August 15, 2013 Report on Kitty Hawk Insurance Company, Ltd.

to the Delta MEC By Captain Randy Helling, ALPA Vice President of Finance Any well-run business or organization has a solid risk management program to ensure its long-term viability and survivability. ALPA is no different. ALPAs risk management program has been developed and refined over its eighty-year history to both maximize outcomes and minimize risk to the union and its members. Core components of ALPAs risk management program include the following: Strategic planning at all levels of the organization to create and maintain clarity on goals and objectives. Strategic planning is integral to effective decision making, project prioritization and resource allocation. ALPAs governing bodies. The Executive Council is ALPAs main fiduciary body, overseeing business matters, budgets, and implementation of policies. The Executive Board reviews and establishes Association policies, and the Board of Directors establishes policies, by-laws and strategic priorities. MECs oversee matters at the airline level, including contract negotiations and administration. Checks and balances in ALPA policies and procedures are integral to effective risk management. This includes the requirement for the Presidents signature for the approval of contracts and amendments to ensure compliance with both applicable laws and regulations and with ALPA policies and by-laws. This also includes ALPAs financial systems and policies. ALPAs Administrative Manual and Constitution and By-Laws provide transparency and clarity on decisions and actions of the union and its representatives. Subject matter experts (such as professional negotiators, financial analysts, actuaries, lawyers) advise pilot decision makers at all levels of the Association. ALPA operates over 40 training programs for elected representatives, committee members and staff covering all major areas of responsibility and functions in the Association from leadership, negotiations, grievances, and communications to safety, pilot benefits and financial management. Such training focuses on core issues, roles and responsibilities as both advisors and decision makers. Legal oversight and preventative law advice designed to facilitate implementation of strategic initiatives and decisions in full compliance with all applicable laws and regulations. Insurance, including coverage provided by Kitty Hawk Insurance Company.

Kitty Hawk is a Bermuda-based captive insurance company that was established in 1991 and is a wholly owned subsidiary of ALPA. ALPA is the sole shareholder in Kitty Hawk; no pilot or other individuals have any financial interests in Kitty Hawk. Initially, Kitty Hawk provided fiduciary-only insurance coverage to ALPA for pilot representatives and staff related to activities on airline and ALPA benefit plans. However, beginning in 1999, following action by the 1998 ALPA Board of Directors, Kitty Hawk expanded the insurance provided to ALPA to four lines of coverage, adding professional services, employment practices and duty of fair representation (DFR) insurance. The current insurance program is unique. ALPA is not aware of any other union in the U.S. or Canada that has DFR insurance coverage. Kitty Hawk, in turn, purchases reinsurance coverage on all four lines from reinsurers based in both Bermuda and London. Bermuda has been determined to be the best location to access the Bermuda and London markets to reinsure the coverage Kitty Hawk is providing to ALPA on a cost effective basis. Reinsurance coverage through Kitty Hawk enables ALPA to obtain significantly more insurance coverage than if it just relied on Kitty Hawk for insurance. ALPA and Kitty Hawk have expanded insurance/reinsurance coverage since the program was established in 1999. The status of the Kitty Hawk insurance/reinsurance program is reviewed by ALPAs Executive Council on a regular basis. However, ALPA and Kitty Hawk as with many other organizations and their insurance companies, even captive ones owned by the organizations they insure do not reveal their resources or insurance coverage publicly to potential litigants. Pursuant to the risk management program and policies established by the 1998 Board of Directors, ALPA made a $2 million capital contribution to Kitty Hawk in 1999. In addition, the 1998 BOD-approved program capped Kitty Hawk reinsurance premiums at 25 percent of ALPA premiums to build additional capital in Kitty Hawk. From 1999 to 2003, ALPA paid $2 million in annual premium payments to Kitty Hawk, and in 2004 ALPA paid a $2.5 million annual premium to Kitty Hawk. ALPAs insurance premiums exceeded Kitty Hawks reinsurance premiums by $9.75 million over this five-year period. Per ALPA financial policies adopted by the Associations Executive Board in 2005, ALPAs premium payments to Kitty Hawk cover the cost of Kitty Hawks reinsurance premiums. Such premium payments are budgeted for payment from ALPA funds. All other Kitty Hawk expenses are paid from Kitty Hawk funds, not from ALPA dues. As with ALPAs other wholly owned subsidiaries and affiliated organizations, Kitty Hawks financial results are consolidated into ALPAs annual audited financial statements published and made available to the membership. In addition, Kitty Hawks receipts and disbursements are included in ALPAs annual LM-2 filing with the Department of Labor. Kitty Hawks general operating expenses have averaged $300,000 per year over the past 10 years. As a Bermuda-based captive insurance company, Kitty Hawk is subject to Bermuda laws and regulations. Kitty Hawk uses a local law firm (Appleby), a captive insurance manager (R&Q Quest) and Bermuda-based auditors to advise on governance, legal and regulatory compliance, and accounting matters. Kitty Hawk also utilizes Jalmer Johnson, ALPAs former General Manager, for the renewal and enforcement of Kitty

Hawks reinsurance agreements; in coordination with ALPAs Legal Department, interaction with and notification of reinsurers regarding litigation, claims and updates; and Kitty Hawk financial and investment issues. Kitty Hawk pays for professional services directly or reimburses ALPA for certain services performed. Kitty Hawk has a seven-member Board of Directors. ALPAs Executive Council approves the nomination of each Director to the Board. Bermuda law requires two Bermuda residents to be directors on the boards of Bermuda-based companies. The Bermuda residents on the Kitty Hawk Board are named from Kitty Hawks Bermuda insurance manager (Nick Dove, Chairman of R&Q Quest) and Bermuda legal counsel (Alan Bossin, Partner at Appleby). The Board also includes ALPAs Vice PresidentFinance (Randy Helling, who also serves as the Chairman of the Board), a member of ALPAs National R&I Committee (Committee Chairman Ken Binder), and three individuals nominated separately by ALPA (Jalmer Johnson, Howard Pike and Dave Vance), each of whom have extensive experience working on Kitty Hawk-related matters during their career at ALPA. All Directors serve on the Board without compensation. Kitty Hawk is not a liability of ALPA; it is one of its major assets. In fact, it is an essential element of ALPAs risk management program. As with any insurance policy, Kitty Hawk acts as a safety net to protect the resources of the Association. Kitty Hawk and the insurance/reinsurance program played an integral role in the settlement of the Mansfield lawsuit in 2010. Kitty Hawk and its reinsurers paid over 80 percent of the $44 million settlement. Without it, ALPA would have had to use a significant portion of its available assets to settle the litigation. An effective risk management program is integral to the long-term success of any organization. ALPA has developed and refined an extensive risk management program over many decades, with a focus on high quality advice and training, clear policies and procedures, sound decision making processes, and downside protection in the form of unique professional insurance through Kitty Hawk. Kitty Hawk has played, and will continue to play a key role in preserving the viability of the Association.