their pilots, who earned $15,743 in 1967, “ahead of several Alaska pilots whose earnings, as First Officers on jet aircraft, ranged from $20,000 to over $24,000.”

Similarly, in US Airways-US Airways Shuttle at 4, 11 (1999), Arbitrator Nicolau integrated the

Shuttle Captains starting immediately below the junior US Airways pilot who actually held a

B757 Captain position. Arbitrator Nicolau followed the same approach in Continental-Frontier at 36, 49-50 (1987), where he merged the Frontier Captains in a block immediately below the last Captain awardee on Continental Bid 87-1. Arbitrator Jerome Ross likewise adopted the same model in People Express-Continental at 129 (1991), when he placed the senior People

Express pilot “in a position reflecting his length of service within the block of captains ranging from the number one [New York Air] captain through the junior [Continental] captain on Bid 87-

1.”

The truth is that once a seniority list is out of date-of-hire order, as with the Continental list, insurmountable difficulties arise in attempting to merge that list with another on a date-based method. Arbitrator Abrahams noted in United-Capital at 8, “The lack of consistency in the chronological order of dates on a seniority list presents a major problem when an attempt is made to merge the list with another, using dates as the only bases.” While we are compelled to take note of the United Merger Committee’s creativity in seeking to address this “major problem,” as

Arbitrator Abrahams put it, the absurdity of attributing one pilot’s longevity to another demands the rejection of this attempt as a proposed solution.

Another difficulty with the United Merger Committee’s proposal is that it rests upon faulty data concerning the Continental pilots’ dates of hire and furlough time. As outlined in our

91 accompanying memorandum on this issue, which we incorporate by reference herein, the

Continental Merger Committee submits that its Certified List correctly recognizes the dates-of- hire that Continental has displayed on published seniority lists for twenty years or longer, and that the Certified List correctly shows that pilots who bid to contractually available positions at

Continental Express, none of whom received contractually available furlough pay, were not on

“furlough” within the meaning of the parties’ Protocol Agreement and ALPA Merger Policy.

The term “longevity” in ALPA Merger Policy is broader and more flexible than the terms

“date-of-hire” and “length-of-service,” both of which have been applied in prior seniority arbitrations with a degree of elasticity. For example, as discussed in our memorandum to the

Board on this subject dated April 17, 2013, prior seniority list integration arbitrations gave credit to Hughes Airwest and Seaboard pilots for flying performed under wet-lease arrangements between their employers and Saudia Airlines, and similarly credited Northwest pilots for the time they spent flying at KLM while on furlough from Northwest. Memorandum from the

Continental Pilots’ Merger Committee to the Arbitration Board at 23-25 (Apr. 17, 2013). And the most junior People Express pilots were not treated any differently in the Continental-People

Express arbitration on account of the fact that they were flying at a wholly-owned regional carrier at the time of that merger. Id. at 25.

The latest revision of ALPA Merger Policy adopted the more comprehensive word

“longevity” as a consideration in integrating pilot seniority lists. See CAL Exh. G-1. We submit that the Board should apply the term inclusively, as a broader concept than either “date-of-hire” or “length-of-service.” The Board should reject the United Merger Committee’s effort to read the term in a crabbed manner that could potentially penalize some Continental pilots for the service they provided as pilots, wearing the same uniforms as their brother and sister Continental

pilots, flying aircraft displaying the same livery and owned by the same corporation, in

circumstances in which they were represented by the same labor organization, as part of a single

craft or class working for a single carrier, as recognized by the National Mediation Board.

Contrary to the position articulated by the United Merger Committee, moreover, the term

“longevity” was not given any special emphasis or status in the 2009 revisions to ALPA Merger

Policy. See supra Fact Section G.1. As outlined in Fact Section G.1, the “goals” of the prior

Merger Policy were redefined as “considerations,” and the MPRC prescribed that no particular weight went to any of the specified factors as compared to any factor that anyone deemed relevant. Tr. 1089-90, 1104-08, 1754-56.

Here, the Continental Merger Committee evaluated “longevity” and determined that it was comparable as between these two pilot groups, no matter whose definition of “longevity” was measured. CAL Exh. X-33; Tr. 4075-78. Having considered this factor, the Continental

Merger Committee decided that its proposal was nevertheless fair and equitable even though it was constructed giving greater weight to pilots’ status and career expectations than to longevity.

That result clearly falls within the designated target area of ALPA Merger Policy.

C. The United Merger Committee’s Proposed Status and Category List Incorrectly Groups the Jobs Brought to the Merger.

Pre-merger pay rates show the United Merger Committee’s erroneous categorization of

jobs. CAL Exh. R-105 at 2. Continental’s B767s paid the same rates as B777s and B787s, but

are lumped with B757s. Id. B767-400s now pay the same as B777s, B787s and B747s under the

JCBA, but are mixed in with other B767s and B757s. Jt. Exh. F.7 § 3. Continental’s B737-800s and B737-900s paid more pre-merger than United’s B757s and B767s, but are placed with

United’s A320s and A319s. CAL Exh. R-105 at 2. They now pay the same as B757s under the

JCBA but are classified in a lower category. Jt. Exh. F.7 § 3.

In actuality, CAL B737 Captains earned more than UAL Captains across-the-board. See

CAL Exh. C-37 at 2. Furthermore, to upgrade from First Officer to Captain on the same airplane provides a pilot with a 46.4% raise under either of the pre-merger CBAs or the JCBA. See Jt.

Exhs. F.1 § 3, F.4 § 3, F.7 § 3. That promotion is the dominant step up on every pilot’s career ladder. So, in the present case, the appropriate groupings are just Captain and First Officer, without regard to aircraft type.

The capabilities of the aircraft further undermine the United Merger Committee’s groupings. The Company has announced that new B737s are replacing United’s B757-200s, which are being sold to FedEx or, per United CEO Smisek, being turned into beer cans. See

CAL Exhs. D-8 at 7-11, D-20 at 9. Considering the relative capabilities of these aircraft, the

United Merger Committee cannot justify its contention that positions on the disappearing United

B757-200s should be placed in a higher category than those on Continental’s B737s.

The United Merger Committee has likewise failed to justify a “jumbo” category. The

Delta-Northwest arbitration board rejected a separate category for these aircraft and no reason exists to depart from that precedent here. The pre-merger pay at United was in reality no better for flying B777s and B747s than the Continental pilots’ B737 pay. CAL Exh. C-37 at 2. The

Continental pilot at the top of the seniority list chooses to fly the B737. CAL Exh. C-2.

Preserving the pilots’ pre-merger career expectations can be accomplished, as in Delta-

Northwest, by means of conditions and restrictions. To this end, the Continental Merger

Committee has proposed to fence all B747 and A350 positions for pre-merger United pilots for five years so long as a reciprocal fence for Continental’s B787s accompanies it. CAL Exh. G-9.

Complicating the construction of the integrated list with separate groupings for “jumbo” pilots is unnecessary and unjustifiable.

The United Merger Committee’s proposal also failed to consider the time value of money. Tr. 3311-12. As Mr. Schwartz commented, the future is “hazy at best,” and he was therefore critical of the proposal’s “taking away Captain time today [from the Continental pilots]

. . . and giving it to [the United pilots,] for this promise of some jumbo Captain time in the distant future.” Tr. 3309, 3311; CAL Exhs. R-126 at 4, R-128 at 10. The chart below displays the extent of these inequities that would arise from the United Merger Committee’s proposal:

The United Merger Committee’s proposal thus gives windfalls to the United pilots at the

Continental pilots’ expense: “[T]he United proposal . . . talked about the jumbo gains in the distant future for our relatively younger pilots. And that’s so far out in the future, we don’t know if it will ever come true. But it takes Captain time away now in the near future.” Tr. 3326; CAL

Exh. R-128 at 10.

D. The United Merger Committee’s Proposed Status and Category List Attributes Too Many Jobs to the United Pilot Group and Too Few to the Continental Pilots.

The United Merger Committee derived its proposed list using obsolete information from

seniority lists that were not verified and certified in accordance with the requirements of ALPA

Merger Policy and the Protocol Agreement. The lists include 333 pilots who are known to have

retired, resigned, died or otherwise departed from the United and Continental seniority lists prior

to April 1, 2013. CAL Exh. X-35. These pilots who have indisputably exited the carrier include

197 and 136 United pilots. Id.

No sensible reason exists for the Board to render a decision that relies on information that

both sides agree is outdated. Because their departure from the list is stipulated, continuing to use

their names as if they remained actively employed is confusing and unnecessary. Moreover,

including these pilots in the ratios the Technical Advisory Team utilizes to build the merged list

would skew the allocation of positions in favor of the United pilots, and thus render the product

not only irrational, but also unfair to the Continental pilot group.

The United pilots are clearly overstaffed. See supra Fact Section C.3. As Captains

Butcher, Brucia and Torrance explained, United brings more pilots to the merger than jobs. Id.

Attributing the same number of Captaincies to United as to Continental comports with the

equivalent number of airplanes and block hours brought to the merger by the two sides. See id.

The merged carrier will allocate pilot positions through the joint contract, which will even out

any pre-existing differences in staffing deriving from the pre-merger carriers’ practices. Because each side brings the same number of aircraft and block hours to the merger, the merged list should allocate an equal number of Captaincy entitlement positions to each side.

As discussed above, the growth in 232 Captaincies in Continental’s separate operation since the merger is nothing more than the minimum growth in jobs that Continental’s pilot group

would have enjoyed absent the merger. See Tr. 3964-65. Also as explained in Fact Section D,

Continental has placed into service four more airplanes than it has retired since the

consummation of the merger, a direct result of planned fleet regeneration and growth. The

United Merger Committee’s proposal admittedly fails to consider the growth opportunities

provided by the aircraft that Continental had on firm order prior to the merger, nor does it

account for the delivery of these firm-order aircraft after October 1, 2010. Tr. 2596-98.

Moreover, the substitution of next-generation B737s for B737 Classics has resulted in

increasing the B737 fleet’s daily aircraft utilization, which has, in turn, increased Continental’s

block hours and its need for pilots. See supra Fact Section D.2; CAL Exhs. D-17, X-31. That fleet regeneration was the product of firm orders and fleet plans dating back years before the merger. CAL Exh. R-109 (confidential). In view of the fact that all of Continental’s B737

Classics have now been replaced, further B737 deliveries later this year and in the future will continue to add to the block hour growth at the Company, which would have occurred at

Continental absent the merger.

Similar block hour growth and staffing increases are resulting from the Company’s induction of B787s into the fleet. See supra Fact Section F.4; CAL Exhs. F-11b, F-11c. Delays have slowed the program, which Continental has planned since 2004, when it became the North

American launch customer for the B787. CAL Exhs. B-31, D-13, D-17 at 1-2. But the arrival of these airplanes and the staffing necessary to operate them have resumed this year. CAL Exh. R-

139.

The modest growth in pilot jobs at Continental since the consummation of the merger is the minimum increase in jobs the Continental pilots would have realized in the absence of the

merger. It is fair for the Continental pilots to be allowed to retain this long-anticipated growth

for purposes of constructing a combined seniority list.

Management termed the Continental-United corporate transaction a “‘merger of equals’

business combination.” CAL. Exh. X-27. From the pilots’ perspective, however, as Dr.

Campbell explained in rebuttal, it was not a “merger of equals” because the career expectations

of the Continental pilots were clearly superior. CAL Exhs. R-13 thru R-18; Tr. 2930-37.

At the time of the merger, Continental was a profitable and growing airline, while United

was losing money and contracting. See supra Fact Section A. Continental was expanding and

renewing its fleet with high-technology, fuel-efficient aircraft, but United only had a few

replacement aircraft on order, for delivery in 2016 and later. See supra Fact Section D. At the

time of the merger, it was known that age-65 retirements would drive a greater percentage of upgrades at Continental for a dozen years, starting in December 2012, five years after Congress raised the mandatory retirement age from 60 to 65. CAL Exh. C-10; Tr. 386-88. Continental and its pilots enjoyed largely harmonious labor relations; by contrast, the tension between management and the United pilots was palpable and the strife was getting worse, particularly since United’s 2002-06 stay in bankruptcy and its 2008-09 decision to retire one hundred aircraft and furlough more than 1400 pilots. See supra Fact Sections B.2-3, F.5-6. Continental’s unmatched focus on international operations provided the pilot group with unparalleled promotional opportunities and job security. See supra Fact Sections A.1, A.3, E.

The one way in which the Continental Merger Committee’s proposal takes these superior

Continental job equities into consideration is through the recognition the proposed list gives to the Continental pilots’ job growth between October 2010 and April 2013 and the adjustment it makes for the United pilots’ overstaffing. Unless the award recognizes that the Continental

pilots’ prospects at the time of the merger included a measure of growth and that United brings

approximately the same number of pilot jobs to the merger as Continental, the integrated list will

ignore the reality of the Continental pilots’ superior career expectations. CAL Exhs. R-16 thru

R-18. The merged list would then reflect merely a static snapshot of the two pilot groups as they

existed in October 2010. However, the notion of career expectations is premised on a dynamic

world, in which the prospects of the respective pilot groups are understood to be changing in the

unmerged world from which the merging carriers will come together. Failing to appreciate the

dynamic nature of pilots’ employment prospects would accordingly conflict with the career

expectations doctrine, followed consistently in a line of arbitral authority in ALPA Merger

Policy cases dating back to 1953. See, e.g., Braniff-Mid-Continent; Flying Tiger-Slick; Mackey-

Eastern; Federal Express-Flying Tiger; Delta-Northwest; Pinnacle-Colgan-Mesaba; ATI-CCI.

In Federal Express-Flying Tiger at 42, for example, Arbitrator Nicolau constructed the ratios used to merge the two seniority lists by projecting the number of jobs each group would have to a point in time three years after the announcement of the merger (which was eighteen months after his decision), based for the most part on aircraft that were on firm order to the pre- merger carriers. The Continental Merger Committee is not proposing that this Arbitration Board construct the merged list based on projections whatsoever, as Arbitrator Nicolau did in Federal

Express-Flying Tiger, but only that the Board build its award on the solid foundation of what is actually happening, right now, as the career expectations of the two pilot groups are in fact being realized.

E. The Board Should Not Apply the Constructive Notice Doctrine to Craig Watts and Jon Yost.

The Board should exercise its discretion and not apply the constructive notice doctrine to

Continental pilots Craig Watts and Jonathan Yost. CAL Exh. C-32. Arbitrators have flexibly

applied the doctrine in past cases. See, e.g., Northwest-Republic at 7-8 (1989) (Roberts, Arb.);

Saturn-Trans International at 17-18 (1977) (Feller, Arb.). Sometimes that has resulted in less than strict application in circumstances in which injustice would result from an overly rigid approach. Tr. 4068-69. The Continental Merger Committee submits that leeway is available to the Board to apply the doctrine here in a manner that would not place Messrs. Watts and Yost junior to more than a thousand United pilots who did not bring jobs to the merger.

These two pilots each had valid legal claims—recognized by management—that established as a matter of law that they should have been hired and on the Continental seniority list prior to the announcement of the merger. UAL Vol. 6 Ruark at 6-2, 6-4 (confidential); Tr.

4034-39 (confidential). Since it was through no fault of theirs that the Company improperly denied them their rights to such positions, the Board should not further penalize them by interposing senior to them more than a thousand United pilots who did not bring jobs to the merger. They have been bidding senior to the Section 7-B pilots for years and the Company’s placement of them on the seniority list in this manner should be left undisturbed. CAL Exh. C-

32.

In the event that the Board accepts the position of the Continental Merger Committee that

Mr. Yost should not be subject to the constructive notice doctrine, we submit, moreover, that the

Board should apply the same treatment to the placement of Mr. Watts on the merged list. Tr.

4034-39 (confidential). That is because Mr. Watts is senior to Mr. Yost on the Continental list, and ALPA Merger Policy bars Mr. Yost from “leapfrogging” above Mr. Watts on the combined list. Jt. Exh. A, Part 3, Section C.4.d (“No integrated list shall be constructed which would change the order of the flight deck crew members on their own respective seniority lists.”).

100

The Arbitration Board asked Merger Counsel to research whether Mr. Yost might have a

legal claim if the Board subjected him to the constructive notice doctrine. Tr. 4039. The

Uniformed Services Employment and Reemployment Rights Act (USERRA), 38 U.S.C. §§

4301-35, protects employees who are serving in the military and dictates how employers should

treat service members whom they employ. In 1994, Congress enacted USERRA in order to

clarify and strengthen USERRA’s immediate predecessor, the Veteran’s Reemployment Rights

Act, 20 C.F.R. § 1002.2, and, among other things, “prohibit discrimination against persons

because of their service in the uniformed services.” 38 U.S.C. § 4301(a)(1). To that end,

Congress barred “employers” from “den[ying] initial employment, reemployment, retention in

employment, promotion, or any benefit of employment” to employees “on the basis of th[eir]

membership, application for membership, performance of service, application for service, or

obligation” in a uniformed service. 38 U.S.C. § 4311(a).

If the Arbitration Board were to devise a merged list that would result in a pilot’s rights

under USERRA being violated, the carrier could not lawfully use such a list, as it could not

assert as a defense the fact that the list had been created through arbitration. 38 U.S.C. §

4302(b). That provision states that USERRA’s requirements “supersede[] any State law

(including any local law or ordinance), contract, agreement, policy, plan, practice, or other

matter that reduces, limits, or eliminates in any manner any right or benefit provided by

[USERRA], including the establishment of additional prerequisites to the exercise of any such

right or the receipt of any such benefit.” See also 20 C.F.R. § 1002.7; Fishgold v. Sullivan

Drydock & Repair Corp., 328 U.S. 275, 285 (1946) (“[N]o practice of employers or agreements between employers and unions can cut down the service adjustment benefits which Congress has secured the veteran . . . .”).

101

A court has the authority to modify a seniority list in order to rectify a USERRA

violation. See Armstrong v. Baker, 394 F. Supp. 1380, 1386-87 (N.D. W. Va. 1975); Bryant v.

Bhd. of R.R. Trainmen Rapides Lodge No. 856, 74 F. Supp. 510, 513-14 (W.D. La. 1947). In

Bryant, 74 F. Supp. at 513-14, the U.S. District Court for the Western District of Louisiana

ordered that a non-veteran be moved down the Missouri-Pacific Railroad Company’s seniority

list and reinserted junior to two veterans, having concluded that the original placement of the

non-veteran violated the veterans’ rights under the Selective Training and Service Act of 1940.

In Armstrong, 394 F. Supp. at 1382, 1386-87, the U.S. District Court for the Northern District of

West Virginia ordered the Penn Central Transportation Company to place a veteran in a position,

with full seniority, in a craft different from the veteran’s previous position, which was covered

by a CBA and seniority system different from that under which the veteran had been employed prior to his military service because not doing so violated the veteran’s rights under the Military

Selective Service Act. We trust that the foregoing legal research is helpful to the Arbitration

Board in resolving the issues before it.

CONCLUSION

For the foregoing reasons, as well as those set forth in our pre-hearing statement and those addressed during the hearing itself, the Continental Merger Committee submits that the

Arbitration Board should integrate the Continental and United pilot seniority lists by ratioing

Captains with Captains and First Officers with First Officers, subject to appropriate conditions and restrictions.

Respectfully submitted,

/s/ Daniel M. Katz Daniel M. Katz Gregory R. Shoemaker Grant E. Mulkey

102

Katz & Ranzman, P.C. 4530 Wisconsin Avenue, N.W., Suite 250 Washington, D.C. 20016 (202) 659-4656

Counsel for the Continental Pilots’ Merger Committee

103

Attachment A

In the Matter of Arbitration:

Before: Ira F. Jaffe, Esq., Impartial Arbitrator

APPEARANCES:

For the Continental Airlines MEC:

Daniel M. Katz, Esq. Ellen Ranzman, Esq. (Katz & Ranzman. P.C.) Capt. Jay Pierce, Chairman, CAL MEC, ALPA Capt. Scott Butcher, CAL MEC, ALPA, Special Project Member First Officer Neal Schwartz, CAL MEC, ALPA Capt. John David Owens, JNC Member, ALPA

For the United Airlines MEC:

Steven K. Hoffman, Esq. Kathy L. Kreiger, Esq. David P. Dean, Esq. Jessie Beyderman, Paralegal (James & Hoffman, P.C.) Capt. Jay Heppner, Chairman, UAL MEC, ALPA Capt. Todd Insler, UAL MEC, ALPA, Grievance Chair Capt. Steve Gillen, UAL MEC, ALPA, Merger Committee Capt. Jim Bowman, UAL MEC, ALPA, Retirement & Insurance Committee First Officer Phillip Otis, JNC Member, ALPA

CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 2 of 26

BACKGROUND

On or about May 3, 2010, Continental Airlines, Inc. (“CAL”) and United Air Lines, Inc. (“UAL”), announced an agreement to merge. At the time of the announcement, CAL and UAL were engaged in separate Section 6 negotiations with the Air Line Pilots Association (“ALPA”), the representative of the pilots at the respective carriers, for successor collective bargaining agreements to the CAL-ALPA Agreement, which became amendable as of January 1, 2009, and the UAL-ALPA Agreement, which became amendable as of January 1, 2010.

In or about August 2010, negotiations for separate successor collective bargaining agreements ceased and ALPA began bargaining with United Airlines (“United” or “Carrier”) for a joint collective bargaining agreement covering both pilot groups. The Master Executive Councils (“MECs”) for CAL and UAL formed a Joint Negotiating Committee (“JNC”) to bargain with United. The JNC consisted of three members from the negotiating committee of the CAL MEC and three members of the negotiating committee of the UAL MEC. The Chairmen of the CAL MEC and UAL MEC serve as ex officio members of the JNC. Pertinent details regarding the bargaining history will be referenced later herein.

On August 2, 2012, an Agreement in Principle (“AIP”) was reached between the ALPA and United. The AIP provided for significant increases in wages beginning as of the date of signing (“DOS”). A claim by ALPA for retroactive pay was a significant area of dispute, particularly in the closing days and hours of the negotiations. United refused to agree to retroactive pay, as such, but agreed to make a substantial ($400 million) Lump Sum Payment. In the AIP, the payment was referred to as “Retroactive pay/lump” and provided as follows:

Term 3.20 Lump sum $250M payable at DOS, $150M payable upon conclusion and submission to Company of single seniority list, total cost including Fringe items such as any associated DC contribution) – allocation to be determined by ALPA. Establish mechanism to audit reserve usage as discussed (recapture up to $30M annual valuation difference). Current CAL 757-200 lie flat aircraft can be augmented without blocking the adjacent seat, if pilot is in window seat. Last seat assigned. Delay 1 for 3.5 trip rig implementation to one year after OMD. Use s-UA 1 for 4 until then.

The CAL MEC and UAL MEC were unable to reach agreement upon the allocation of the $400 million payments. Pursuant to Section 40, Collective Bargaining, Part J, Allocation of Lump Sum Payments, of the ALPA Administrative Manual (Last Amended April 2012) (“Manual”), an agreement was reached to arbitrate the question of the allocation of the payments pursuant to the dispute resolution provisions of the Manual.

The written agreement to arbitrate defines the issues as follows:

The issue to be resolved (“Issue”) is the allocation between the CAL and UAL CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 3 of 26

pilot groups of the ”Retroactive pay/lump” agreed to as part of the Agreement in Principle reached August 2, 2012, under the provisions of Section 40, Part 3J of the ALPA Administrative Manual.

The Undersigned was asked to serve as Impartial Arbitrator in this matter. Arbitration hearings were held on November 1 and 2, 2012. Pursuant to the agreement to arbitrate this matter, the Award was to be issued no later than noon, November 5, 2012.

Extensive documents and analyses were presented at the hearings. Testimony was taken regarding the history of the negotiations and various methods for allocating the Lump Sum Payments. Additionally, Counsel for the MECs each filed prehearing written statements and also closed orally. Given the expedited time frame for the issuance of the Opinion and Award in this matter, it is not feasible to summarize in detail the testimony provided at the hearing or the positions advocated by the Parties. They will be referenced, as appropriate, in summary fashion. It should be noted, however, that whether referenced in summary fashion or not mentioned explicitly in this Opinion and Award, the entirety of the record evidence and arguments has been carefully considered by the Impartial Arbitrator in reaching the decision in this case.

The Analysis of ALPA’s Economic and Financial Analysis (“E&FA”) Department

Throughout the negotiations with the Carrier, the JNC was provided with support from representatives of ALPA’s Economic and Financial Analysis (“E&FA”) Department. As part of that support, in June 2012, the E&FA prepared an estimate of the approximate dollar value of the “full retroactivity” proposal then being sought by ALPA. That proposal sought retroactivity based upon a comparison between the rates being paid to CAL and UAL pilots during the amendable period and the rates being paid in those same years to Delta Air Lines (“DAL”) pilots. Significant testimony was provided regarding calculation produced by the model.

The model was not intended to be a precise calculation of actual retroactive pay to be provided to any individual pilot or to the CAL or UAL pilot groups.

The model determined that “full” retro pay for the combined CAL-UAL pilot group under that proposal was approximately $438,000,000 for wages and an additional $100,000,000 or so for benefits. The model used by E&FA upon which the estimates were prepared included a number of assumptions, including the following:

1) the affected pilot group was defined based upon fall 2011 seniority lists for both the CAL and UAL pilot groups; the individuals on those lists who were active were then assumed to have defined the affected pilot population for the entire period from January 1, 2009 through August 31, 2012; individual pilots who terminated active employment prior to the date of those lists were disregarded; similarly, pilots who were no longer active due to attrition, retirements, leaves of absence, or the like were treated as if they were employed during the entire period from January 1, 2009 through August 31, 2012;

CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 4 of 26

2) the aggregate retroactive pay calculation included “negative” back pay for 2009 for those pilots at CAL whose wage rates exceeded those for DAL pilots on those same dates; stated differently, the retroactive pay for the CAL pilot group was offset by the amount of pay that was received by CAL pilots in 2009 that was at rates higher than the rates being paid to DAL pilots for the same type of work;

3) longevity was adjusted for the model pilot groups to reflect service as of January 1st of each year; the adjustment for the UAL group for longevity was much less than that for the CAL group since a greater portion of the UAL group was at maximum longevity (12 years) for the entire measurement period; however, the adjustment for longevity affected both the rates of pay attributed to CAL rates and those attributed to DAL rates;

4) the July 1, 2012 wage increase for DAL pilots was ignored;

5) hybrid rates of pay were used for certain pilots who flew more than one type of equipment; and

6) a flat percentage adjustment was applied to all of the retroactive wages, undifferentiated by whether the retroactive pay was for a CAL or UAL pilot, based upon ALPA’s standard fringe benefit adjustment factor; this factor was one that included statutory as well as contractual fringe benefits and, based upon the approximate $100 million add-on to the $438 million pay figure, the fringe add-on is a roughly 23% adjustment.

The E&FA model determined that, of the $438 million value, approximately $143 million was attributable to retroactive pay for the CAL group and approximately $295 million was attributable to retroactive pay for the UAL group. Given the fact that the costing model applied a fixed percentage adjustment for the cost of fringe benefits, regardless of whether the pilots in the model were CAL or UAL pilots, the June 2012 E&FA calculations reflected that 32.6% of the total retroactive pay was attributable to the CAL group of pilots and the remaining 67.4% of the total retroactive pay was attributable to the UAL group of pilots. Whether one included or excluded fringe benefit costs, the percentage relationship between the CAL and UAL pilot groups would remain the same.

The methodology used to determine pay by the E&FA model was straight- forward. The base pay (calculated based upon the set of assumptions noted above) was calculated for the CAL and UAL groups for 2010, 2011, and 2012. The 2012 calculation was reduced by one-third because the period of time for the retroactive calculation was assumed to be through August 31, 2012 since, at the time that the June 2012 estimate was prepared, it was anticipated that the new joint collective bargaining agreement would be signed and become effective as of September 1, 2012. A calculation was then made of what the pay for the same groups (based upon equipment flown, hours worked, longevity, and position) would have been if the DAL rates instead of the CAL or UAL rates had been paid for the same work. The CAL group also had the same methodology applied to 2009 since the CAL collective bargaining agreement was amendable one year earlier than CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 5 of 26 the UAL collective bargaining agreement. The differences for these years were then added together and the totals (wages only) were approximately $143 million for the CAL pilot group and $295 million for the UAL pilot group.

The Defined Contribution Plan and Retroactivity Calculations

The pilots at CAL and UAL are covered by separate Defined Contribution Plans (“DC Plans”). Under the negotiated joint collective bargaining agreement, the percentage of employer contributions to the DC Plan will be 16%. This was the same percentage that applied to UAL pilots pursuant to their prior collective bargaining agreement which became amendable as of January 1, 2010. This represented an increase, however, for the CAL pilots, who received payments equal to 12.75% of compensation under their collective bargaining agreement which became amendable as of January 1, 2009.

A full, traditional retroactive pay adjustment would have also paid eligible pilots the difference between their actual pay (including the DC Plan component) during the period when the prior collective bargaining agreement was amendable and the pay (including the DC Plan component) that would have been payable if the terms of the new joint collective bargaining agreement were effective retroactively to the amendable date. If a full, traditional retroactive pay approach were utilized, then the calculation of retroactive pay would include not only the difference between the new wage rates in the joint collective bargaining agreement, applied retroactively to January 1, 2009 for the CAL pilots and to January 1, 2010 for the UAL pilots, but also full 16% DC on all of the wages. Since the UAL pilots already received 16% DC Plan contributions on their earnings, full retroactive pay would require that they receive an additional 16% on the increased pay due to application of the new rates under the joint collective bargaining agreement. Given the lower contribution rates to the DC Plan for the CAL pilots, additional payments would be needed to make them whole. They would need to receive not only an additional 16% on the increased pay due to application of the new rates under the joint collective bargaining agreement, but also an additional 3.25% on the entire pay that they actually received in 2009, 2010, 2011, and the first eight months of 2012. This is because they actually received only 12.75% DC Plan contributions on those earnings when, applying the terms of the newly negotiated joint collective bargaining agreement retroactively, they should have received 16% DC Plan contributions on those earnings. Just like the UAL pilots were brought up to full contractual rates retroactively even though their rates were lower than those paid to the CAL pilots, the CAL pilots are entitled to be credited with the full 16% DC Plan contribution rate retroactively on their actual earnings and also the pay needed to bring them up to the terms of the newly negotiated joint collective bargaining agreement.

A failure to credit the CAL pilots with the additional 3.25% on the pay that they actually received also prevents a distortion of the comparison between the CAL and UAL pilot groups. Money is money. If the UAL pilots were being paid at the 12.75% DC Plan contribution rate for 2010-12, but received the same total compensation, then their wage rates would need to have been 3.25% higher. A failure to take the appropriate adjustment to take the DC Plan contribution differential into account would render the CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 6 of 26 comparison between CAL and UAL compensation one of apples and oranges.

The retroactive pay/lump terms of the AIP did not provide for full retroactivity based upon the newly bargained joint collective bargaining agreement. As noted earlier, attainment of that goal would have been too costly to be affordable in the context of the other gains achieved by ALPA. The $400 million amount was the product of arms’ length negotiations between ALPA and the Carrier. The fact that ALPA changed its initial retroactive pay demand from one that was based upon retroactive application of the terms of the joint collective bargaining agreement to use of the DAL wage rates that were in effect in 2009, 2010, 2011, and 2012 (prior to July 1, 2012), provides no reason for eliminating consideration of the DC Plan contribution component of retroactivity, to the extent that a retroactive pay method should be used in the allocation of the negotiated lump sum.

Calculation of Retroactivity Advocated by the UAL MEC – Retroactivity Based Upon Use of DAL Wage Rates in Effect during 2009-2012

The UAL MEC advocated for an allocation that was based upon the E&FA analysis prepared for costing purposes in June 2012. As noted, that analysis was based upon retroactivity determined as if the DAL wage rates that were in effect in the years 2009-2012, rather than use of the wages that would have been payable if full retroactivity were applied using the joint collective bargaining agreement terms, was paid to the CAL and UAL pilots.

The E&FA analysis prepared on this basis in June 2012 ignored the differences in DC retroactivity between the CAL and UAL groups and reduced the CAL group’s retroactive pay by the amount by which CAL pilots were paid at rates that exceeded the DAL rates in effect during the same year (a difference of approximately $10 million in retroactivity for wages alone in 2009). The E&FA analysis calculated retroactive pay as follows:

Retroactive Pay (DAL pay less CAL/UAL pay, as appropriate)

CAL Pilots $143.3 million (32.7% of total) UAL Pilots $294.9 million (67.3% of total) Total $438.2 million

While the E&FA analysis did not separately consider the effect of fringe benefits, the assumed methodology was to apply a uniform percentage adjustment to the pay calculations. Thus, the ratios of the two pilot groups would have been the same even if the E&FA analysis had listed the modeled costs for fringe benefits (which the model estimated at about an additional $100 million).

The UAL MEC urges that, based upon this E&FA June 2012 report, the Lump Sum Payments be allocated 33%, or $132 million, to the CAL MEC, and 67%, or $268 million, to the UAL MEC. CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 7 of 26

Another Approach – The E&FA Report With Revisions

As noted, the E&FA methodology was based upon use of a model that contained two items shown to have been at odds with the actual proportionate pay that would have been due to the CAL and UAL groups even if the measure of back pay was one based upon DAL rates in effect from 2009-2012, rather than the rates contained in the joint collective bargaining agreement.

The first item relates to the offset of approximately $10 million in 2009 from the retroactive pay that would have been provided to the CAL pilots based upon the fact that certain CAL pilots were receiving rates of pay in 2009 higher than the DAL rates. The amount of “overpayment” for those pilots, in the aggregate, was $10 million. If one adjusts for that offsetting, based upon the facts that: a) the ALPA proposal contained provisions that would have precluded such an offset; and b) it is at odds with the customary method of calculating back pay to expect any retroactive pay calculation to require that pilots who were paid more in 2009 to effective pay that back to the Carrier, then the appropriate wage figure for 2009 for the CAL pilots increases by $10 million and the aggregate CAL retroactive pay figure increases by $10 million to $153.3 million.

The second item, discussed above, relates to the different DC Plan contribution rates for the CAL and UAL pilots, which suggest that a method to accurately value retroactive pay should not use a uniform, across the board, percentage for benefits that is the same for both pilot groups.

When one adjusts the E&FA model data to take into account the lower CAL DC Plan contribution rates and after taking into account the offset “error” that was included in the E&FA model for 2009, the result is as follows:

Retroactive Pay (DAL pay less CAL/UAL pay, as appropriate)

CAL Pilots $153.3 million UAL Pilots $294.9 million

Retroactive Pay Due to DC Plan Contributions Associated with the Increase in Pay Resulting from the Use of DAL Rates

CAL

16% of $153.3 million $24.5 million 3.25% of $2.139 billion (actual pay for the CAL pilot group calculated for 2009, 2010, 2011, and the first 8 months of 2012) $69.5 million

$94.0 million

CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 8 of 26

UAL

16% of $294.9 million $47.2 million

Total Retroactive Pay (Including DC Plan Contributions)

CAL $153.3 million + $94 million = $247.3 million

UAL $294.9 million + $47.2 million = $342.1 million

Both groups $247.3 million + $342.1 million = $589.4 million

CAL proportion of total: 42.0% UAL proportion of total: 58.0%

If this approach were used, then the Lump Sum Payments would be allocated 42%, or $168 million, to the CAL MEC, and 58%, or $232 million, to the UAL MEC.

Calculation of Retroactivity Advocated by the CAL MEC – Retroactivity Based Upon the Relation Back of the Wage Rates in the Joint Collective Bargaining Agreement

The CAL MEC argued that, instead of using the E&FA calculations, which were based upon ALPA’s revised proposal in bargaining to receive retroactivity based upon the DAL wage rates in effect from 2009-2012, the allocation of the Lump Sum Payment in this case should be determined based upon using a “more traditional” retroactive pay calculation that relates back the wage rates provided under the joint collective bargaining agreement throughout the entire period after each predecessor collective bargaining agreement became amendable.

The calculations performed by the CAL MEC differ from the analysis done by E&FA in a number of respects. First, the CAL MEC used actual payroll data provided by the Carrier, rather than modeled data. Second, it took into account the DC Plan contribution rates, rather than applying a constant across-the-board multiplier for fringe benefits. Third, and most significantly, it calculated retroactive pay and benefits based upon a relation back of the rates in the joint collective bargaining agreement, rather than the significantly lower DAL rates that were in effect during 2009-2012 (excluding the 4% July 2012 pay increase).

According to the CAL MEC, these calculations (which would include full credit for DC Plan contributions on both the wages actually paid to the CAL and UAL pilots and the new retroactive wages) would produce the following:

Total Retroactive Pay (Wages Only)

This calculation is based upon analysis that showed an overall increase in wages as a result of the joint collective bargaining agreement rates of 15.46% across the CAL CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 9 of 26 group and 24.94% across the UAL group.

CAL $449.1 million (48.9% of total) UAL $469.8 million (51.1% of total) Total $918.9 million

Total Retroactive Pay (Including Retroactive DC Plan Contributions)

CAL $593.3 million (52.1% of total) UAL $544.8 million (47.9% of total) Total $1.1381 billion

The CAL MEC urges that the Lump Sum Payments be allocated 52%, or $208 million, to the CAL MEC, and 48%, or $192 million, to the UAL MEC.

The UAL MEC noted that these calculations do not take into account the effect of longevity increases. The joint collective bargaining agreement wage numbers include one, two, or three years of additional longevity pay and an appropriate adjustment must be made to the pay wages in 2009, 2010, and 2011, to recognize that fact. According to the UAL MEC, when one adjusts for longevity, the allocation changes to 46.0% CAL MEC and 54.0% UAL MEC.

A Capitated Lump Sum Approach

If, instead of a retroactive pay ratio approach, one were to treat the lump sum as a signing bonus or as a Lump Sum Payment that is paid in equal shares to all eligible pilots, then the costs associated with providing payments to the CAL and UAL pilot groups would be as follows.

E&FA Analysis

The model used by E&FA was based upon 4306 CAL active pilots and 5408 UAL active pilots. The total for both groups, based upon the snapshots in the fall of 2011, is 9714 pilots, 44.3% of whom were CAL pilots and 55.7% of whom were UAL pilots.

Analysis Using Monthly Staffing Reports (CAL) and the Monthly Roster Report (UAL)

Average Number of Pilots (CAL) during the Period January 2009 through August 2012 4328 pilots

Average Number of Pilots (UAL) during the Period January 2010 through August 2012 5569 pilots

These numbers were relatively constant for CAL until 2012 when it began hiring significant numbers of pilots who were on furlough at UAL. The ratio of average pilots CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 10 of 26 is as follows:

CAL 4328 pilots UAL 5569 pilots Total 9897 pilots (43.7% of total) (56.3% of total)

If the Lump Sum Payments were allocated ratably to the respective pilot groups on the basis of the number of active pilots, then 43.7%, or $175 million, would be allocated to the CAL MEC, and 56.3%, or $225 million, would be allocated to the UAL MEC, using actual payroll records, or $177 million to the CAL MEC and $223 million to the UAL MEC using E&FA modeled payroll figures.

Recap of the Various Allocation Methods

E&FA (DAL rates; No DC Plan Contribution Adjustment; Modeled Data)

67% ($268 million) UAL-MEC 33% ($132 million) CAL-MEC

E&FA (Adjusted for DC Plan Contributions and Offset)

58.0% ($232 million) UAL-MEC 42.0% ($168 million) CAL-MEC

Traditional Full Retroactivity (Joint Collective Bargaining Agreement Rates; DC Plan Contributions Included)

CAL-MEC Calculation (No Longevity Adjustment):

47.9% ($192 million) UAL-MEC 52.1% ($208 million) CAL-MEC

UAL-MEC Calculation (With Longevity Adjustment):

54.0% (216 million) UAL-MEC 46.0% (184 million) CAL-MEC

Per Capita

Actual Payroll Data – Pilot Population

56.3% ($225 million) UAL-MEC 43.7% ($175 million) CAL-MEC

E&FA Model Pilot Population

55.7% ($223 million) UAL-MEC CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 11 of 26

44.3% ($177 million) CAL-MEC

The ALPA Administrative Manual

The Manual sets out, among other things, policies governing procedures for the merger of its pilot groups and their MECs in the event of a merger of the carriers employing those pilots (Section 45, Part 2C(1)), as well as procedures for the allocation of Lump Sum Payments, as defined by the Manual, among the members of a pilot group by an MEC (Section 40, Part J).

Section 40, Part J, of the Manual defines “Lump Sum Payments” as:

any allocation of stock, stock options, corporate notes or obligations, bankruptcy claims, retroactive payments, contract signing bonuses, profit-sharing payments, or other forms of fixed value received by a pilot group from its company under the terms of a collective bargaining agreement (including letters of agreement and similar forms of agreement) on a one-time or periodic basis, unless the measurement and allocation of the Lump Sum Payment is pursuant to a company-wide plan(s) for which the terms that apply to the pilots are the same as the terms that apply to other employees of the company.

Although the agreement to arbitrate noted that it was made pursuant to both Section 45, Part 2C(1), of the Manual, which addresses processes for seniority list integration and/or negotiation of a joint collective bargaining agreement, and Section 40, Part J, of the Manual, which addresses allocation of Lump Sum Payments, the issue presented deals solely with the allocation of the $400 million. None of the types of record evidence that one ordinarily sees introduced in seniority integration arbitrations was introduced and the rulings made in this case are intended to be limited to their context – i.e., the allocation of negotiated Lump Sum Payments – and not to be suggestive of anything relative to seniority integration of the CAL and UAL pilot groups.

Section 40, Part J, addresses the process by which MECs are to allocate a Lump Sum Payment within a single pilot group by the group’s MEC. Here, the CAL and UAL MECs will each determine how to divide their allocated share of the Lump Sum Payment among the respective pilots in their pilot group. The Statement of Purpose and Preamble contained in Section 40.J.1. of the Manual provides that:

The purpose of this policy is to provide (i) direction for MECs that are required to make decisions on allocation of Lump Sum Payments and (ii) an expedited dispute resolution procedure, including arbitration, to resolve a dispute that arises with respect to an MEC allocation decision.

The policy rests on a number of premises:

 MEC allocation decisions often arise under circumstances that make it particularly difficult to satisfy all elements of the pilot group. For example, the circumstances of the allocation may be unique or occur rarely, and allocation decisions may involve distribution of substantial value among pilots. In addition, allocation decisions are likely to involve competing interests within the pilot group.

CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 12 of 26

 Policy that requires the MEC to consider the purposes or reasons for the Lump Sum Payment and to apply relevant factors in light of these purposes or reasons serves two purposes: it provides the MEC with both a decision-making framework based on principle and sufficient flexibility to differentiate among the very different circumstances that may arise in the future. Relevant factors may include but are not limited to pilots’ past, current, or projected rates of pay, relative seniority and/or longevity, per capita or pro rata distribution or a combination thereof, benefits, employment status (for example, active furloughed, discharged or suspended with grievance pending, retired, resigned, or death before the payment of the allocation proceeds, paid or unpaid leave status such as military, parental, medical, disability, ALPA, management, or for other reasons and other contractual or other leaves).

 . . . Support by an MEC member of an allocation methodology that is more favorable to him, his status group, or the pilots in his Local Council is not inappropriate if the MEC member does so by considering the purposes or reasons for the Lump Sum Payment and applying relevant factors in light thereof.

Section 40, J.3., of the Manual, MEC Allocation Decisions, provides in pertinent part that:

In making a decision on allocation of a Lump Sum Payment, an MEC shall consider the purposes or reasons for the Payment, and apply relevant factors to seek an equitable outcome in light thereof.

a. The MEC shall decide on an allocation of the Payment (i) as part of the negotiation of a collective bargaining agreement with management by including the methodology for allocation in the agreement or (ii) if the collective bargaining agreement so provides, by MEC decision after a collective bargaining agreement has been reached with management that does not include the methodology for the allocation. . . .

d. If the methodology for allocation of the Payment is not included in the collective bargaining agreement, the MEC allocation decision shall be subject to the dispute resolution procedure set forth in this policy. . . .

Section 40, Part J, provides for arbitration, but does not explicitly address the standards that will govern the exercise of arbitral discretion relative to the decision on allocation of a Lump Sum Payment.

The Northwest-Republic Lump Sum Allocation Award

In 1989, Arbitrator Herbert Fishgold arbitrated a dispute that arose with respect to the allocation of a lump sum payment negotiated as part of an initial collective bargaining agreement entered into following the merger of two air carriers (Northwest and Republic). A copy of his Award was introduced into the record.

The Northwest-Republic Award reveals a number of similarities between that case and the instant case. Prior to the merger, both pilot groups were represented by ALPA, as was the post-merger bargaining unit. While both pilot groups were covered by the single joint collective bargaining agreement that included a lump sum payment and no retroactive pay, the operations of the carriers had not yet merged and seniority had not yet been integrated. The lump sum ($17.5 million) was not sufficient to provide full retroactive pay to the merged pilot group (which was calculated by ALPA as in excess of CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 13 of 26

$250 million). The periods since the prior collective bargaining agreements had become amendable also differed between the two groups. The Northwest pilots’ collective bargaining agreement had become amendable on July 1, 1986, whereas the agreement between Republic and ALPA had become amendable on March 27, 1987. Northwest did not consider the Lump Sum Payment to be “earnings” under the retirement plan, although the Lump Sum Payment was entitled as a “Retroactive Payment Fund.”

There also were differences, however, between that case and the instant case. Most notably, the record before Arbitrator Fishgold failed to include any detailed evidence regarding amount of retroactive pay that would have been due under a traditional approach to the separate pilot groups. Further, the issues presented to Arbitrator Fishgold for determination involved both the question of the allocation of the lump sum between the two pilot groups and also the follow-up question of how each pilot group should allocate its portion of the lump sum to the individual pilots.

Arbitrator Fishgold found that the purpose of the Fund was generally to reimburse pilots for wages lost as a result of the delay in entering into the successor collective bargaining agreement. Based on this understanding, Arbitrator Fishgold set out to “attempt to apply concepts generally applicable to retroactive pay in order to determine the methodology of allocation of the $17.5 million,” while acknowledging that the Fund represented a “hybrid” of traditional retroactive pay analyses that was never intended to compensate pilots for the full period of time between collective bargaining agreements.

The Republic MEC proposed that $13.9125 million (79.5%) of the $17.5 million fund be allocated to the Republic MEC and its pilots, with the remainder (21.5%) allocated to the Northwest MEC and its pilots. The Northwest MEC argued that since the allocation of the Fund to the two groups of pilots could not be properly calculated to reflect the actual retroactive pay for the pilots, the Fund should be divided equally between the two MECs and each MEC would then fairly and equitably allocate its half of the Fund amongst the members of its pilot group.

Arbitrator Fishgold noted that the absence of records (and lack of obligation on the part of Northwest to provide them) made it difficult, if not impossible, to individually analyze the circumstances of each covered pilot to assess the appropriate amount of retroactive pay for each individual. He rejected wholesale adoption of the costing models presented by the MECs, as the models had been developed during ALPA’s negotiations with Northwest and were based both on an estimate of a larger retroactive pay fund and on a more traditional retroactive pay analysis. Moreover, the models were recognized not to have been prepared for the purpose of addressing how ALPA might distribute the proceeds of a retroactive pay fund to the two groups of pilots or to individual pilots.

In order to determine the proper division of the Fund, Arbitrator Fishgold set out to “weigh” the economic pain suffered by the pilot groups as a result of their respective periods without contracts – 38 months for the pre-merger Northwest pilots and 29 months for the Republic pilots. He noted that, for the time period between the Department of Transportation’s approval of the merger and the effective date of the pay periods of the CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 14 of 26 post-merger collective bargaining agreement, the Republic pilots had clearly been paid less than their pre-merger Northwest counterparts. The disparity was due to both the relatively lower level of piloting experience in the Republic ranks, as well as the impact of concessions by the Republic pilots in their 1984 bargaining with the carrier. Pursuant to ALPA’s collective bargaining agreement with Republic, the Republic pilots received significant increases in pay after the amendable date of the Northwest collective bargaining agreement and through June of 1987. Beginning the next month (July 1987), an agreement between NWA and the Republic pilots again increased the Republic pilots’ pay rate by 1% per month which, according to Arbitrator Fishgold’s calculations, brought the hypothetical Republic 727 pilot to an hourly wage by September 1988, that effectively undid the concessionary impact of the 1984 bargaining. Finally, the joint collective bargaining agreement immediately equalized the wages of the Republic pilots with the wages of the Northwest pilots and all pilots then received a 3% weighted average wage increase.

Based on these increases, Arbitrator Fishgold concluded that the Republic pilots had gained more in terms of pay from post-merger negotiations (both in absolute amount and in percent increase) than had their pre-merger Northwest counterparts.

Based on those facts, Arbitrator Fishgold found it equitable and appropriate to divide the Fund equally between the Republic and pre-merger Northwest MECs. In addition to the wage rate analysis set out above, he noted that there were fewer pilots in the Republic group than in the pre-merger Northwest group, resulting in a higher per- capita amount for the Republic group in the event of an equal split of the Fund and compensating further for their prior reduced wage rate.

His recommended methodology for allocation within the pilot groups (which he made advisory and non-binding) was a combination of ratios of retroactive pay based upon extrapolation from pay received in the 10 month period preceding September 1989, special treatment for certain equipment and statuses, certain minimums and maximums, and exclusions from the general approach for recently hired pilots who were to receive compensation from the Fund on a basis linked to the number of months of their employment.

Overview of Bargaining History Regarding the Retro Pay/Lump Sum Provisions of the Agreement in Principle

As previously noted, on August 2, 2012, an Agreement in Principle (“AIP”) was reached between ALPA and United that, among other things, provided for a $400 million Lump Sum Payment, payable in two installments. ALPA was responsible for allocating the payment, both among the respective pilot groups and thereafter to individual pilots. Agreement was reached that each MEC would determine the most appropriate method for distributing its share of the payment to the individual pilots in its group. That issue is not, therefore, presented for decision in this arbitration. The sole deadlocked question is to determine how much of the $400 million is to be provided to the CAL MEC for allocation to its pilots and how much of the $400 million is to be provided to the UAL CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 15 of 26

MEC for allocation to its pilots.

Testimony revealed that, from the perspective of the MECs, the Lump Sum Payments is intended to compensate or “atone” for losses suffered by the pilots in the period prior to execution of the new joint collective bargaining agreement and prevent the Carrier from benefitting from the delay between the amendable dates of the prior collective bargaining agreements and the effective date of the new joint collective bargaining agreement.

At various times in the bargaining, ALPA proposed retroactive pay, Lump Sum Payments, signing bonuses, an equity stake in the Carrier, or a combination of those items as the mechanism for addressing ALPA’s claim retroactive pay. In the final analysis, however, the Carrier and ALPA reached an Agreement in Principle that consisted of a Lump Sum Payment (paid in two parts) that totaled $400 million and no other provisions for retroactive pay.

A significant amount of testimony was devoted to the history of bargaining between the Carrier and the JNC on the matter of retroactive pay/lump sum. That testimony was largely undisputed and is summarized below.

In or about August of 2010, the Carrier and ALPA began negotiations for a joint collective bargaining agreement. After a number of exchanges over minor issues, the Carrier provided the JNC, on October 27, 2010, with its first comprehensive proposal for a joint collective bargaining agreement. The October 27 Carrier proposal contained no terms relating to retroactive pay. Its only mention of Lump Sum Payments was a proposal for an enhanced early retirement program involving $250,000 cash incentive payments for early retirees, contingent on the Carrier and ALPA reaching agreement on a joint collective bargaining agreement, and ALPA submitting a single integrated seniority list before the Carrier obtained its single operating certificate from the FAA.

On December 15, 2010, the JNC submitted its first comprehensive joint collective bargaining agreement proposal to the Carrier. The December 15 ALPA proposal included, in a spreadsheet grid labeled “3-x Retro Pay”, proposed terms for “Full retro pay on 2011 hourly rates to respective amendable dates, including pension contributions. DC increases retroactive to amendable dates.” At the time of the submission of December 15th proposal, both the Carrier and ALPA envisioned that a joint collective bargaining agreement would likely be executed in the relatively near future. As a result, the JNC’s proposal for retroactive pay was based upon application of the pay rates under the joint collective bargaining agreement back to the pilot groups’ respective amendable dates, and retroactive increases to Defined Contribution accounts for both pilot groups back to their respective amendable dates, as well as an increase in DC Plan rate for the CAL pilot group.

There was no discussion concerning any compensation issues, including claims for retroactive pay/lump sums in 2011 and the first five months of 2012. The Parties had approximately 500 open items when joint bargaining began. By June 2012, the number of open items had been reduced to 100 or so. CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 16 of 26

Between June 4 and June 29, 2012, the JNC and members of the Carrier’s negotiating team met in New York City in assisted bargaining conducted under the auspices of the National Mediation Board (“NMB”). The Carrier’s June 6, 2012 proposal included, in a spreadsheet grid labeled “Retroactive pay,” a proposal for a “Signing Bonus of $7,500.00 to each active pilot.”

The following day, on June 7, 2012, ALPA responded with its own comprehensive proposal, countering the Carrier’s June 6 “Retroactive pay” proposal language with the following:

Retro calculated using credit hours paid at DOS [date of signing] rate per attached sheet (Delta rates) back to respective amendable dates, including pension contributions. DC increases retroactive to amendable dates. (Not offset for years where CAL was better than Delta) Split into 2 payments – year of signing and following year, dates TBD [to be determined].

This proposal reflected a significant change from ALPA’s prior position regarding calculation of retroactive pay. Previously, ALPA had proposed, as discussed above, that retroactive pay be calculated based upon the difference between the respective pilot rates earned by CAL and UAL pilots during the respective amendable periods, and the pilot rates agreed to by the JNC and the Carrier in the eventual joint collective bargaining agreement for the same seat and equipment. The JNC had advanced that proposal under the assumption that the negotiations with the Carrier would result in the execution of the joint collective bargaining agreement in early 2011. By the time that the JNC made its June 7, 2012 proposal, it was clear that the amount of retroactive pay due to the pilot group under this proposal would exceed $1 billion and would be much greater than any amount that the Carrier might be willing or able to pay. Understanding, after discussions with NMB mediators, that the Carrier was unlikely to move on the issue if presented with such an extreme position, the JNC sought to present the Carrier with a proposal for a one-time payment that, while beneficial to both pilot groups, represented what ALPA believed the Carrier might be able to agree.

ALPA looked to the pilot rates under the recently completed collective bargaining agreements between DAL and ALPA. (On May 23, 2012, ALPA and Delta Air Lines had signed a new collective bargaining agreement setting out new pilot wage rates that were, for all equipment and seats, higher than the prior rates for Delta pilots which, in turn, had already been higher than most of the comparable CAL and UAL pilot rates for the same time period.) Further, there were proposals that the wage rates in the joint collective bargaining agreement between the Carrier and ALPA be based, in large part, upon the newly bargained DAL rates. The JNC thus proposed that CAL and UAL pilots receive a non- traditional form of retroactive pay – i.e., retroactive pay equaling the difference between the respective pilot rates earned by CAL and UAL pilots during the respective amendable periods, and the applicable pilot rates under the Delta collective bargaining agreements in effect at the same time for the same seat and equipment. As discussed in some detail above, ALPA E&FA personnel performed calculations that valued the cost of this proposal at approximately CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 17 of 26

$438 million for wages alone and $538 million if one also included adjustments for fringe benefit costs that rolled up with the increase in pay.

On June 11, 2012, the Carrier responded by proposing a signing bonus of $75 million under the “Retroactive pay” term. On June 13, 2012, ALPA responded by proposing that “Retroactive pay” be “TBD, benchmark is Delta rates in prior years to amendable dates.” The use of the “TBD” term reflected the understanding of the JNC that the economic terms of the joint collective bargaining agreement were likely to be hammered out at the conclusion of negotiations. This proposal allowed the JNC to continue to pursue resolution of other parts of the joint collective bargaining agreement without allowing the issue of lump sum or retroactive payments to hold up the overall negotiations.

On June 15, 2012, the Carrier responded with a proposal of a lump sum of $150 million. The JNC responded on June 25, 2012 with a proposal of “TBD” for retroactive pay/equity. ALPA attempted to increase the amount of the lump sum by introducing the idea that a certain portion of that obligation could be in the form of stock in United. The Carrier was strongly opposed to that prospect.

In an attempt to accelerate progress on the negotiations, the JNC advanced a “supposal” – i.e., a floating of a conditional proposal rather than a commitment to a position – on June 27, 2012 that omitted any terms regarding retroactive pay or the like. By the following day, retroactive pay had re-entered the ALPA’s supposals, and ALPA submitted supposals to the Carrier on June 28 and 29, 2012 which each, under the label of “Retro Pay/Equity/cashless options,” proposed “Retro calculated back to respective amendable dates against Delta rates plus DC. Payable as $150M in cash, balance paid out by combination of equity and supplemental profit sharing plan. Equity/options TBD”

The Company responded on June 29, 2012 with a proposal to provide a lump sum of $150 million as well as the following choice of terms: either an addition of $50 million to the lump sum, or

Delta 7/1/12 TA rates at DOS plus: 3.8% 1/1/2013; 4.0% 1/1/2014; 4.0 % 1/1/2015; 2.3%% 1/1/2016. Banding as follows: Band A – A380; Band B – A350, 747, 777, 787,767-400 (787 placement in band B contingent upon solution of 787-8 vs 787-9 issue); Band C – 767-200/300, 757-300, A330; Band D – 757-200, 737-900/800, A320/A321;MD80/90 Band E – A319, 737-500/700, CS300; Band F – Regional Jets – TBD

That same day, negotiations between the Carrier and ALPA broke down. The two sides took several weeks to regroup.

On July 25, 2012, the Carrier and ALPA met at NMB headquarters in Washington, D.C., where the Carrier submitted a proposal which included, under the label of “Retroactive pay/lump,” terms of “Lump Sum of $300M (total cost, including fringe items such as any associated DC contribution) – 50% payable at DOS, 50% payable upon conclusion and submission to Company of single CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 18 of 26 seniority list.” The negotiations broke down again, but for a briefer period, and talks resumed at the Mayflower Hotel in Washington, D.C. on July 31, 2012.

On July 31st, the Carrier presented a proposal which included terms of “Lump Sum of $250M (total cost, including fringe items such as any associated DC contribution) – 50% payable at DOS, 50% payable upon conclusion and submission to Company of single seniority list.” In response, the JNC offered proposal terms that included “Full Retro pay – $150M payable at DOS, $150M payable one year after DOS, remainder in equity.” After consulting with support staff, the E&FA team informed the JNC that, according to its calculations, “full” retroactive wages (based upon the DAL retroactivity methodology) would amount to approximately $438 million, and that full retroactive benefits for this same proposal would amount to approximately $100 million more.

Based on discussions with both the E&FA team and the NMB mediators, the JNC understood that, in order to induce the Carrier to move above a retroactive pay/lump sum amount of $300 million, the JNC would have to identify concessions of equivalent economic value to the monetary gains that were being sought. After discussions with the Carrier as to the value of particular contractual provisions, ALPA submitted a proposal on August 1, 2012 which included, under “Retroactive pay/lump,” the following terms:

Full Retro pay –$250M payable at DOS, $150M payable upon conclusion and submission to Company of single seniority list. Establish mechanism to audit reserve usage as discussed. Current CAL 757-200 lie flat aircraft can be augmented without blocking the adjacent seat, if pilot is in window seat. Last seat assigned. Delay 1 for 3.5 trip rig implementation to one year after OMD. Use s-UA 1 for 4 until then.

The proposal would result in a payment to the new joint bargaining unit of $250 million as of the date that the joint collective bargaining agreement was signed, and another payment of $150 million upon the submission, by ALPA to the Carrier, of an integrated seniority list. In return, the JNC would agree to extend the amendable date of the contract by two months, relinquish an additional “walkover” seat on international flights requiring augmented staffing on 757-200 aircraft (all of which were flown in the CAL operation), and delay an improvement in the trip rig ratio for pilots. In addition, ALPA convinced the Carrier to allow the pilot groups to take $30 million of value associated with an expected decrease in the Carrier’s reserve utilization percentage, with the understanding that the pilot group would be responsible for returning some or all of that amount to the Carrier in the event that the predicted reserve utilization savings did not materialize. These trades gave sufficient value to the Carrier to move the Carrier’s retroactive pay/lump position to $400 million and for the Carrier and the JNC to reach agreement on that contentious issue.

The final AIP “Retroactive pay/lump” provision stated:

CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 19 of 26

Lump sum 250M payable at DOS, $150M payable upon conclusion and submission to Company of single seniority list, total cost including fringe items such as any associated DC contribution) -- allocation to be determined by ALPA. Establish mechanism to audit reserve usage as discussed (recapture up to $30M annual valuation difference). Current CAL 757-200 lie flat aircraft can be augmented without blocking the adjacent seat, if pilot is in window seat. Last seat assigned. Delay 1 for 3.5 trip rig implementation to one year after OMD. Use s-UA 1 for 4 until then.

The AIP was finalized on August 2, 2012 and provided for payment of a lump sum of $250 million on the date of signing of the joint collective bargaining agreement, with a second payment of $150 million upon ALPA’s submission of a single integrated seniority list. Notably, the final AIP language specified that allocation of the $400 million was the responsibility of ALPA. On or about August 3 or 4 or 5, 2012, ALPA’s E&FA staff provided the JNC members for the first time with a summary of the calculations and description of the model that was used to calculate the $438 million and $538 million figures. As discussed earlier herein, of the $438 million retroactive pay amount, E&FA estimated, based on its assumptions and analysis model, $294.9 million was attributable to the UAL pilot group, while the remaining $143.3 million was attributable to the CAL group. The summary document did not allocate the retroactive benefit costs to one pilot group or the other.

CONTENTIONS OF THE UAL MEC

There are a number of reasons why the $400 million Lump Sum Payment should be allocated 67% to the UAL MEC and 33% to the CAL MEC. This allocation is supported by the analysis of the E&FA Department, the only analysis in the record performed by a neutral entity. The record reflected that the analysis was performed in accord with costing methodology typically used by ALPA in the valuation of retroactive pay proposals.

The E&FA analysis is of particular relevance because it was utilized by the JNC during the negotiations when formulating the Association’s position in bargaining. Even if the purpose of the analysis was not to allocate the Lump Sum Payment between the CAL and UAL MECs, the “bottom line” valuation of retroactivity was accepted by both MECs as persuasive.

There are a number of other reasons why the proposed allocation is fair and equitable. The UAL pilots significantly outnumber the CAL pilots. There are approximately 25% more UAL pilots than CAL pilots. The pay of the UAL pilots was significantly lower than the CAL pilots during the period. The retroactive pay, therefore for the UAL pilots in the aggregate should be substantially greater than that of the CAL pilots in the aggregate notwithstanding the additional year of retroactive pay due to the CAL pilots. The harm suffered by the UAL pilots in delaying their receipt of the wages contained in the joint collective bargaining agreement is greater than that of the CAL pilots. CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 20 of 26

The request by the CAL MEC that an adjustment should also be made for the difference in DC monies to the CAL and UAL pilots should be rejected. In the negotiations that led to the acceptance of the AIP, including the $400 million lump sum, the JNC was operating on the understanding that the retroactivity being valued was only that for wages. No one during the internal JNC deliberations or the facilitated bargaining that took place with the Carrier stated that the E&FA analysis was flawed in any way or should not be considered when gauging the relative proportions of retroactivity associated with each pilot group. In light of the basis on which the lump sum was negotiated, it would be inappropriate and unfair to change in this arbitration to encompass DC monies and to use completely different benchmarks and data.

The calculation of “full” retroactivity based upon the joint collective bargaining agreement being applied retroactively to 2009 (CAL pilots) and 2010 (UAL pilots) should be rejected as an appropriate yardstick to allocate the Lump Sum Payment in this case for a number of reasons. First, the calculation is mathematically flawed since it fails to take into account longevity between 2009 and 2012 which, in the case of the CAL pilots, is significant. Second, the evidence of bargaining history revealed that at no time in the bargaining did the Carrier ever indicate a willingness to provide full contractual retroactivity and this became even more clear once the significant wage increases provided for in the joint collective bargaining agreement were determined.

For all of these reasons, the neutral and professional analysis of the E&FA should be utilized as the benchmark for allocating the Lump Sum Payment in this case.

CONTENTIONS OF THE CAL MEC

The Award of Arbitrator Fishgold in the Northwest-Republic arbitration recognizes that the most that can be expected is a ruling that represents rough justice based upon consideration of the relative pains associated with the delay in obtaining a successor collective bargaining agreement at or near the amendable date. In that earlier matter, Arbitrator Fishgold relied upon the fact that Republic pilots had gained the most from the new collective bargaining agreement and that the Northwest pilots had gone furthest beyond the amendable date to support an even split of the retroactive Fund, rejecting the request of the Republic pilots (who were much lower paid) to receive the bulk of the available monies. Similarly in this case, the CAL pilots have gone furthest beyond the amendable date and the UAL pilots have gained the most from the new collective bargaining agreement. Those facts would militate in favor of an even split of the $400 million.

In this case, however, equitable allocation can be on a somewhat more precise basis. Unlike the Northwest-Republic arbitration, the Parties to this dispute provided the Arbitrator with precise and reliable wage information from which the proportionate values of a full, traditional retroactive pay award can be measured. Despite the opposition from the Carrier, both the CAL MEC and UAL MEC acknowledge that the $400 million Lump Sum Payment is intended to compensate pilots for the lack of CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 21 of 26 retroactivity in the joint collective bargaining agreement. The fact that the lump sum is less than the value of true, full retroactivity is no basis to skew the allocation of that lump sum. Each group should receive its full pro-rated share of the retroactive pay that would have been received if sufficient monies could have been negotiated from United in Section 3.20 to have fully funded that obligation.

The reliance of the UAL MEC upon the E&FA analysis is misplaced. That analysis was never intended to form the basis for the allocation of the Lump Sum Payment. The fact that the E&FA applied a uniform adjustment for fringe benefits makes that clear. Moreover, that analysis was prepared in order to cost a proposal by ALPA that was never included in the AIP – a non-traditional retroactivity formula based upon DAL wage rates that never were contractually applicable to the CAL and UAL pilots. It is inconceivable that the sophisticated UAL MEC and CAL MEC Chairs would have agreed to use the E&FA analysis to allocate the Lump Sum Payments among the pilot groups. If such an understanding existed, it would have been placed in writing. Nor can a claim of reliance be made. The full analysis, including the calculational breakdown between CAL and UAL pilot retroactivity on wages was not shared with the JNC or the MEC Chairs until after the AIP terms had already been agreed to.

Moreover, to the extent that the E&FA analysis is deemed significant, it must be adjusted to recognize the improper offsetting of CAL wages in 2009, as well as the failure to adequately recognize the different DC Plan contribution rates for the two pilot groups prior to the new joint collective bargaining agreement becoming effective.

To the extent that the Arbitrator believes that the Lump Sum Payment is not designed as a replacement for retroactive pay, but is a hybrid of traditional retroactivity and a lump sum, it should be divided equally. Under no circumstances, however, would the 67%/33% allocation be appropriate.

The $400 million was the result of hard bargaining. The Carrier’s move from its offer of $300 million to its final $400 million offer was the result of identifying countervailing “savings” to offset the increased Lump Sum Payment amount. A number of those items involved concessions that disproportionally impacted CAL pilots. Thus, the contribution of the CAL pilots towards the Lump Sum Payment was greater than the contribution of the UAL pilots and even a true pro-rata distribution would be unduly generous towards the UAL pilots.

Additionally, Arbitrator Fishgold focused, among other factors, upon the relative wage gains by each pilot group from the joint collective bargaining agreement. In this case, the UAL pilot group achieved much greater wage gains from the new wage rates than the CAL pilot group. That fact, coupled with the larger size of the UAL pilot group, means that the vast majority of the wage gains from the new joint collective bargaining agreement will flow to UAL pilots. Granting the UAL pilots a disproportionate share of the Lump Sum Payment will simply exacerbate that inequity.

The record also reveals that the higher wage rates paid to CAL pilots over the CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 22 of 26 years were the product in large measure of the acceptance by the CAL pilots of work rules that were less favorable (from the viewpoint of the pilots) than their counterparts at UAL. It is also unbalanced to hold against the CAL pilots their higher wage rates when allocating the $400 million. While an allocation that gives full credit for the lower wages paid to UAL pilots will allow them to be fully proportionately compensated for the lower wages, the CAL pilots cannot be given retroactive rewards of more favorable working conditions to mirror those under which the UAL pilots worked during the amendable period. Although the CAL MEC does not seek an adjustment to the allocation due to that fact, it should be considered by the Arbitrator when deciding whether the proposed 52% CAL/48% UAL allocation is fair and equitable.

A per capita allocation should be rejected for several reasons. First, it has not been advocated by either MEC, both of whom recognize that the $400 million Lump Sum Payment is intended as recompense for a lack of retroactivity. It is not a signing bonus that typically is allocated equally among all pilots. Second, the Manual recognizes the obligation of the MECs, even absent that subjective intention as reflected in the testimony and the evidence of bargaining history, to consider such factors as past, current, and projected rates of pay, seniority and/or longevity, benefits, employment status, and per capita or pro rata distribution, or a combination thereof. The greater number of block hours flown by the CAL pilots also supports rejection of a per capita approach which would provide equal payments per pilot on average regardless of the pilot’s status as a CAL or UAL pilot. In this case, the relevant factors militate, on balance, against a per capita distribution.

For all of these reasons, the Arbitrator should award the CAL MEC 52% of the $400 million lump sum, or $208 million, and the UAL MEC 48% of the $400 million lump sum, or $192 million.

DISCUSSION AND OPINION

After careful consideration of the entire record, I find that the most equitable and appropriate allocation of the $400 million Lump Sum Payment in this case is one that will allocate $175 million to the CAL MEC and $225 million to the UAL MEC. A summary of the principal reasons for this holding follows.

Both MECs recognize that the allocation ordered in this case should result in an equitable outcome and be appropriate based upon consideration of all of the relevant facts in this case. The Manual uses a similar standard for those occasions when an MEC addresses allocation questions. The Manual also urges the MECs to focus upon the purposes or reasons for any Lump Sum Payment when making the determination as to how to allocate that payment.

In this case there are multiple purposes or reasons for the Lump Sum Payment, depending upon whether one focuses upon the bargaining intent of the JNC or that of the Carrier. Throughout the negotiations for a new joint collective bargaining agreement, the CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 23 of 26

Carrier consistently maintained that it was agreeable to providing a Lump Sum Payment, but refused to agree to any retroactive pay obligation. The Carrier’s proposals varied somewhat, but the Carrier never agreed to provide any retroactive pay as such to the CAL or UAL pilots.

Nor did the Carrier increase its Lump Sum Payment amount based upon any retroactive pay formula or calculation. In fact, the increases beyond $300 million were attainable only by identifying other items in the joint collective bargaining agreement that could be delayed or modified and trading savings believed to be roughly equivalent in value to the additional $100 million that the Carrier agreed to add to the Lump Sum Payment. If one treats the payment as tantamount to a lump sum bonus, then an argument can be made that the most equitable and appropriate allocation method is one based upon an equal per pilot allocation method. If one is going to reference the pilot populations and use a per capita approach, then the more accurate measure of CAL and UAL pilot populations was the figure obtained from analysis of actual payroll information at CAL and UAL. Use of the latter allocation method would suggest that the equitable and appropriate payment should be one of $175 million to the CAL MEC and $225 million to the UAL MEC.

From the vantage point of ALPA, however, the Retroactive Pay/lump payment was intended to substitute for retroactive pay at the DAL rates in effect during 2009-2012 (CAL) and 2010-2012 (UAL). The JNC appreciated that full, traditional retroactive pay based upon retroactive application of the wage provisions of the new joint collective bargaining agreement would be unachievable. The amount of money needed to fund such a commitment was over $1 billion. Given the financial status of the Carrier, and the substantial wage improvement obtained prospectively under the joint collective bargaining agreement, it became clear to ALPA as of June 2012 (if not earlier) that the best that could be negotiated was a more limited form of back pay, based upon the DAL rates in effect during the retroactive pay period (i.e., 2009-2012 for the CAL pilots and 2010-2012 for the UAL pilots). Moreover, given the fact that the Carrier and the Union were negotiating about wage rates that were based upon the newly bargained DAL-ALPA rates, the JNC asked that the cost estimates for the negotiated “Retroactive pay/lump” be calculated on the basis of a retroactive pay approach that was based upon DAL wage rates during the retroactive pay period, rather than the new joint collective bargaining agreement rates. These facts, viewed together, make it clear that the purposes or reasons for the Lump Sum Payment, from the vantage point of the JNC, was to allow pilots to receive significant portions of retroactive pay based upon the difference between the DAL rates and the CAL and UAL rates in effect in 2009, 2010, 2011, and 2012.

The E&FA analysis of the amounts of retroactive pay that would be due (if fully funded) for the CAL and UAL pilots would – based upon the difference between the DAL rates and the rates actually paid to the CAL and UAL pilots in the relevant retroactive pay period and after adjustment for the offset issue and the DC Plan contributions issue – commend an allocation of $168 million for the CAL MEC and $232 million for the UAL MEC. As discussed earlier herein, I am persuaded that the adjustments for the offset issue and the difference in DC Plan contribution rates must be CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 24 of 26 recognized when calculating retroactive pay based upon the use of DAL rates.

There are a number of facts, however, that would suggest that the allocation suggested by the E&FA analysis must also be further adjusted in favor of the CAL MEC. The primary facts that warrant additional adjustment include the following:

1) the negotiating history regarding the increase in the $300 million lump sum payment to $400 million indicated that the items exchanged for this additional $100 million included several items that impacted disproportionately upon the CAL pilots; the reductions in reserve utilization are directed largely at the UAL pilot group since the CAL reserve utilization was already very low; the savings associated with the walkover seat issue related to aircraft configurations flown at present only by CAL pilots;

2) although the E&FA analysis modeled more hours paid for the CAL pilots on average than for the UAL pilots on average given the differences in block hours flown (both in the aggregate and on a per pilot basis) there is some reason to believe that the differential may have been conservative; and

3) most significantly, the higher CAL wage rates (which have the effect of skewing the retroactive pay calculation in favor of the lower paid UAL pilot group) was linked to a significant degree to work rules and conditions that were less favorable from the pilots’ perspective than those negotiated by and on behalf of the UAL pilots; while the UAL MEC will receive full retroactive credit for the entire wage difference, the CAL MEC pilots can obtain the benefit of the corresponding work rules and conditions only on a prospective basis; under these circumstances, equity would support some adjustment in favor of the CAL MEC allocation to treat the two pilot groups equitably and similarly.

The record does not provide sufficient information to allow a precise finding as to the magnitude of the adjustment that would be fair and appropriate in light of these and other relevant factors. The most that can be said on the basis of this record is that consideration of these and other factors warrant further allocations in favor of the CAL pilots, but not so much that it will result in an unreasonable outcome in light of the fact that the UAL pilots were paid at significantly lower pay rates than the CAL pilots and the fact that there are significantly more UAL pilots.

When the additional adjustment is considered, however, I find that it points in the direction of an allocation that is close to $175 million for the CAL MEC and $225 million for the UAL MEC. While I cannot conclude with precision the exact adjusted allocation that is equitable and appropriate under a retroactive pay scenario, based upon the totality of these facts, the $175 million/$225 million allocation seems reasonable and in the midst of a range of reasonable allocations that one might select in this case.

Thus, the weight of the credible record evidence in this case suggests that regardless of whether the primary purpose of the $400 million Lump Sum Payment is one of providing retroactive pay or not, the indicators point to the same outcome for allocating these monies – $175 million (43.75%) for the CAL MEC and $225 million CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 25 of 26

(56.25%) for the UAL MEC.

The argument of the CAL MEC that the purpose and benchmark for an equitable and appropriate allocation in this case should be one based upon analysis of “traditional” full retroactive pay based upon application retrospectively of the new joint collective bargaining agreement wage rates is rejected. As discussed earlier herein, use of this retroactive pay approach was never a realistic or attainable negotiating goal in this case, at least after the point in time when the 2012 DAL-ALPA Pilot Working Agreement became the pattern for the tentatively agreed upon joint collective bargaining agreement between the Carrier and ALPA.

Several other matters require brief comment. The assertion that the E&FA analysis, without modification, was understood at the time of the bargaining by both the CAL MEC and UAL MEC representatives to provide the blueprint for the allocation of the Lump Sum Payment is unpersuasive for several reasons. First, the purpose of the E&FA analysis was to create rough, but realistic aggregate cost estimates associated with the proposal under discussion, nothing more and nothing less. Second, the details as to the allocation of cost/value between the CAL and UAL retroactive pay pools were not even shared with the JNC members and MEC Chairs until after the AIP was reached. Thus, there is no basis to find that there was any detrimental reliance upon those estimates during the bargaining process. Third, it is unlikely that the Parties would have agreed blindly to use the results of a model to allocate such a large sum, particularly in light of the fact that the E&FA analysis did not accurately reflect the situations of the individual pilot groups on the very significant item of retroactive DC Plan contribution rates or on the important, but less significant, item of offset.

The decision of Arbitrator Fishgold to split evenly the lump sum amount in his arbitration provides no indication that such an approach is equitable or appropriate in this case. There was a lack of record data in the Northwest-Republic arbitration that would have permitted the reasoned allocation contained in this Opinion and Award. Moreover, an equal split was not an item that necessarily had great intrinsic merit. In that case, one MEC (Republic) was seeking a very skewed allocation, the other (Northwest) was advocating an equal split, and, as noted, there was no principled reason to conclude that another allocation was equitable and appropriate.

As previously noted, nothing in this Opinion and Award is intended to express any views whatsoever regarding any issues that may be significant with respect to the future integration of the CAL and UAL seniority lists. The focus in this case is different, the issue is a limited one, and the holding is based upon the record evidence in this case.

Finally, as noted, the agreed upon issue in this case is limited to the initial allocation of the $400 million between the CAL MEC and UAL MEC. Nothing in this Opinion and Award is intended to express any views whatsoever regarding the manner(s) or the outcome(s) of the decisions by the CAL MEC and the UAL MEC to allocate their allocated portions of this amount to individual pilots.

CAL MEC and UAL MEC (Allocation of Retroactive Pay/Lump Sum) Page 26 of 26

AWARD

The Four Hundred Million Dollar ($400,000,000) Retroactive Pay/lump agreed to as part of the Agreement in Principle reached August 2, 2012 between ALPA and United Airlines is to be allocated as follows:

One Hundred Seventy-Five Million Dollars ($175,000,000) to the Continental Airlines Master Executive Council of the Air Line Pilots Association; and

Two Hundred Twenty-Five Million Dollars ($225,000,000) to the United Airlines Master Executive Council of the Air Line Pilots Association.

November 5, 2012

Ira F. Jaffe, Esq. Impartial Arbitrator

Attachment B

CONFIDENTIAL CONFIDENTIAL

AIRCRAFT TRENDS Represents Fleet Trends Absent the Merger 2000-2010 Actual Aircraft Count 2011-2016 Firm Aircraft Orders/Scheduled Deliveries

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