While US airline management and their pilots come to terms with the new market conditions, unions continue to develop links within the global alliances as both parties seek the structures needed to frame their future relationship.
All eyes are once again on united airlines as the carrier negotiates with its pilot unions. But this time it is driving down wages and benefits to get through bankruptcy reorganisation and survive. It is also part of another trend as pilots within the alliances get more organised.
In 2000, United placed itself firmly centre stage with a headline-making contract that put its pilots at the top of the industry pack, with wage increases of as much as 38% over its four-year life. After that, United was the one to beat for every pilots' union, and any self-respecting union that wanted an "industry-leading" contract had its benchmark.
Now, though, United is in trouble, having won one set of wage concessions from its pilots before going into bankruptcy, and then having wrested another set while in bankruptcy court. "As United sets the agenda for the entire industry, I think it's panic time for unions everywhere," says Richard Gritta, a business professor of the University of Portland (Oregon) and an expert on airline finance.
In early January, the Air Line Pilots Association (ALPA) at United approved a 29% pay cut. The 8,500 pilots, the most powerful and highest-paid of United's employee groups, agreed to immediate temporary pay cuts by an overwhelming majority. They also agreed to give up previously negotiated raises over the term of their cuts, which ends in May, by which time long-term concessionary contracts should have been agreed.
At US Airways, the pilots, who had already agreed to concessions before bankruptcy, then took an initial pay cut of $465 million shortly after the bankruptcy filing, and then agreed to an additional $101 million in pay and benefit savings through 2008.
The US Airways union also gave up considerable ground on its scope clause, allowing the carrier to begin to catch up with rivals in its use of regional jets. In contrast the United union did not make major scope concessions. "The US Airways pilots have done more for their carrier than the United pilots have done for theirs," says Northwestern University professor Aaron Gellman.
Gellman says compulsion plays a larger role in relations now. He notes that, at US Airways, the major investor threatened to liquidate it before the pilot union agreed to the latest set of concessions. At United, the bankruptcy court judge imposed a 13% pay cut on the machinists union after all other United unions had agreed to concessions - givebacks agreed to only when United asked the judge to impose the cuts.
United's experience, and the possibility of its liquidation, says Gellman, is apparent to the entire industry, and as such is more than a management bargaining ploy. But it is uncertain if all United pilots are taking it seriously, he adds, citing union literature and bumper stickers with the slogan: "Full pay till the last day."
However, Lehman Brothers analyst Gary Chase adds a cautionary note. He wonders if United's plan will be fully implemented, but calls the company's opener, "a very aggressive starting point. We are assuming that other carriers will not be able to negotiate such draconian productivity changes," he says.
Among the changes United seeks is the elimination of provisions allowing pilots who go over the maximum number of flying hours during a given month because of poor weather or other reasons to carry those hours over to subsequent months. Management also wants pilots trained on a given equipment type to stay on that type for 36 months. In the past, says Gellman, United pilots moved up to a larger aircraft and so a higher pay rate on average every 30 months.
However, Chase says the United model if it spreads could possibly trim pilot payrolls by 15% or so for American, Continental, and Northwest - and as much as 30% for Delta. Bob Mann of consultants RW Mann and Associates says the emphasis on productivity in the United situation means that "the next round elsewhere will be about work rules, not wages".
Reasonable settlement
But already signs of resistance to further cuts are showing. Speaking after the United pilots agreed to the concessions, Paul Whiteford of the United union said he would not discuss long-term contract changes "without clear economic justification or rationale". The union "expects the pilots' willingness to provide temporary cuts to encourage the company to engage in a collaborative discussion over a reasonable economic settlement of ALPA's contract", Whiteford says.
There is a brief respite until May or so when the long-term contracts are to be negotiated, and Duane Woerth, the national head of ALPA, says United presents a test case in a larger sense: if the airline just turns to its unions to lower costs "instead of doing something creative about pricing" and so stimulating new business, then pilot resentment will grow.
"Management has to change the formula. It's not just a question of resentment or of fairness. It's the question of long-term industry survival," he adds.
Other airline union leaders are urging the same structural reforms sought by analysts and consultants, seeing in them an alternative to wage and work rule concessions. Allied Pilots Association president John Darrah, representing American pilots, says that, instead of wage cuts, the airline should seek fleet simplification among other measures.
American's chief executive, Don Carty, has attempted to portray himself as an exception, seeking cost savings through every possible means before looking for pay cuts. He has even made a public request that American employees use fewer sick days and end medical-leave misuse. According to Gritta: "In a sense, it's unfair that labour's getting blamed, but even if labour is not at fault, it is labour that will take the brunt of it."
The reality that Gritta describes is far from just a US problem - it is global. Traditionally strong pilot groups are feeling the pressure to restrain their demands during these uncertain times. It is hard however to shake off an equally traditional militant background, as industrial action by Air France, Aer Lingus and Alitalia pilots last year showed.
Alliance reach
For pilots, the uncertainty about market conditions is coupled with a lack of clarity on what shape their employers will take in future. What they are certain about is that they have to be more organised at a regional and global level to address the seemingly inevitable consolidation among carriers during the coming years.
While this organisation is taking place, even prior to formal links growing between unions, the impact of the original United pilots deal went far beyond the borders of the USA. Cathay Pacific, for example, complained bitterly that its pilots had been directly encouraged to take action by the deals ALPA was able to win in the USA, and many European airline boardrooms saw their pilots seeking similar pay and benefit awards.
The collaborative efforts of pilot unions teamed in parallel with the airline alliances have stepped up significantly in the past 12 months. The Associations of Star Alliance Pilots (ASAP), the oneworld Cockpit Crew Coalition (OCCC) and SkyTeam Pilot Alliance (SPA) are all becoming more organised and holding regular meetings.
According to George Fongern, a board member of Germany's Vereinigung Cockpit (VC) union, which represents founding Star carrier Lufthansa's pilots, one of ASAP's major roles is to gather information on and evaluate the strategies of the Star Alliance and how these may affect pilots, rather than to negotiate pay and working conditions on behalf of all its union members. Such Common Labour Agreements (CLAs) are always reached at national level. But such talks could eventually arise. Rob Hall, chairman of OCCC, says: "It is a long way off and will be driven by how close the alliance airlines get together."
But the unions want to be prepared and make a start in some areas. ASAP says it is keen to work on safety issues confronting Star carriers, and has a "desire to explore the standardisation of various procedures among all carriers in the alliance". At present, it is the only group that has a regular dialogue with alliance management, with talks taking place on safety, security and some operational issues, says Fongern.
Oneworld and SkyTeam say their marketing-led mandate does not extend to working with unions. "Industrial relations matters are not an issue addressed at an alliance level - it is up to each individual airline," says oneworld.
Apart from the Star and ASAP talks, at present, the influence of the union groups is mainly restricted to a campaigning role. "We have to support our pilots around the globe, ASAP cannot do anything physically, so we should try and help them politically and turn attention to hotspots," says Fongern,
An example of ASAP's lobbying came in November, when the group expressed its concern at events in Brazil, where it says Varig is "engaged in overtly anti-union activity". It alleges union leaders were "discharged" by the airline and after that were "refused access to the collective bargaining process".
The oneworld Cockpit Crew Coalition has been similarly engaged. In mid-2002, it took out newspaper advertisements across the world with the slogan: "How long will oneworld alliance airlines keep beating up on employees?" It condemned Cathay Pacific for firing 53 pilots; Aer Lingus for suspending seven pilots for highlighting safety issues; American Airlines for seeking government legislation over contract negotiations; Iberia for firing 27 pilots during talks; and LanChile for firing 116 pilots. The OCCC says all these incidents occurred during negotiations.
The SkyTeam Pilot Alliance (SPA), which was formed in 2000, and is the youngest pilots' alliance organisation, has yet to flex its lobbying muscle. However, following its latest meeting in December the SPA said it is discussing the development of a "common theme to address job protection issues within the alliance". According to Patrick Auguin, vice-president at the SNPL, which represents three-quarters of SkyTeam founder Air France's pilots, the unions look to ensure there is no transfer of services between alliance members seeking to take advantage of lower crew costs in one airline compared to another.
TUI, Europe's largest leisure group, is a rare example of a company that already regularly transfers work between its airlines, which includes charter operators in the France, Germany, Sweden, and the UK. It does this not to take advantage of varying labour costs in different countries, but to use its aircraft efficiently across the entire group. It can do so because charter operations are not subject to the same restrictive bilateral agreements as scheduled flights.
The way this aircraft management is organised is negotiated between management and the TUI Pilots Group, which represents pilots at each of TUI's owned carriers across Europe, says Mervyn Granshaw, a member of the group and chairman of the British Air Line Pilots Association. This enables TUI to mix pilots, hulls and business across its airlines. "It is as close to a partnership with management as is decent," he says.
Although the TUI Pilots Group is some way from bargaining as a single unit over pay and working conditions, the model is one of the most integrated anywhere in the world, he believes. For example it will not be long before the 1,500 pilots among the airlines have a common seniority list.
Pilot co-ordination
In Europe, there is already a large degree of pilot co-ordination. The work of the European Commission to harmonise social and working legislation led pilot unions to form the European Cockpit Association (ECA) 11 years ago. Until now, the ECA's mandate has strictly been concerned with issues relating to aviation safety. However, with the increasing likelihood of cross-border airline mergers and acquisitions there could be a deeper industrial relations role for the ECA, says Peter Sorensen, the association's deputy secretary general.
Rick Brennan, an expert in labour relations at the International Federation of Air Line Pilots' Associations (IFALPA), says that pilot unions, ECA and IFALPA are putting into place structures they think they may need to cover which ever model emerges over the coming years. "There may need to be a European organisation that can take over bargaining," he says, if mergers take place. According to the VC's Fongern: "In the end we will see one big European pilots union. If we are harmonising our labour laws it should not be a problem to do this."
The ECA is a first step towards such a body, and has proved that various operational and safety issues can effectively be addressed on a regional basis. The more difficult question is if, or perhaps when, its role, and that of other union groups, will grow into negotiating regional or cross-border pilot pay deals.
REPORT BY DAVID FIELD IN WASHINGTON AND MARK PILLING IN LONDON
Source: Airline Business
