Is a 5000$ bonus worth it?

Posted by on Dec 15, 2012 in Uncategorized | 0 comments

Airline Pilot Hiring Bonus

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At first glance a 5000 dollar bonus sounds pretty tempting. After thinking about it I wondered why would a couple of airlines need to offer a 5000 dollar bonus to get pilots to work there when others don’t? Is 5000 dollars enough to outweigh the cost of working at these airlines?

Realizing the payscales are pretty much public knowledge, and that upgrade times can reasonably be predicted in the short run, I set out to quickly run some numbers and see, are these 5000$ bonus’s enough to justify going their. Obviously there are lots of intangibles like living in base, or perhaps one has always dreamed of working a place like Republic. Those intangibles obviously can’t be given a price. So the following is just the numbers of going to a place where they may be offering a 5000$ dollar signing bonus.

It should also be noted this comparison does not include retirement plans or beneficial work rules that may exist at a given airline and could also represent a significant value , but that are not reflected here.

The two airlines offering the bonus:

The following assumes 85 hours of flight pay a month.


Republic

Current projections show at least a 5 year upgrade. At the end of 5 years a pilot ends up earning the equivilent of 187,617$ if we apply a 3% annual interest rate to earned money. I went ahead and compounded it at the end of each year.

Republic
Year 1 2 3 4 5
Pay Scale ($) 23 31 36 37 37
Salary ($) 28,460 31,620 36,720 37,740 37,740
Accumulated Value of Money 29,314 62,762 102,466 144,412 187,617

The Cons: Republic is very close to a strike, and has been in contract negotiations for almost half a decade. A strike would drastically hinder their ability to win any future flying, ie Comair.


American Eagle

 Current projection also show at least a 5 year upgrade. At the end of 5 years a pilot ends up earning the equivilent of 198,826$ if we apply a 3% annual interest rate to earned money. As before it is compounded at the end of the year.

American Eagle
Year 1 2 3 4 5
Pay Scale ($) 25 34 37 39 40
Salary ($) 25,500 34,680 37,740 39,780 40,800
Accumulated Value of Money 30,500 67,135 108,022 152,236 198,827

 

The Cons: Having been a wholly owned carrier almost since its inception, it may now be spun off after the AMR bankruptcy (see this article on Regional Types). Eagle naturally has higher costs because of its wholly owned condition (not pilot costs as much: a topic for another post) and may have difficutly winning needed future contracts from AMR in the future and other carriers.

All these Cons add an element of Risk. In the financial world if Risk is not compensated by additional reward it is considered a bad investment. For example when someone has bad credit, lenders will typically charge a higher interest rate to make up for the increased risk of accepting a borrower.

 

Now lets compare two airlines that do not offer the 5000$ bonus and are hiring.


ExpressJet

Current projections show at least a 5 year upgrade. At the end of 5 years a pilot ends up earning the equivilent of 190,903$ if we apply a 3% annual interest rate to earned money. I went ahead and compounded it at the end of each year.

ExpressJet
Year 1 2 3 4 5
Pay Scale ($) 23 34 37 39 40
Salary ($) 23,460 34,680 37,740 39,780 40,800
Accumulated Value of Money 23,460 59,884 100,553 144,543 190,903

Cons: No bonus, and in contract talks with a merge with ASA.


SkyWest

Current projections show at least a 5 year upgrade. At the end of 5 years a pilot ends up earning the equivilent of 194,216$ if we apply a 3% annual interest rate to earned money. I went ahead and compounded it at the end of each year.

SkyWest
Year 1 2 3 4 5
Pay Scale ($) 22 36 38 39 41
Salary ($) 22,440 36,720 38,760 39,780 41,820
Accumulated Value of Money 22,440 60,935 102,686 146,740 194,216

Cons: No Signing Bonus.

Lets pretend somebody is willing to accept the risk to go to a Carrier that is offering this bonus, what would the contigency plan look like if the pilot was furloughed? Lets say the pilot was furloughed after 2 years with that company and then goes on to one of the non-bonus hiring carriers. At the end of 5 years after being furloughed and the rehired the 3rd year, the accumulated value would be 171,020$.

Contingency Republic SkyWest
Year 1 2 3 4 5
Yearly Salary ($) 28,460 31,620 22,440 36,720 38,760
Accumulated Value of Money 28,460 61,882 86,852 127,279 171,020

 

In summary:

I was fascinated to find out that in many cases a 5000$ hiring bonus attempts to hide poorly crafted and sub par pay scales. Often even with the bonus 5 year accumulated compensation is still less than many of the other airlines not offering the bonus’s. In addition, many of these bonus carriers carry higher risks associated with poor employee-management relationships, and subsequently additional burdens (expensive management teams, poor investment decisions, ie) carried by these types of teams.

So even though it might look like a good deal, one has to ask why?

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