Pilot pay dispute, LiveTV drive up JetBlue's Q2 costs

Washington DC
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JetBlue Airways' operating expenses were roughly $8 million more than anticipated during the second quarter due to an ongoing pay dispute with pilots and less-than-expected savings from the sale of assets of LiveTV, a JetBlue subsidiary.

The New York-based airline's "other operating expenses" during the quarter includes liabilities of $3 million, the amount JetBlue estimates it may owe pilots as a result of the dispute, says JetBlue's chief financial officer Mark Powers on 30 July during JetBlue's second quarter earnings call.

The airline reports total operating expenses during the period of $1.23 billion, up 7.5% from the same period last year. Other operating expenses climbed 13.5% to $141 million.

The pilot pay issue stems from a 27% pay raise JetBlue gave its Embraer E-190 pilots in 2007 in a move designed to bring those pilots' compensation in-line with the industry, says Powers.

Powers says JetBlue gave "across the board market raises" to its pilots that year, but not everyone received an extra 27%.

"Other pilots who did not receive the same amount of raise claimed that they were entitled to the same percentage increase," Powers says.

Attorneys representing those pilots - which included 944 current employees and 26 former employees - filed a request for mediation with the American Arbitration Association in March 2010, seeking back pay from 2002, 2007 and 2009, according to recent JetBlue securities filings.

Claimants later dropped the 2002 claims.

In May 2013, the arbitrator denied the 2009 claims, but determined the 2007 pay adjustments triggered a provision in the pilot's employment agreement.

JetBlue has said it believes the pilots' claims are without merit, according to securities filings.

Powers says on 30 July that the "damages" phase of the dispute is beginning and "it's really too soon to say" how much JetBlue might ultimately owe.

Pilots have not yet said how much they seek in damages, Powers says, adding that the damage calculations will be complex, based upon the size of the group and multiple pay elements.

"Given the individualised nature of each pilot's compensation, we believe there's a lot of variables that remain to be determined," he says. "We might actually be having this same conversation next year."

In addition to the pilot pay issue, JetBlue's other operating expenses jumped more than anticipated due to less-than-expected benefit from the sale of LiveTV's "ground spectrum license," says Powers.

LiveTV provides inflight entertainment to JetBlue and other commercial airlines.

The company had expected to save $8 million in the second quarter from the April 2013 sale of LiveTV's license, but savings totalled only $3 million, Powers says.