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 i 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 ii 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