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April 12, 2024
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The Scope Clause as used in the US airline market is a market aberration.  It was instituted by the pilot unions to ensure major airlines would not push more work to regional partners, whose pilots are paid much lower rates. Scope was instituted by airlines and pilots as airlines wanted aircraft in their system that they could otherwise not have unless mainline pilots flew them. Scope has always been there. Pilots and airlines over the years have changed the agreements sometimes via transactional agreements sometimes via the courts in bankruptcy.

At the time pilots at the major airlines had a valid reason to fear the outsourcing of their labor.  The US airline industry had been going through its regular turmoil – rising costs and fare wars created a mix that encouraged airline management to seek lower costs where they could.  But today we have a very different situation.  The US airline market is now down to four big airlines.   In addition, the commercial pilot profession is not as attractive as it once was. The profession is actually as attractive as it’s ever been due to stabilization, better compensation and forward progression due to retirements. The “natural” feed to the airline pilot pool has been from the military.  That feed has started to dry up as the military pilot pool has shrunk. SEE Skywest and others latest quarterly mention of no issues recruiting pilots.

Consequently, we now have a market where the major airlines get around the pilot shortage by reaching down into the smaller airlines and offer jobs flying bigger aircraft to regional pilots.  They’re not reaching down as much as it is NOW the normal progression for the pilot profession. Those who have attractive mainline flow through opportunities thrive. Those that don’t, wither. Regional pilots jump at the opportunity to “Big Iron” and have better pay scales.

But with a shortage of new recruits coming in at the bottom as cadets, regional airlines have struggled with a pilot shortage.  SkyWest and others are not having this issue anymore ALPA claims. The pilot shortage problem exists in Canada as well.

The shortage is easy to understand.  Pilots need to retire at 65.  Congress put a tough set of hurdles in enabling pilots to achieve the coveted ATP license – the need for 1,500 hours (with multiple credits for lower hours) comes with a cost most pilots cannot afford.  Which is why several airlines have cadet programs.

Given this combination of factors, one needs to ask: Do we still need the Scope Clause?

ALPA is firm on keeping Scope as is – “It’s religion to us”.  Pilots at major airlines don’t trust airline managements.  There is a history that created this lack of trust.  For the first time in the industry’s history, the negotiating power lies with pilots.  They will not give it away.  “Delta is the model for making this work (using the A220). There is no struggling network airline.  There is no fertile ground for Scope relief.”

Meanwhile, as the pilots undertake their rearguard action, the world is shifting beneath their feet.  Both Airbus and Boeing are talking about single-pilot flight decks.  Pilotless aircraft are not some fantasy anymore.  Nobody can stop technology’s progress.

What would happen if Scope is eased to allow the state of art regional aircraft (for simplicity say under 100 seats)?  There are two aircraft the regional airlines could take delivery of – the Embraer E175-E2 and soon, the Mitsubishi M-90 and M-100.  These aircraft are expected to offer significantly better economics than the current models in service.  The Embraer E-175 in service today is the benchmark and by far the best seller.  The E2 version is likely to offer at least 15% better efficiency. Which is why DAL found it best to buy 100 seat jets and have mainline fly them.

Since regional airlines operate under contract to the majors, where the majors buy the aircraft and pay for the fuel, the regional operator is in a constant battle to cut costs.  Regional airlines have the tightest margins in the industry.

Therefore, the easing of Scope achieves positive value for both the major and regional airline.  Better economics creates more revenue for both.  Passengers also benefit from newer cabins that are quieter.

What about the pilots at the majors?  Part of the Scope limits in place provides for ratios of aircraft.  Easing the limit on GTW to allow the E175-E2 and the M-90 would still limit the fleet size because of the ratios.  Consequently, these pilots do not have to fear they are losing their negotiating position.  Moreover, in the end, a healthy industry is in everyone’s interests.

But there’s “Zero chance” of Scope relief to allow regionals to fly larger/heavier jets accoding to Mesa’s Jonathan Ornstein.  While Ornstein thinks some airlines might get some scope relief, this will be rare.  “The price the pilots will want is too high”, he says.  What does this price include?

  • Ornstein cites the example of the A220 at Delta. If Delta’s mainline pilots can fly it, why not the pilots at American and United or Alaska?
  • Also, wage differentials between regional and mainline pilots have widened again – in favor of mainline pilots, nobody would be surprised to note.
  • In addition, mainline pilots probably will request guarantees on flying hours.

The combination of these three issues makes Scope unmovable Ornstein believes. He thinks a much more obvious solution to Scope challenges is to replace the current 50-seaters with something new.  But which OEM is ready to do that? Technology can solve the challenges, but given the limits and risks, which OEM is ready to plunge into this segment?

The only new entrant is Mitsubishi. They shared this “…the U.S. is a major target market, but it is only one of our target markets. Our program is global and it is based on a family of aircraft, the Mitsubishi SpaceJet M90, and M100. Like other OEMs, initially, we planned for scope limits to relax. Since they haven’t, this puts our SpaceJet M100 in a unique position as the only clean sheet, new tech, a regional jet that can operate within current scope limits. Add to that the largest cabin in its class, which is optimized for improved passenger experience with large overhead bins, and you start to understand why we have been receiving so many positive responses when we talk with customers.”  Their solution is to shoehorn an aircraft into Scope.

Reflecting the market leader view from Embraer Commercial Aviation, President & CEO John Slattery notes: “Over the last 30 years the new technology aircraft always came before scope relief…and the evidence has been that airline management teams and unions will solve for the improved economic assets.  When one moves, they all tend to – reestablishing the competitive dynamic. United is first up with the scope discussions and the weight seems not to be on the table.  So, American and Delta’s management may be unlikely to raise the issue in this cycle…this puts the next chance of a scope move to 2022.  What will the economic climate be at that time?  I don’t know, but we will be ready with the winning platform, if and when the market moves.  In fact, the E1715E2 will likely have its first flight still later this year. The current next-technology offerings are not expanding seat count, only weight.  It’s relatively easy for the scope negotiations to accommodate a limiter that the next-technology aircraft won’t be used in a way that deviates in any meaningful way from the current technology – i.e. not to disadvantage the mainline pilots.  Okay, the new aircraft are more economical and so the pilots can argue to share in that extra goodness, but also the environment is a big winner.  So, tell me, who exactly is the looser?

In our view Scope Clause as it is, serves only to limit airline options and does not help major airline pilots the way they think it does.  The weight restriction is outdated because technology has moved on.  Moreover, with the pilot shortage continuing it makes sense to allow regionals to fly the latest-generation aircraft.  Easing this restriction does not limit major airline pilots negotiating power at all.  It’s time to ease the weight restriction of Scope Clause.

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Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.

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