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Today we would like to give you some additional details about the improved pay, benefits and overtime package for our pilots which we announced last week. We have already outlined the first two areas, pay and benefits, today we will provide some more detail on the third element, that of overtime pay.
Wide-ranging improvements and freedom of choice
I would like to start however by addressing one misconception about this package. Some reports have said this package was "imposed" on our pilots as if it was something negative. This is misleading. The pay increases and benefit improvements were provided with no conditions attached. Any pilot who does not want those increases or the improved benefits is free to decline them.
As for the new overtime scheme we are distributing today, no pilot is under any obligation to accept it. As we will make abundantly clear, pilots have complete choice as to whether they accept the new overtime scheme or stay with the current one - or not to work overtime at all.
Pay and benefits
I would now like to briefly recap the elements of the package relating to pay and benefits.
Firstly, pay. As we discussed last week, the package includes generous pay rises of up to 9% for some pilots. Pay is increased through the introduction of a new form of incentive pay called "Hourly Duty Pay". For senior pilots recruited before 1993 the introduction of Hourly Duty Pay represents a pay rise of about 4%. This is enough to offset the pay cut agreed for this year as part of the 1999 agreement for which the pilots have also received share options.
For pilots who joined after 1993 the introduction of Hourly Duty Pay means a pay increase of up to 6%, which on top of the already agreed pay rise of 3%, results in a total pay rise of up to 9%. The pay rise element of the package has already been implemented. No pilot is obligated to accept this increase. If they do not want it, they only need to let us know.
Secondly, benefits. The package includes improvements in medical cover, housing and educational allowances. These benefit improvements have already been implemented. Once again, nothing was imposed. No pilot has to apply for the improved benefits if he does not want them.
Monthly overtime pay
The current system of overtime pay is based on an annual threshold of flying hours. While this system has been in place for a number of years, it does have a number of drawbacks. It depends on the total number of hours worked over the full year so a pilot who is very busy in some months but less busy in others may not earn overtime at all.
As of 1 August, pilots can choose monthly overtime pay. If they choose, the new system will reward them for the extra efforts in a busy month even if other months are quiet ones. So the identical distribution of hours in one year under the current overtime system that might produce no extra pay would produce significant additional pay under the new monthly overtime scheme, if a pilot wants it. I might add that this is the same approach the AOA itself wanted.
Higher overtime rates
The new system also contains much more generous rates of overtime pay. Under the current system, overtime work was calculated at a rate of 1.25 times the basic salary. In the new system the overtime rates start at 1.5 times the basic hourly rate and can go as high as 3.5 times the basic rate.
Again I would like to point out that individual pilots are being given the choice about whether to select the new monthly overtime system or remain on the current annual overtime system.
Under a monthly system we need to take proper account of non-flying duties when setting an appropriate monthly overtime threshold. For this reason we need to introduce a new currency. We call this new currency credit hours. Under the new system, credit is given for a wide range of non-flying duties including training, administrative work and reserve.
The credit hour system also provides extra weighting for more intensive work such as operating short haul flights where there are just two pilots.
Let me stress that the thresholds in this new system are more generous than those originally put forward by the AOA. While we negotiated, we tried to give them what they wanted but they kept moving the goalposts.
When we originally announced the introduction of the new package on 9 July we said it would be November before it could be implemented due to the need to adjust our computer systems. We have now however decided to offer the new system starting in August. We will calculate the overtime amount manually until the computer system is ready. For that reason we are asking pilots to let us know their preference by 31 July.
Pilots who choose the new monthly overtime system also have a choice of timing. They can ask for it to take effect immediately, or they may wish to complete their annual work year first, then switch to the new system. Again we are giving them the choice.
What does not change
Amount of annual leave a year - 42 days for most pilots
Amount of guaranteed days off - at least 92 days
Safety protection in terms of Hong Kong Civil Aviation Department-regulated limits on flying hours.
Let me make absolutely clear, nothing we have talked about today has anything to do with flight safety. Our rosters will continue to comply strictly with the detailed Flight Time Limitations rules, which are regulated by the CAD. These rules, which were implemented in 1999, are amongst the world's most advanced. These are also not changing.
The Flight Time Limitations rules include an upper limit set by the CAD of 900 hours a year with a maximum of 100 hours in any four-week period.
Everything I have talked about today is related to Cathay Pacific's rostering practises as they affect overtime pay and pilot lifestyles.
You may wonder how Cathay Pacific compares with other airlines in terms of hours worked. Let me share with you some data from 1999 showing average annual hours flown by pilots at a broad range of international airlines. You will see that Cathay Pacific pilots are, on average, flying fewer hours than pilots at many competitor airlines.
What our pilots want
I started out by saying the new package offered wide-ranging improvements. I would also like to point out that it was not created by us alone, it is very much a product of what our pilots have told us they would like. The system was formulated during the long period of negotiations that took place between the company and the AOA. It is regrettable that despite over 50 meetings, those discussions did not succeed in reaching a negotiated agreement particularly as the key features of the scheme now being implemented are better than those the AOA originally proposed.
It is our belief that the company is well within its rights to implement these improvements to pay, benefits and overtime. Pilots who wish to remain on the current overtime system may do so.
Why we are doing this
This is not a scheme intended to increase overtime across the board. It is a scheme to make overtime payment more achievable during those months when it is needed.
As such, we hope our pilots see this scheme as an incentive to be flexible when overtime conditions do arise. For our part, recognising that overtime expense is significant, it is an incentive to ensure a fairer and more balanced distribution of work.
The combination of incentives for pilot flexibility and for the company to roster efficiently is the formula for improved roster stability.
Improved roster stability has been a stated goal of the AOA and many individual pilots. It is a necessity for the kind of airline Cathay Pacific has become and intends to be in the coming years. Taken as a whole, with the pay and benefits improvements in the entire package, we believe Cathay Pacific has demonstrated a serious intent to promote a positive work environment for all of our pilots. But we have also respected individual choice by not imposing any of the pay and benefit improvements or new overtime scheme, on any pilot who does not voluntarily wish to accept it.
In turn, we hope and expect our pilots will recognise this and acknowledge the competitive realities for this airline and the global commercial aviation industry in which Cathay Pacific operates. Perhaps the kind of behaviour we have seen among our pilots in the past week or so as we have returned to normalcy suggests eventual movement in this direction. We certainly hope so.