NATCA Contract Rollback Costs and Methodology

1
NATCA Contract RollbackCosts and Methodology

• June 2007

This document contains confidential and sensitive
client privileged work product and/or U.S.
Government information, and is not for release,
review, retransmission, dissemination or use by
anyone other than the intended recipient.
2
Overview

• Estimated Costs of Rollback
• Current Workforce
• New Hires
• Back Pay Calculations
• CIP
• CIC
• Productivity
• NATCA Multi-Unit
• FY08-12 Estimate for CBO
• Appendices

3
Estimated Costs of Rollback
4
Current Workforce

• Savings primarily driven by freezing salaries of
  employees with base pay over cap of new pay band
• First year (FY 07) savings minimal as all pay
  increases paid in lump sum (est. 60M)

Calculations include assumptions for expected
attrition from current workforce
811M reflects portion of 1.86B 5-year expected
savings to come from current workforce
5
New Hires

• New hire savings estimates based on controllers
  hired after 10/1/2005
• Savings driven primarily by lower starting pay
• Pay was permanently reduced about 30
• Specific savings forecast based on a number of
  assumptions
• Flow of hires during the year (assumed even flow
  with 1/12 starting each month)
• Placement of hires (assumed distribution
  equivalent to current workforce)
• Salary at each stage of training (starting
  figures from 2006 NATCA contract)
• Amount of time spent at each stage of training
  (figures from negotiating team)
• Annual savings show rapid growth, both because
  new hires get significant raises as they progress
  through training and 1000 controllers are added
  each year
• Zero savings in 2006 because contract effective
  in 2007

For details on calculations, see Appendix
6
Controller Incentive Pay (CIP)

• CIP Expense
• Historical CIP costs equal approximately 1.7 of
  salary (base locality)
• Annual salary cost estimate is approximately
  1.75B
• 1.7 x 1.75B 30M annually
• CIP under new contract
• Phased out 20 per year over 5 years
• e.g., 2007 expense is 80 of 30M, 2008 expense
  is 60 of 30M, etc.
• Lost savings/cost of rollback over 5 years is
  88M
• Assumes retroactive CIP pay due for 2007

7
Controller in Charge Pay (CIC)

• CIC Expense
• Historical CIP costs equal approximately 0.7 of
  salary (base locality)
• Annual salary cost estimate is approximately
  1.75B
• 0.7 x 1.75B 12M annually
• CIC under new contract
• Eliminated upon contract implementation
• All CIC costs go to 0 starting in FY07
• Lost savings/cost of rollback over 5 years is
  57M
• Assumes retroactive CIC pay due for 2007

8
Back Pay Total 141M

• Current Workforce
• Estimated FY 2007 back pay due at 61M, including
  premiums and benefits
• Approx. 13,000 employees with base pay over the
  band max received lump sum awards in lieu of base
  pay increases in Jan. 2007
• These awards were estimated to be approx. 60M
• Assuming 60M already paid is not recoverable,
  cost of back pay will be the full 61M
• Full recovery is unlikely at a minimum, we will
  not be able to recover this from people who have
  retired, resigned, etc.
• New Hires
• New contract calls for lower starting salaries
  for new hires
• 2007 FAA cost reductions for hires from 2006 and
  2007 estimated at 31M
• If law requires full back pay, including premiums
  and benefits, this will be added to these
  employees
• Controller Incentive Pay
• CIP reduced by 20 in 2007 estimated 6M would
  be paid in back pay
• Controller-In-Charge
• All CIC costs eliminated starting in FY07
  estimated 12M would be paid in back pay
• Multi-Unit
• Estimated FY 2007 back pay due at 32M, including
  premiums and benefits

• No estimate included for settlement of grievances
  (e.g. lost overtime, cancelled leave requests,
  back pay for holidays, etc.)

9
Productivity

• Union has requested a return to the 2002
  negotiated staffing level of 15,606
• This is roughly in line with managements
  estimate of a 5 decrease in productivity if new
  contract is rolled back, reverting to old rules
  on overtime, holiday staffing, scheduling, etc.
• Assuming FAA would have until the end of FY2008
  to hire to this level, this would involve an
  additional 655 controllers hired even flow
  throughout the year

• 2008 cost 22 million
• This would approximately double if hiring had to
  occur on the effective date of 10/1/2007
• Costs over remaining 4 years of the current
  contract (2008-2011) 325M
• Cost over 5 years (2008 2012) 458M
• Note All cost estimates assume pay scales from
  previous contract

Illustration assumes NATCA would expect
headcount to increase at same rate as CWP
projections
10
NATCA Multi-Unit

• Savings and avoidance through 2012 are
  approximately 78M
• Savings reflect the differences in compensation
  under the old and new contracts. The differences
  in compensation were then inflated by the pay
  inflation factors under each contract to yield
  out year savings.
• Backfilling positions at lower grades resulted in
  significant savings.
• Savings were approximately 62K per position
• Approximately 113 senior level positions were
  replaced with entry level staff
• Compensation is reduced by about 6.9M within the
  first year of contract implementation
• The base compensation is inflated by standard
  inflation factors to produce compensation rates
  in the out years
• Core Comp (New Contract) Organizational
  Success Increase (OSI), Superior Contribution
  Increase (SCI)
• GS (Old Contract) General Increase (GI) and
  Within Grade Increase (WIG)
• Overturning the NATCA Multi-Unit carries a
  considerable administrative burden
• Approximately 54,000 pay actions will need to be
  processed
• Payroll IT systems will need to be reprogrammed
  to reflect changes on 1500 employees

11
FY08-12 Estimate for CBO

• Controller contract runs September 2006 to
  September 2011 (approx. FY07-FY11)
• All five-year savings/cost calculations are based
  on this time horizon
• CBO time horizon runs FY2008-2012 due to expected
  implemen-tation date for FAA Reauthorization bill
  of 10/1/2007
• Revised five-year cost estimate (FY2008-2012)
  presented here
• Includes back pay for FY2007 expected to be paid
  in FY2008

12
Appendices
13
Methodology and Assumptions

• Savings Est. Expense w/ old contract Est.
  Expense w/ new contract
• Five year savings from FY 2007 to 2011 (contract
  duration)
• All savings to be lost with rollback of contract
• Old Contract
• Pay bands move 2x/yr (by OSI-0.8 in January, and
  by 0.8 in June)
• Salaries increase 2x/yr ((by OSI-0.8 in January,
  and by 0.8 x SCI in June)
• Premiums, benefits, and locality added based on
  historical averages
• New Contract
• Pay bands adjusted downward and move 1x/yr (by
  same as Core bands)
• Salaries increase 1x/yr ((by OSISCI in January,
  same as Core policy)
• Salaries over the cap are frozen. OSI and SCI
  paid in lump sum if salary is over band max (95
  of current population)
• Premiums, benefits, and locality added based on
  historical averages,
• Not yet adjusted for proposed changes to CIC and
  CIP (calculated separately)
• Assumptions
• Attrition Approx. 950/yr (based on 2006 CWP)
• New Hires 1000/year (based on 2006 CWP)
• Band Movement 1.53 (based on 01 06
  average)
• Annual OSI award 3.7 (based on 01 06
  average)
• Annual SCI award 0.6 (based on 01 06
  average)

14
New Hire Calculation Summary
Net of projected Academy failures
15
Memorial Day 2006
16
Memorial Day 2007
17
Estimated Costs of Rollback