DELTA PILOTS’ CONTRACT HISTORY July 2014 CONTRACT 2015 Delta Pilots’ Contract History A History of the Pilot Contracts at Delta and Northwest TABLE OF CONTENTS INTRODUCTION . 1 DELTA/NORTHWEST FINANCIALS 1995–2013 . 3 NORTHWEST 1998 CONTRACT . 4 DELTA 2001 CONTRACT (C2K) . 6 NOrthwEST 2002 CONTRACT . 8 NOrthwEST 2004 “BRIDGE/INVESTMENT” CONTRACT . .. 10 DELTA 2004 INTERIM CONTRACT (LOA #46) . 12 NOrthwEST 2006 BANKRUPTCY CONTRACT . .. 14 DELTA 2006 BANKRUPTCY RESTRUCTURING AGREEMENT (LOA #51) . 17 2008 JOINT COLLECTIVE BARGAINING AGREEMENT (JCBA) . 20 2012 CONTRACT (C2012). 22 SUMMARY . 25 INTRODUCTION This “Contract History” is intended to provide background through a review of historical facts and perspectives of past negotiations at Delta and Northwest. In the past few Negotiators’ Notepads, we provided you with an overview of the Section 6 process. The historical review that follows demonstrates how that process is often impacted—at times driven—by outside or unexpected events such as state of the industry and/or economy, bankruptcy, 9/11, etc. In reviewing each of the negotiations included in this document, the following information is presented: hhA review of the negotiating environment and process hhKey results of the negotiations, both positive and negative hhComments Information is also provided to give you some understanding of the financial environment that existed at the time of each negotiation. hhThe source information is from SEC Filings, U.S. DOT Form 41 and the U.S. Energy Information Administration hhDelta’s figures for 1995 through 1998 present Delta’s fiscal year July 1–June 30 hhDelta’s figures for 2008 and beyond include Northwest’s figures hhFinancial results exclude special and one-time items hhPilot Cost per Available Seat Mile (CASM) is based upon wages, benefits, payroll taxes, and personnel expenses (former Northwest freighter operation not included) Financial data terms and definitions: hhOperating Revenue – total revenue generated by passengers, cargo, ancillary, and maintenance/repair/overhaul performed for outside clients, expressed in millions of dollars; excludes revenue from investment activities hhOperating Income – operating revenues minus operating expenses (total expenses required to produce the operating revenue, expressed in millions of dollars; excludes capital expenditures and debt repayment, among other things) hhOperating Margin – operating income expressed as a percentage of operating revenue; relates operating income (profit or loss) to size of the airline hhPre-Tax Income – operating income minus net interest and other expenses, expressed in millions of dollars hhPre-Tax Margin – pre-tax income expressed as a percentage of operating revenue; relates pre-tax income (profit or loss) to size of the airline July 2014 1 hhPilot CASM (Cost per Available Seat Mile) – the average pilot cost, expressed in cents, for one seat flown one mile hhAvailable Cash – based on unrestricted and restricted cash, short-term investments, and undrawn lines of credit, as of December 31 (June 30 from 1995–1998 for Delta) of the indicated year, expressed in millions of dollars hhBlock Hours – total hours operated during the year hhCrude Oil – average price of barrel of West Texas Intermediate for the calendar year We hope this document provides you with a historical perspective of our past contracts and the operating environments in which they were negotiated. John Morgado Matt Coons Heiko Kallenbach Delta MEC Negotiating Committee 2 DELTA & NORTHWEST PIlot Contract HIstorIES DELTA/NORTHWEST FINANCIALS 1995–2013 In an attempt to help you understand the negotiating environment for each of the contracts that were negotiated during this period, it is helpful to review the time specific financial situation of each airline. Below is a year-by-year analysis of the two airlines’ financials over the period of this historical contract review. As part of the discussion of each individual contract, we have also provided the financials for the three-year timeframe of the specific contract negotiation reviewed. Negotiating Financial Timeline (Pre-Merger Delta) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Operating Revenues ($M) 12,194 12,455 13,594 14,057 14,883 16,741 13,879 13,866 14,308 15,235 16,480 17,532 19,154 Operating Income ($M) 661 1,292 1,583 1,694 1,787 1,745 (1,117) (904) (915) (1,474) (1,113) 381 1,105 Operating Margin 5 .4% 10 .4% 11 .6% 12 .1% 12 .0% 10 .4% -8 .0% -6 .5% -6 .4% -9 .7% -6 .8% 2 .2% 5 .8% Pre-Tax Income ($M) 494 1,105 1,467 1,680 1,675 1,347 (1,506) (1,581) (1,674) (2,290) (2,087) (439) 625 Pre-Tax Margin 4 .1% 8 .9% 10 .8% 12 .0% 11 .3% 8 .0% -10 .9% -11 .4% -11 .7% -15 .0% -12 .7% -2 .5% 3 .3% Available Cash ($M) 1,762 1,652 1,170 1,634 2,316 1,607 2,210 2,603 2,917 2,147 2,878 3,398 4,306 Block Hours 1,953,319 2,001,755 2,100,902 2,161,141 2,220,232 2,256,902 2,114,403 1,924,017 1,787,252 1,933,922 1,923,533 1,729,148 1,758,101 Crude Oil - barrel 18 .43 22 .12 20 .61 14 .42 19 .34 30 .38 25 .98 26 .18 31 .08 41 .51 56 .64 66 .05 72 .34 Pilot CASM (¢) 1 .15 1 .32 1 .07 1 .04 1 .04 1 .19 1 .34 1 .51 1 .83 1 .69 1 .18 1 .02 0 .77 Negotiating Financial Timeline (Pre-Merger Northwest) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Operating Revenues ($M) 9,085 9,881 10,226 9,045 10,133 11,240 9,905 9,976 10,077 11,279 12,286 12,568 12,528 Operating Income ($M) 914 1,054 1,157 921 661 694 (636) (431) (166) (225) (789) 766 1,085 Operating Margin 10 .1% 10 .7% 11 .3% 10 .2% 6 .5% 6 .2% -6 .4% -4 .3% -1 .6% -2 .0% -6 .4% 6 .1% 8 .7% Pre-Tax Income ($M) 544 883 985 682 386 502 (903) (778) (583) (696) (1,330) 327 759 Pre-Tax Margin 6 .0% 8 .9% 9 .6% 7 .5% 3 .8% 4 .5% -9 .1% -7 .8% -5 .8% -6 .2% -10 .8% 2 .6% 6 .1% Available Cash ($M) 1,299 1,299 2,257 1,528 2,360 1,848 2,612 2,198 2,884 2,615 1,862 2,482 3,860 Block Hours 1,290,213 1,362,443 1,392,509 1,311,880 1,435,810 1,487,444 1,446,902 1,408,333 1,358,608 1,402,384 1,381,451 1,280,402 1,270,811 Crude Oil - barrel 18 .43 22 .12 20 .61 14 .42 19 .34 30 .38 25 .98 26 .18 31 .08 41 .51 56 .64 66 .05 72 .34 Pilot CASM (¢) 1 .08 1 .00 0 .97 1 .09 1 .07 1 .05 1 .17 1 .21 1 .34 1 .31 1 .26 0 .96 0 .90 Negotiating Financial Timeline (Delta) 2008 2009 2010 2011 2012 2013 Operating Revenues ($M) 34,288 28,063 31,755 35,115 36,670 37,773 Operating Income ($M) 53 83 2,667 2,243 2,600 3,526 Operating Margin 0 .2% 0 .3% 8 .4% 6 .4% 7 .1% 9 .3% Pre-Tax Income ($M) (958) (1,091) 1,449 1,105 1,568 2,653 Pre-Tax Margin -2 .8% -3 .9% 4 .6% 3 .1% 4 .3% 7 .0% Available Cash ($M) 5,396 5,786 5,619 5,763 5,583 5,778 Block Hours 2,920,690 2,619,983 2,694,396 2,691,641 2,642,225 2,675,650 Crude Oil - barrel 99 .67 61 .95 79 .48 94 .88 94 .05 97 .98 Pilot CASM (¢) 0 .85 1 .05 1 .07 1 .11 1 .18 1 .36 July 2014 3 NORTHWEST 1998 CONTRACT Amendable date of existing contract: October 31, 1996 Ratification date of new contract: September 12, 1998 New amendable date: September 13, 2002 1996 1997 1998 Operating Revenues ($M) 9,881 10,226 9,045 Operating Income ($M) 1,054 1,157 921 Operating Margin 10 .7% 11 .3% 10 .2% Pre-Tax Income ($M) 883 985 682 Pre-Tax Margin 8 .9% 9 .6% 7 .5% Available Cash ($M) 1,299 2,257 1,528 Block Hours 1,362,560 1,392,573 1,311,880 Crude Oil – Barrel 22 .12 20 .61 14 .42 Pilot CASM (¢) 0 .61 0 .97 1 .09 NEGOtiating ENVIRONMENT: hhIn the early and mid-’90s the industry was going through record financial losses caused by a weakening economy and the first Gulf War hhJuly 6, 1993: A three-year concessionary contract was ratified by the Northwest MEC in conjunction with other employee group concessions to ward off bankruptcy yhThe total Northwest employee concessionary package was valued at $886M yhThe pilot share of this was $365M hhIn 1994, Northwest had its first profitable year since 1989, followed by successive record profits in 1995, 1996, and 1997 PROCESS: hhThe pilot group was unified and looking for gains following a concessionary contract hhFollowing extensive negotiations, the two parties were eventually released into a 30-day “cooling-off” period by the National Mediation Board (NMB) hhOn the evening of the 30th day (August 28,1998), the Company left the bargaining table, let the clock run out, and shut down all flight operations hhPilots struck in response hhAn agreement was reached 15 days later 4 DELTA & NORTHWEST PIlot Contract HIstorIES KEY RESULTS: hhNorthwest-CAL Alliance established hhNorthwest-KLM joint venture established (to include any carrier added to the joint venture); 50 percent of all flying to be flown by Northwest pilots hhNumber of RJs was tied to number of mainline aircraft hh3.5 percent retro lump sum payment back to October 31, 1996 hh3 percent increase in hourly rates on September 13, 1998 hh3 percent increase in hourly rates on September 13, 1999 hh3 percent increase in hourly rates on September 13, 2000 hh3 percent increase in hourly rates on September 13, 2001 hh2.5M stock options distributed to pilots over the length of the contract hhCanceled vacation eliminated hhDual qualification eliminated hhTrip hour credit increased hhVariable monthly cap established hhPremium pay established: 150 percent for voluntary call-out; 200 percent involuntary call-out or call-down hhB-scale eliminated (phased in during contract) hhValue of vacation day increased (phased in during contract) hhAllowed increase of West Coast code-share partners from two to three hhAllowed increase of 30 RJ (45–55 seat) hhThe concept of “monthly vacation” introduced; if not bid, vacation was assigned by