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Wednesday
Jun062012

US Airways And American And The Elephants In The Room

I want to talk about the elephant in the room.

Actually, it’s a whole herd of elephants in pink tutus with “Seniority Integration” and “Unintended Consequences” emblazoned in neon lettering across their posteriors. Yet, most media seem too distracted by sexy headlines and hoped for revenue synergy calculations an alleged US Airways – American Airlines tie-up might bring to even notice the elephants.

Maybe they’re right. The customer doesn’t care what uniform the pilot flying the plane wears or what that pilot’s career prospects look like. They just want that pilot to safely get them to where they’re going.

US Airways is a perfect example that ignoring the elephant can work with few external (i.e. passenger) repercussions: it hasn’t fully integrated pilots or flight attendants since merging with America West in 2005. After nearly seven years of flying separate-and-not-nearly-equal crews on two coasts, maybe US thinks the elephant is just a mouse. Heck, company president Scott Kirby said taking over American Airlines would actually solve US’s problem:

"It's ironic but the solution to that issue at US Airways I think it's probably because we're able to get this deal done. The area that people focus on the most is USAPA, our pilots' union. In this case there is a huge benefit for our pilots in getting the deal done.”

Kirby’s comments would also seem to hold true for flight attendants. He even pointed out merging work groups would be subject to the McCaskill-Bond legislation… created in part, by American’s 2001 takeover of TWA and the short-end of the deal those employees received.

And that’s where the elephants start trumpeting.

I’ll concede again that seniority integration doesn’t mean anything to the average customer. But it means everything to airline employees and, because of the very McCaskill-Bond law Kirby mentioned, even to those employees who don’t belong to a union. They, too, will be subject to the law and the vagaries of seniority integration.

If the Allied Pilots Association really believes seniority integration is, as its spokesperson Tom Hoban labeled it, a “faux concern,” then it’s ignoring its own recent past.  If I am an APA pilot and my union is calling seniority integration a faux concern, well I would be concerned.

If the Association of Professional Flight Attendants thinks it will join hands with US and its senior members will either cash out or staple US’s two groups to the bottom of the seniority list – like the APFA did to the TWA flight attendants – its remaining members will have plenty of time to regret that decision when they’re flying Richmond, VA to Greenville, SC via Charlotte for the third time that day.

REAPING WHAT THEY SOWED

The very group APFA leaders either think they will harmoniously bond with or take precedence over (and I’m betting it’s the latter more than the former) is the Association of Flight Attendants.  The AFA represents two distinct groups at US – the flight attendants from the “old” US Airways and former America West FAs – which have never worked under a joint contract. Kirby’s mention of McCaskill-Bond is especially pertinent in this potential combination of three different flight attendant groups, each with its own pay rates, work rules and benefits.

Why? Well, this is what the AFA says about McCaskill-Bond:

“In 2001, American Airlines purchased TWA. The TWA flight attendants, represented at the time by the lAM, were stapled to the bottom of the American Airline's flight attendant seniority list. The AA flight attendants are represented by the APFA. This was grossly unfair to the former TWA flight attendants. The TWA flight attendants fought back. They were unable to right the wrong that had been done to them. But they were able to, with the help of Congress, ensure that it will not happen again.”

Doesn’t sound like the AFA is ready to take a jump-seat to anyone, especially not a group that was “grossly unfair” to other flight attendants. No matter what promises US’s Doug Parker and Scott Kirby have made to the APFA and president Laura Glading. US flight attendants are going to have a say about what part of the pie they get. It’s also important to remember neither AFA group has approved a new contract with US – in fact, they overwhelmingly rejected the last tentative agreement two months ago.

Currently, the APFA has, in total, the best pay, benefits and work rules in the industry. (A decision on American’s 1113 motion in U.S. bankruptcy court could change that). US Airways are among the lowest compensated. Doug Parker will probably promise his own flight attendants they’ll move up to APFA pay, and with the reported “early out” incentive offered as part of the US-APFA deal (about 80 percent of APFA’s members would qualify under the union’s stated parameters including President Glading), would quickly dominate the seniority lists.

That’s probably not going to be enough for the US flight attendants. They’ll likely – and, perhaps, justly – demand the same early outs, guaranteed seniority and other incentives. McCaskill-Bond calls for arbitration, though US Airways says it is “hoping” for a negotiated settlement. This is the same group hasn’t been able to negotiate contracts with any of its current flight groups in seven years, yet “hopes” for agreements with three different unions all clamoring for top billing?

That doesn’t even take into consideration the lawsuits that will be generated when the remaining APFA members realize they’ve been sold out or either of the AFA groups feel they’ve been shorted.

Speaking of lawsuits, the APA knows a bit about seniority integration court battles. When American took over bankrupt TWA, the APA argued in the Supreme Court of the United States that its members deserved seniority over all Trans World pilots because TWA crews had limited to no future prospects and no reasonable “healthy carrier” would agree to merge if its employees didn’t take precedence. Some call this the “failed carrier doctrine” and it is still applicable with the McCaskill-Bond legislation. The APA won its case in front of the Supreme Court, so it shouldn’t be surprised if USAPA East & West use it against them.

Of course Kirby thinks merging will solve US’s current integration problems. The USAPA pilots are salivating over new planes, APA’s high pay rates and benefits and the chance at more international routes. They’ll happily staple APA to the bottom of the seniority list to get those perks.

Perhaps APA president David Bates really believes the former America West pilots will just give way to the APA’s claims on seniority. He met with USAPA pilots in Charlotte last month and touted the meeting as a beginning of negotiations to resolve the issue.

I don’t believe any “negotiations” are going to resolve this issue quickly or simply… and I see no way APA members come out of this scenario better in the long-term. Union solidarity only goes so far and US pilots have been waiting years for an opportunity like this.

More telling I thought was a quote in The Charlotte Observer from USAPA president Gary Hummell:

"My job, even though we are looking forward to a cooperative effort, is to protect USAPA pilots (and) to ensure our pilots get the best contract they can."

Even if that means it’s at the expense of the APA.  Even if this means making American out to be a failing carrier.

WHITHER TWU?

The Transport Workers Union International and many of the locals haven’t exactly rushed into the arms of US Airways. Unlike APFA, which has thrown itself at US like .... well I won't say it, or APA, with its “studious business” approach, TWU has seemingly shrugged its collective shoulders about the US “deal.”

That’s probably because the US agreement isn’t much different from the one AA recently offered TWU. The Mechanics and Related and Stores work groups rejected American’s proposal, but I doubt they’re holding their breath waiting for US Airways to save them.

The TWU is being realistic. Besides saving some jobs – which the M&R and Stores groups decided wasn’t enough reason to approve the AA offer – there’s not a lot US can do for TWU members. They’ve heard US’s promises of limited job protection and bringing more maintenance in-house, but a quick look at DOT numbers also shows US currently has one of highest percentages of outsourced maintenance in the industry. Hard to believe it would be more cost efficient for US to give that work to TWU.

Plus, the TWU successfully used the failed carrier doctrine against TWA as well. While its 24,000 members at American dwarf the number of ground workers at US, TWU leaders know their own arguments will be used against them in arbitration. The TWU has seen what has happened to ground workers at other failed airlines and, at this point, can only hope to minimize its losses.

TWU also lost a bitter and expensive battle against IAM to represent workers at US and, as any political junkie knows, unseating an incumbent is neither easy nor cheap.

WHAT’S IT ALL MEAN?

I’ve already admitted seniority battles might mean little to nothing to customers and operations. That’s possibly enough for Wall Street types who are bounding after this potential consolidation like dogs chase cars.

There are, though, real concerns for other financial stakeholders.  One complex integration should give them pause - but three battles should/will make them nauseous.

US has touted the synergies merging with American would immediately bring. What happens to those synergies if integrating pilots, flight attendants and ground workers drags on, or as I expect, become overly contentious and litigious?

US Airways’ own track record – now going on seven years - shows it cannot facilitate integrated contracts and is quick to suggest the reason is because of internal union squabbles. “Old” US flight attendants fly with “old” US pilots, segregated from their former-America West peers. If a similar situation develops with a devoured American workforce, those already questionable synergies become even more degraded. In other words, the risk and return calculation might be worth further consideration by AMR’s creditors.

There are also a couple of other elephants standing off in the corner that bear watching. First is US Airways own unions, specifically the AFA and the IAM. None of those three groups (remember, AFA represents two distinct flight attendant units at US) are very happy with Parker and Co. right now. Contract negotiations have dragged on with US holding the line on costs because of its structural revenue underperformance relative to the industry.

Yet the IAM and AFA saw Parker and Kirby promise the moon, stars and assorted planets to American’s union leaders. They have significant leverage, including asking the National Mediation Board for release. With an election quickly approaching, a Democratic White House might be hard put to ignore the treaties of two very influential labor organizations, both of which wield more power than American’s unions. Keep in mind, the current chairperson of the NMB is former AFA president Linda Puchala.

Then there are American’s non-union employees. The CWA is currently trying to organize American’s 10,000 agents and representatives, even though the CWA has publicly admitted the majority of those employees don’t want a union. Well, guess who represents US Airways passenger service representatives? That’s right, the CWA. (It also is partnered with the AFA). In a merger, American’s PSRs would get a union whether they wanted one or not, most likely without a vote and probably find themselves on the bottom of the seniority scale. Their – and the other non-union AA employees not happy about their new seniority “rank” – only recourse might be the courts.

The last elephant is more of a wooly mammoth: extinct, but vestiges still remain. That would be the group of employees the APA, APFA and TWU all made bones off of… the former TWA workers. This could be their last shot to right some wrongs and adding them into the mix exponentially increases the level of difficulty of integration.

"We have a chance for a fresh start here," Roger Graham, a spokesman for the former TWA flight attendants, told Ted Reed of TheStreet.com earlier this month.  At least there is one group of employees who might benefit from this proposed merger.

It’s hard to fathom why no one has really taken notice of the elephants. Maybe because they obscure Wall Street’s desire for a (very) short-term gain despite the longer-term implications. Maybe it’s because American’s unions are simply using US as leverage with no intent to expose their members to the possible risks of actually going through with the merger. Or maybe it’s because ignoring them makes it easier for Parker and Kirby to believe this deal is really as simple as they pretend.

Maybe the court and AMR’s creditors, blinded by pro forma financial reasoning that is, sadly, often divorced from airline industry reality and the notion of competitive response, will embrace the US proposal as the best value for their dollars.

If they do, they should beware that discounts to the pro forma estimate are called for because of the elephants in the room.

APFA, by not making a deal with the company in 1113, should be questioned by its members about its decision to put all of its eggs in the US basket under the failed leadership doctrine.

Finally, the TWA pilots reared their heads last week by filing suit against American Airlines and the Allied Pilots Association. 

Looks to me like -- game on.

Tuesday
Nov022010

Swelblog: On Election Morn

This has been a busy month for the US airline industry with earnings and all.  As a result there has been lots of news and most of it good. Of course, two quarters do not make a trend -- something I'm frequently reminding people when I'm out on the road speaking on all things airline industry. 

So as we sit awaiting results on what promises to be a most interesting mid-term election, I want to look back on what has been a very political two years

First up: labor. Unions are all politics all of the time and that has played a big role in the airline industry since President Obama took office.  A cynic would say -- and I might agree -- that unions are simplistic organizations that too often focus on only on the next contract or the next election.  The result is too often a strategy in which they do everything they can to “choke the golden goose” for all of the pay and benefits possible at the time, which only puts their successors in the difficult position of presiding over concessions when the "gains" are no longer economically viable. There are some who say that this blog is too quick to bash unions.  But as I've said before, I'm equal opportunity in calling out bad behavior when I see it. And when it comes to airline labor leadership, I've seen a lot of it.

I've spent a lot of time challenging the leadership at the two largest pilot unions: Captain Lloyd Hill of the Allied Pilots Association and John Prater of the Air Line Pilots Association, both who ended their terms as president this year.  My fundamental criticism was each man’s decision to run on the opportunistic platform that all concessions would be returned and more.  Unrealistic.  Unfortunate.  Unfulfilled.

Lo and behold, the two important pilot unions have replaced “over promise and under deliver” with two new but seasoned presidents: Captain David Bates at the APA and Captain Lee Moak at ALPA.  [Moak has been the subject of much commentary on this blog and I encourage you to learn more about him].  I had the opportunity to spend time with both men last week at the Boyd Group International’s 15th Annual Aviation Forecast Summit in New Orleans.

I don’t want warm and fuzzy from union leaders and I don't expect it from management. What I want is a sense that each side understands and negotiates with a clear understanding of the economic environment in which the industry operates.  From both pilot leaders I am confident that principled negotiations and decisions will be the rule of the day.  From both pilot leaders I sense a potential to depart from gridlock and enter disciplined negotiations.  From management I want to see a renewed effort on communicating clearly the rigors of the business from a global perspective.  That would be true leadership.

Unions and management must break through the gridlock that leads to protracted contract talks and ultimately keeps money from pilots' pockets.  And both sides need to be honest with pilots about the extent to which the world has changed and the industry continues to change with it.  For example, today’s union negotiations should be less about who should fly 76-seat small jets and more about how to position an airline to challenge new and vigorous competition in Latin America, the Middle East and the Asia-Pacific regions. For the mainline carriers, competition is now more about Dubai than Duluth, and more about Auckland than Austin.

It is fast becoming clear that flight attendant union leaders are also increasingly out of touch.  And no one is more out of touch than the President of the Association of Professional Flight Attendants President Laura Glading. Glading, more than any union leader in the past or present, is too quick to threaten chaos and strikes without a clear understanding of the competitive realities that affect contract negotiations.

In her latest unconscionable act, Glading is calling on American Airlines flight attendants to write letters demanding a release to a "cooling off period" and possible strike from the National Mediation Board. Maybe Glading doesn't really understand the Board and its mission which, last I checked, is to try to prevent work actions that would threaten the nation's air transport system. Further, it would be unconscionable if the NMB were to cave into a letter writing campaign by a union that has done more to cause dissension in its ranks than promote the high level of customer service and professionalism the airline needs to compete. 

It has been interesting to watch the flight attendant negotiations at Continental and United. The Continental flight attendants actually voted down a tentative agreement that would have put money in their pockets immediately at a time the industry remains vulnerable economically. "Immediately" should have been an important factor considering that there will need be a representation election between the AFA-CWA and the IAM before any real negotiations can begin at the merged carrier.  My guess is that it could now take a couple of years before either the Continental or United flight attendants realize any economic gains over what they earn today.

As for negotiations with under-the-wing employees other than mechanics, the TWU negotiations at American provide a lens for one of the most difficult issues facing airlines: how to appropriately compensate ground workers.  In almost every case, this work could be outsourced for a fraction of the costs of keeping the work "in house" -- particularly when you consider the comparatively rich benefits package most airline employees receive. The baggage handlers are the most vulnerable yet the union group still holds out with demands for more. 

But if the unions may have a false sense of power because the worst-kept secret in the airline industry is the fact that baggage handlers have long ridden the coattails of the more skilled mechanic group, demanding wages that far exceed what these workers could command outside the airline industry. Said another way, because the skilled mechanic group has "carried" these less-skilled workers for so long, they have received less in negotiations over the years because the political structures of the TWU and the IAM includes baggage handlers in the same "class and craft" as a way to boost their ranks.

This week we will know the outcome of vote of the Delta and Northwest flight attendants, who are deciding whether to organize under the AFA-CWA banner (which would be a first for Delta flight attendants) or be a non-union group.  This election is the biggest yet under a new NMB rule that made the most significant change to the union election process under the Railway Labor Act in 75 years. That new rule likely will be the deciding factor in the outcome.  The change in the rule was all about politics, with a clear disregard for prior practice and arrogance in its refusal to address key subjects in the labor arena, including the ability of employees to decertify a union.

But that is reality in Washington today as it pertains to the airline industry.  We have had a number of issues become political in the name of consumer protection.  There are a number of matters being regulated or legislated in the name of safety.   A FAA Reauthorization bill cannot get passed because of all the non-FAA issues lawmakers stuck in the Senate and House versions as goodies for their own political constituencies.  But no matter the outcome of the national elections tomorrow, gridlock promises to rule the day in Washington for the next two years as well.

As British author Ernest Benn wrote:  “Politics is the art of looking for trouble, finding whether it exists or not, diagnosing it incorrectly, and applying the wrong remedy.”  That sums up how Washington deals with an industry that delivers value and jobs to the economy each and every day.

Monday
Apr192010

What Would Yoda Say to the APFA?

Where I would typically use this space to talk about the fact that the rumor mill has United and Continental in serious merger talks, I am not going there.  My feelings on a US Airways – United hookup are well documented in a number of posts.  I will be most pleased if United and Continental are indeed in talks.  Each carrier has aggressively pursued a path to the least exposure to the US domestic market, and that is a path resisted by US Airways.

I respect many people at US Airways, particularly those managerial types who have done yeoman’s work with a network that, in my opinion, holds little promise long-term. It is, as I say, presence everywhere and a dominant piece of meaningful real estate nowhere.

To me the biggest piece of news this past week was the fact that the National Mediation Board (NMB) did not release either the Association of Professional Flight Attendants (APFA) or the Transport Workers Union (TWU) into a 30-day cooling off period that each union sought in their negotiations with American Airlines.

At least until we see the rule drafted by the NMB on representation elections, all seems right at the Board.  They did not release a case that is nowhere near exhausting the mediation process, even though I had feared that they might given the political winds in Washington.

So, the APFA is, for the time being, reduced to trying to convince the world of the numerous grievances its members carry. The union’s You Tube videos claim that AA flight attendants are oppressed.  They talk of the past like somehow it will reappear,  even when reality knows it is but a faint memory.  And through it all, APFA’s reckless talk of a strike continues – reckless because the circumstances don’t justify the action as I have written before, most recently in Self-Help or Self Sacrifice or Self Fulfilling Prophecy? What Will This Accomplish?

I am reminded of a quote by Yoda in Star Wars: "Fear is the path to the dark side. Fear leads to anger, anger leads to hate, and hate leads to suffering."

American’s Conundrum

Few people, if any, have been as critical of American’s union leaders as I have.  The one union that has been left unscathed by swelblog has been the TWU because, as a leader, John Conley is typically careful in misusing power and rhetoric.  But in this case even Conley has come close to the line.

Is the fear that a union working to address American’s productivity deficiencies in return for improved wages somehow collaborating with the “dark side”?  I think it is.  The fear of reprisals from a vocal minority of members toward a union’s leadership has led to a campaign based on anger toward the employer.  The anger has become hate as unions try to tie everything wrong in the industry to executive compensation, particularly that part of their pay in at-risk company securities.

But without executive pay, what are the unions really protesting? Change? We’ve got plenty of that in the airline industry, which is all the more reason cooler heads should prevail in approaching negotiations in a way that promises the best long-term pay and job security for airline employees.

But that’s not how the flight attendants union is approaching it. The APFA is trying to stir up a lot of anger and hate with a strike vote that, if it eventually led to a strike, runs the risk of doing serious harm to wages and working conditions for their members.

The APFA has been speaking out of both sides its mouth in urging members to support a strike a vote. On one side it encourages flight attendants to send a message to management and channel their anger by threatening a work stoppage that would bring the carrier to its knees. On other other it tries to calm flight attendants with reassurances that they themselves would not be hurt by going out on strike.

And that’s just wrong. APFA President Laura Glading should be careful what she asks for.

What good did the strike do the BA flight attendants and their union Unite?  Zero. Nothing.  Nada.  It did entice a management to put into place a plan to fly through the “three strikes.”  Three strikes and you are out right?  Glading’s plea to her members is pathetic.  All the while she reminisces about 1993 and 2001, she mentions that a “yes vote” does not mean that they will strike.  She talks about the power of yes.  But she does not once mention the potential risks of a strike to her members.

Glading also does not mention that her flight attendants are the highest paid among her network peers according to MIT’s Airline Data Project; the least productive in terms of hours flow per month; generally lagging in terms of in terms of passengers served per flight attendant equivalent; and the beneficiary of a relatively costly benefit package.  It makes the negotiations between American and its flight attendants very complex and difficult to conclude - even for the most skilled negotiator and/or mediator.  American is asking for increased productivity for one simple reason:  whereas American’s salary per flight attendant is comparable to that received by flight attendants at Continental, if American achieved the same flight attendant productivity as Continental the carrier would require 1,254 fewer flight attendants.  And the carrier has offered to grow into the productivity over time rather than lay off even more flight attendants.

If I am an American flight attendant, I would carefully consider these facts.  Negotiations are now data driven – just like a Presidential Emergency Board (PEB) would be.  APFA likes to talk to the world about labor cost per available seat mile (CASM).  But that metric is fraught with potential error as the calculation is influenced by a wide number of items which are not in the control or purview of the flight attendant collective bargaining agreement.

In fact, as CASM is influenced by factors as varied as seat configurations, stage length, aircraft utilization and network design to name a few, even analysts and economists would be hard pressed to make the kind of bold analytical statements and sweeping conclusions that the APFA is making.  Pay and productivity are expressed in hourly rates and hours worked and that is why the MIT Airline Data Project examines pay and productivity against an hourly foundation.  The APFA refers to staffing as the culprit in American’s  high flight attendant unit cost.  The problem is that the 3-class fleet is a very small portion of the fleet.  Can 3-classes really be responsible for the highest flight attendant costs in the industry among the legacy carriers?  Warning to United:  the same argument is coming your way.

American does have a conundrum in that it is the first major case in front of the NMB and it has the highest costs among its peer group, particularly with its flight attendants who, as a group, are highly paid relative to their low productivity.  In a recent Dallas Morning News, I was quoted by author Terry Maxon suggesting that there will be an airline strike.  Inside of my comment was a challenge to management:  Is the airline ready to take a strike?  If American caves in its position, the industry suffers.   The American Airlines flight attendants suffer because American will have agreed to pay more than it can afford.  Even the best heeled US airline cannot afford what American’s employees are asking from their management. 

American’s unions constantly point to management compensation as unfair but, as is typical, they use only the parts that serve their purpose.  Conveniently, forgotten is the fact that there have been years in which management got well below their target pay (and well below their industry peers) because the system of pay linked to performance actually works.  Yes, management pay is higher than pay on the front lines.

That’s pretty much the way it works in every industry. That’s because the market for management labor is different than the market for flight attendant labor.  That’s a reality.  And in a market-based economy, no one is entitled to more for their labor than what the market will pay. The NMB got it right at this point.  Exposing the company to the destructive threat of a strike doesn’t serve anyone’s interest.

Yoda was right to focus on fear as a path to the dark side.   In this case, the dark side is not so much a strike but, rather, the fear, anger and hate churned up by union leaders that could lead to a disastrous outcome for the members they represent  

Wednesday
Mar172010

Continental Makes a Most Interesting Proposal to Its Pilots: Delta plus $1

Happy St. Patrick’s Day to all.  The pattern on this holiday is all things green.  And maybe the luck of the Irish will make this St. Patrick’s Day a lucky one for Continental pilots as the company presented the Air Line Pilots Association (ALPA) with a new contract proposal. The pattern for collective bargaining in the airline industry is to secure all things deemed as best in class.  As I see it, Continental made an offer to its pilots that actually addresses pattern bargaining.  Not quite sure if I love it, but it is interesting.  Most interesting.  

The two sides have been in discussions for more than two and one-half years.  The amendable date has come and gone, yet the parties have not filed for mediation.  There’s been some movement on the non-economic issues, but little progress has been made on the economic ones. 

Sounds familiar doesn’t it?  This week, that’s what much of the talk from American Airlines’ flight attendants centered on as they asked for release from the National Mediation Board.  Several unions at American and United increasingly point to the long periods of time it is taking to reach an agreement. 

In its letter to Capt. Jay Pierce, President of the Continental ALPA Master Executive Council, Continental Airlines addresses how long it might take to negotiate an agreement:  “We have weighed the fact that it has taken ALPA two and a half years to compile and propose an exceptionally complex and comprehensive opening economic proposal that nonetheless still has a number of substantive items open. Despite its complexity, that proposal remains only conceptual, lacking specific contractual language. We have also considered the considerable period of time it would take to negotiate and craft specific contractual language that is fair to the pilots and fair to the Company. Even if we had no significant disagreements over terms of that opening proposal (a highly unlikely circumstance given the excessive increase in costs it contains), negotiating and refining ALPA's current proposal into to a final executable agreement is a task that would clearly take a very long time.”

Given that the Delta pilot agreement had become a template for the Continental pilots in their negotiation of a new agreement, Continental simply said that they would offer their pilots the Delta pilot contract except for a seat on the Board of Directors and by adding $1 to the pay rates included in the Delta Pilot Working Agreement (PWA).  The offering includes the Delta pension and benefits section as well.  This is important – very important – because benefit costs go into the calculation of the cost of an agreement.  We are finally at the point where we talk about the all-in cost – not just hourly rates of pay.

Capt. Pierce responded:  “the proposal is no surprise and much of the bargaining agenda that we have already presented is based on the Delta PWA. Hence, our Negotiating Committee is very familiar with that agreement and has referred to it often. Notwithstanding this fact, any such transition would be a very complex matter and there is much to consider before we commit ourselves to such a process. We will be carefully reviewing the ramifications of this proposal with respect to our bargaining objectives over the coming days. However, while we must proceed with caution and based on a complete understanding of the Delta contract, we are obviously interested in any process by which we can legitimately avoid extended negotiations during which a concession agreement will remain in place.”

Pattern Bargaining

This is the second time this week where I’ve see pattern bargaining embraced by management. First, it was American and how it structured pay increases for flight attendants in the last offer.  Now it is Continental adding $1 to the pay rates included in the Delta pilot agreement.  I hate pattern bargaining.  I think it is counter-productive as no one airline is the same.  Just because Delta negotiates an agreement with rates and working conditions it believes it can afford, that does not mean Continental’s network can afford the same. But this pattern is a little different than pattern bargaining of the past – and deserves a closer look.

Pattern bargaining typically resulted in best-in-class provisions being included in the union’s opening proposal.  It was/is a cherry picking exercise. Whether the unions want to believe it or not, the cherry-picking of agreements also contributes to negotiations taking longer than a party might wish.  Why?  Because each and every collective bargaining agreement has sections that work in tandem with another section.  As one section was made more complex, other sections of the agreement were impacted.  Simply, the interdependencies within a collective bargaining agreement must be analyzed, understanding a change in Section 7 affects Sections 11 and 14 and so on.  It’s a process that has become increasingly complex over the years.  Circular logic can be hard to avoid for you excel users.

What is interesting about Continental’s offer is the idea of a single collective bargaining agreement – one where the interdependencies are understood and identified – avoids many of the pitfalls of traditional pattern bargaining.  What the company points out in its submission letter is the Delta PWA “is a post-merger, post-concessionary pilot agreement at a legacy carrier that is also the world's largest airline, it will likely set the pilot contract standard for years to come.”   

For me, what the company seems to be saying, is if we are going to engage in pattern bargaining, then no more picking what you want from that agreement and from this agreement.  The same agreement produces no need to distinguish between pilot rates of pay; rules governing work; and benefits (to be determined).  Presumably, the work rules when applied across a respective network would yield the same hours of productivity except for structural seniority differences.  Differences in pension plans and retiree health insurance are company specific and therefore may be or may not addressed by this type of a proposal exchange.  Talk about a way to speed the process.

The Delta Nuance

The Delta PWA was negotiated under the watchful eye and focused leadership of Captain Lee Moak.  I have written about Capt. Moak many times. What seems to set Moak apart is an understanding the industry has undergone significant structural change and the Delta agreement needs to embrace that change.  For example, because Delta serves many small and medium-sized markets in the U.S., there are few limits on the use of regional jets 76 seats and smaller.  Continental is the only legacy carrier that does not permit use of regional jets with more than 50 seats.  This line in the sand keeps Continental at a domestic competitive disadvantage relative to the industry.      

Mainline pilot scope has been quite the topic here at www.swelblog.com over the past week.  Some have suggested I drew the line – or heard what they wanted to hear - at 50 seats.  I did not.  To me the line begins with the next generation of small jets that are bigger than the current aircraft platforms doing 76 seat-and-less flying within networks.  The domestic scope issue is but one scope concern at Continental.  The real issue of significance is that Continental cannot implement the joint venture with United, Air Canada and Lufthansa without the relaxation of language contained in the existing Continental pilot agreement.  There is a regulatory deadline to complete aspects of the joint venture and anti-trust immunity agreements.  Scope is not just domestic.

This is where the Continental situation gets a little murky.  Moak understands that the globalization of the airline industry will drive his carrier’s success.  Further, he demonstrated his understanding of such when he negotiated a new collective bargaining agreement for the merged Delta and Northwest pilots.  Moak accomplished something extraordinary in the history of merger negotiations in the U.S. airline industry. 

Ted Reed of TheStreet.com wrote about the Continental situation last month.  Reed wrote and quoted Continental’s pilot leader Jay Pierce, “Among the network carriers, two models exist for pilot relations. Pilots at Continental and Delta have generally enjoyed positive relationships with the carriers. Pierce said he is an admirer of Lee Moak, chairman of the Delta ALPA chapter; the two talk frequently. "We both recognize that our airlines need to be profitable," he said.”

Depending on how you look at it, the Continental pilots are searching for leverage and public pronouncements seem to suggest they have found the leverage in their scope section.  Now the company counters by offering pilots the agreement they have held out as "industry leading".  The difference being the Delta contract negotiated by Moak allows 76 seat-and-less flying and embraces the direction of international joint ventures.  [All sections of an agreement have interdependencies with other parts of the agreement]

In his interview with Ted Reed, Pierce says he recognizes the need for his company to be profitable.  The pilots also say their current proposal would only cost the company $500 million. [Note:  the $500 million is an ALPA cost estimate, and not a company estimate.] When was the last time Continental reported net income in a year of more than $500 million?  But the ask is not just $500 million.  The $500 million would compound in perpetuity.  And that is before contractual improvements are offered to other Continental employees.

Why I Like the Continental Approach 

  • What I like about this offer from Continental is it does some tearing down of the cancerous practice in the airline industry of pattern bargaining. 
  • It challenges both sides to come to terms in a more expedient manner than the current construct produces. 
  • It embraces Delta’s long-time approach to pay commensurately well in return for operational flexibility and productivity. 
  • Most of why I like the approach is that it is different.  As I say too much for some on this blog, the old way just does not work. 

As I wrote in the last piece on pilot scope, my real fear is for management to again overpay for scope.  That makes me nervous this time.

The more I think about it though, I am starting to like it because it addresses the real issue of how long it takes to get a deal done under the Railway Labor Act.  Whereas I have defended the RLA in the past, maybe the time issue does need to be discussed.  But to do that, we would have to limit the number of issues that require mediator expertise?

And another reason I like it -- maybe this will build the stage where the legacy carriers can compete on service and price and not on a labor cost differential?

Tuesday
Nov172009

Self-Help or Self Sacrifice or Self Fulfilling Prophecy? What Will This Accomplish?

This week, Terry Maxon of the Dallas Morning News  wrote about the “surprised” reaction at American Airlines when a correspondent on NBC’s Today Show reported a “potential strike” at the airline following the holidays.

The show was a bit vague on its sources, but my best is that Laura Glading, President of the Association of Professional Flight Attendants, is working her media list to drum up a little coverage for the union’s latest negotiations gambit.

I consider myself a pretty good historian on most things airlines over the past 30 years.  And I remember the APFA’s divisive and destructive Thanksgiving strike in 1993 that attempted to bring the airline to its knees over the critical holiday travel period.  Last year, the union “celebrated” the 15th anniversary of the strike with a campaign they called “Remember November.”

For this year’s anniversary, the union is doing its best to remind the company of the pain it could again impose in a campaign that all but threatens another strike . . . this one called “Got Guts?” 

To be fair, the APFA has made clear that they do not plan to disrupt American’s operations over the holidays.  However, the union did say it was prepared to strike next year if no contract agreement is reached by January, with Glading saying she will consider asking the National Mediation Board for a “release” from negotiations – the first step toward seeking the right to “self help” under the Railway Labor Act.

First, let’s review the rules.  The NMB will grant a release only if it believes negotiations are at an impasse, and the bar for that is set pretty high.   A release would then open a 30-day “cooling off” period.  Only after that point and if the parties fail to reach agreement can either side engage in self help --  which for a union means work stoppages or strikes and for management allows a company to impose its “last offer” at the table or lock out striking workers.

So let’s be perfectly clear.  The union can’t strike now, no matter what the alarmists may say on Today. There is no guarantee that the NMB would grant a release. And even then, the RLA has several protections built in – the cooling off period and the prospect of a Presidential Emergency Board – to prevent the kind of work stoppages that could ground an airline and impact interstate commerce.

So why is the flight attendant union playing it out this way? Why on one hand are they talking strikes (which in some cases proves reason enough for passengers to “book away” from a particular airline) and on the other hand trying to reassure passengers that their holiday travel plans are safe?

Because that’s what unions in the industry too often have done. . . talk out of both sides of their mouth – paying lip service to their commitment to passengers while at the same time making demands and engaging in work actions that threaten the airlines’ ability to do business.

The Boeing Lesson

Let’s consider the real impact of strikes.

Last September I wrote here:  “In what is starting to be a rather ho-hum event in the aerospace/defense world, the International Association of Machinists and Aerospace Workers (IAMAW) have decided to strike the Boeing Company for the second time in three years. Is this a “yawn moment” or a precursor of things to come as the airline industry begins in earnest the renegotiation of concessionary contracts?”  

In its negotiations, Boeing was looking to balance its economic offer to the union with added flexibility in its contracts the company needed to address the ups and downs in the business cycle.   The IAMAW was not willing to comply. So Boeing ultimately settled with the union, but not before further damage was done to an already fragile relationship. 

The real story, however, played out a few months later, when Boeing announced its decision to build a second production line to build the 787– not in Washington, its corporate home for decades, but in the right-to-work state of South Carolina.

Washington State officials reportedly worked hard to try to convince Boeing to stay, but at the end the state’s governor said the company’s decision to build the line in South Carolina came down to one thing: its difficult relationship with the Machinists union and a failure to reach a no-strike deal. 

And the pain may not be over for Washington’s IAMAW workers. At some point Boeing will need to begin manufacturing replacements for today’s 737 and 777 lines.  Where will those planes be built? 

What is particularly telling in this case is that the IAMAW was publicly dismissive of the fact that the union’s actions had anything to do with the company’s decision to add capacity in South Carolina. 

This is typical of labor of late.  But at some point unions in this space – whether airline or aerospace -- need to recognize the fundamental flaw in their collective bargaining agreements that too often work to choke productivity rather than promote it.

Looking ahead, I believe that the current round of airline negotiations must continue the transition/transformation underway in the US airline industry and address the sticking points in its contractual relationships with its labor force.  These include pay (which is unlikely to return to 2001 levels)  and productivity (which unions resist for fear of losing dues-paying union jobs).

The crux of the problem for labor as I see it is a failure to appreciate the delicate balance between pay and productivity. Without recognition that balancing the formula is critical, the industry, and individual carriers, will continue to find a more efficient means of doing the work.

Sadly, productivity is driven at its core by seniority and all the protections I’ve discussed in the past that unions provide so that long term members feast while newer members are left to feed on the scraps. 

Despite many of the gut-wrenching changes and cost cuts during the last negotiations cycle, the industry did nothing to restructure seniority – the “third rail” on union politics.  In my view, organized labor’s blind commitment to preserving seniority lies at the heart of a race to the bottom.  Yes, the revenue environment contributes more than its fair share to airline’s financial woes, but at some point labor has to accept responsibility for the role of these Depression-era ideologies.  The reality is that, last time around, airline wages were cut more than necessary because of union insistence on preserving seniority and limiting productivity.

Back to the Cabin

So it is in this environment that the APFA waves its strike threat like a red flag in the bullring.  The APFA website even features a report the union commissioned highlighting the failures of airline deregulation and the economic pressures on the industry. On a recent trip to Washington, Glading joined AFA-CWA President Pat Friend in urging the Obama Administration to “stabilize an industry that's not working” and reverse the “damage done” to the traveling public.

Call me nuts, but I’m guessing that Glading’s talk of a strike runs counter to her desire to “stabilize” the industry.  Perhaps other carriers would benefit from the union’s effort to ground the country’s second largest carrier in terms of revenue. But American – and all of its employees – wouldn’t see many benefits.

Or am I to believe that glorifying 1993 and rallying her members to strike in one of the most difficult times in airline history would alleviate the “damage done” to travelers?

I’ve said it before and I’ll say it again – the U.S. industry needs to do a better job of managing labor costs in boom and bust cycles in which fat contracts are approved in boom years only to require painful and at times draconian cuts when the cycle turns down.

Tellingly, and perhaps predictably, the unions are hoping a labor-friendly administration in Washington will help them gain new power in the industry – evidenced also by their efforts to change election rules at the NMB to make it easier to organize workers (even if the AFA-CWA, which is trying to organize at Delta, is hiding behind the AFL-CIO’s Transportation Trades Department to do it.)

What’s happened in Detroit over the last year is a pretty good indicator of what happens when an industry fails to get its costs in line with the market.  A smaller airline industry can’t absorb the same costs – including labor costs – that it did ten years ago.  Already we’ve been at this restructuring thing for more than five years and it’s pretty clear that the market has spoken.

So I’m really confused by what the APFA thinks it will get in return for a strategy that will only hurt the company that employs its members.

I don’t know what a strike buys anyone in this fragile business environment except, perhaps, an unpleasant ending.  Where I do agree with Ms. Glading is the importance of recognizing history.  I, for one, remember Pan Am, Eastern and TWA.  At the time, most believed those proud companies could weather any storm.  And I’d guess there may be another airline on that list before this cycle is complete.

If the past eight years have been rough and tumble, imagine what the next few years could be like as airlines reach pressure points in contract negotiations.   In that case, I can only imagine what would be left to celebrate on the 20th anniversary of APFA’s Thanksgiving Strike.