Delta pilots oppose big regional jets, could be issue for Embraer, Mitsubishi

Fri Nov 25, 2016 6:12pm EST
 
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By Allison Lampert

MONTREAL (Reuters) - Delta Air Lines Inc (DAL.N: Quote) pilots are expected to keep existing rules in their new labor contract that prevent the U.S. No. 2 carrier from flying aircraft above a certain weight on regional routes, in a blow to Embraer SA (EMBR3.SA: Quote) and Mitsubishi Heavy Industries Ltd (7011.T: Quote), whose latest models exceed that limit.

The pilots' new labor contract will keep what is known as a "scope clause," which restricts planes heavier than 86,000 pounds and with more than 76 seats from being flown on regional routes, two sources familiar with the matter told Reuters.

Voting results on the new contract are expected on Dec. 1.

The clause effectively protects well-paid pilot jobs at major airlines, as it prevents the carrier from using bigger planes on outsourced regional routes, which generally pay less well and have inferior working conditions.

When planemakers such as Brazil's Embraer and Japan's Mitsubishi designed their latest regional jets, with heavier but more fuel-efficient engines, they expected the scope clause to have loosened, but unions have managed to hold on to it.

Delta's vote will follow similar decisions by unions at American Airlines Group Inc (AAL.O: Quote) and United Continental Holdings Inc (UAL.N: Quote) earlier this year and in 2015.

Pilots' opposition to relaxing scope clauses is a problem for Embraer’s E175-E2 regional aircraft that is to be delivered in 2020, and Mitsubishi’s MRJ90 jet, slated for delivery in mid-2018, which both exceed the weight limit.

UBS downgraded Embraer to a 'sell' rating this week after it resumed coverage, citing risks from the scope clause pushback at American, Delta and United. Analyst Darryl Genovesi said it was unlikely the carriers would fly the E2 on only mainline routes, due to higher costs.   Continued...

 
A Delta Air Lines Airbus A330 aircraft takes off at the Charles de Gaulle airport in Roissy, France, August 9, 2016. REUTERS/Jacky Naegelen