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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. 

Monday
Sep282009

Airline Industry Eyes on the National Mediation Board

The Railway Labor Act (RLA), which governs labor relations in the rail and airline industries, has been around longer than the airlines flying today.  First passed in 1926 and amended in 1934, it is designed in part to ensure that labor disputes in these key industries can be managed in a way so that they don’t interfere with the nation’s critical commerce.

Decades later, we can all point to the RLA and find certain aspects of the law that should be changed.  And that’s a worthwhile discussion. As long as it’s based in the understanding that the purpose of the RLA was to promote stability and not to disrupt interstate commerce with labor strife.  In its own quirky way, it accomplished these two inherent objectives. 

Now some in organized labor want to inject instability on top of an already unstable industry architecture.  Labor leaders insist they want a more predictable, efficient system. The question is whether the reform being sought will bring unintended consequences?

Organized Labor, President Obama and the National Mediation Board

Recently, the AFL-CIO’s Transportation Trades Department (TTD) asked the National Mediation Board to change 75 years of practice regarding representation elections. The practice in place today requires that a union win with a majority of employees within a “class” or “craft” in order to be certified as those workers’ collective bargaining representative.  The TTD, running interference for the Association of Flight Attendants (AFA-CWA) and the International Association of Machinists and Aerospace Workers (IAMAW), is seeking to make a major alteration to the practice that would put the union in place if it gets “yes” votes from a majority of those voting, not a majority of all employees in the class or craft.

This issue promises to provide some insight into the power of organized airline labor in the Obama Administration. Clearly, labor played a key role in electing the President.  But to date, labor has not reaped the successes many expected in the early months of the new administration.  Will the administration pressure the National Mediation Board to make this change?

After 75 Years, Why Now?

It is pretty simple and transparent.  Neither the AFA-CWA nor the IAMAW believes that they have the votes necessary to win an election in their efforts to organize the combined work forces from the merger of Delta and Northwest.  So labor hopes that a friendly administration will change the process to help them pick up these coveted new members – particularly on the Delta side where the flight attendants and maintenance workers have never been union.

Or, as the union leaders have clearly calculated, if you fail to win hearts and minds at the ballot box (as they have not once but twice) then change the rules. 

The AFA-CWA failed twice in its efforts to organize Delta flight attendants. In their last campaign, only 40 percent of eligible flight attendants even voted. And under NMB procedures, those who don’t vote are counted as a “no” vote regarding union representation. 

After months of delay in seeking to have Delta and Northwest declared a single carrier – an administrative procedure necessary to hold an election for union representation – the AFA-CWA petitioned the NMB for the single carrier determination in July.  The IAMAW followed in August, but is not seeking to organize the entire group of eligible employees in various class and crafts of Delta and Northwest employees.  Unfortunately, an election cannot proceed until the TTD’s request of the NMB has been decided upon.  Therefore, more hurry up and wait for affected employee groups. 

The TTD asked the NMB to change election procedures on September 2, 2009.  Since that time, various groups opposed the change in formal comments to the Board. Opponents include the Air Transport Association, the Regional Airline Association, and the Airline Industrial Relations Conference.

The TTD’s position is that the NMB’s policy is “clearly inconsistent with the longstanding, widely accepted understanding of a democratic election process in the public arena.”

I could wrap myself in that flag -- I guess. And as I read through the various filings, I understand the legal arguments being made. But I am not a lawyer.  So I am going to think about this in another way.

Majority Rule

The “majority rule” issue that is at the center of the TTD’s request seems to have a philosophical bent toward stability:  If a majority of workers in a class or craft want a union to be its collective bargaining representative, the union then has a mandate to bargain with the employer.  With less than a majority support, how effective can a union be in representing the work group?  If the ultimate weapon of the union is the ability to engage in “self help” (the RLA term for strikes, work stoppages, hiring replacement workers and other actions either side can take if the negotiating parties are “released” from mediation), then how effective can the union be in forcing the employer to improve pay and working conditions if more than half of the workers choose to work during a declared job action?

With nearly 150,000 airline industry jobs lost since 2002, it is easy to understand why labor is concerned about the decline in its ranks. Delta has long been a tempting target for unions. Only the pilots and two smaller groups of workers are now unionized.  Delta is a non-union airline by industry measures.  So unionizing the world’s largest airline could be a big step for unions trying to replenish their membership roles following the industry’s restructuring period.  Simply, labor wants to change the majority rule because union activists are those that vote. 

In AFA’s last election attempt at Delta, one assumes that 60 percent of eligible flight attendants didn’t vote because they knew that not to vote was a “no” vote. A clear majority said that they were not interested in changing the labor dynamic at the airline.  But the majority of the 40 percent who did vote supported the union. 

Now enter Northwest and its 7,000 flight attendants. Prior to the merger, they already were members of the AFA-CWA.  Add those votes to the mix and AFA-CWA should easily get a majority of the combined work force.

Fragmented Labor Meet a Fragmented Airline Industry

Today’s AFL-CIO is not the same force that it was during its "New Deal" heyday.  Then, the labor movement was consolidated and spoke with one voice.  Today it does not.  Two large and powerful unions, the Teamsters and the Service Employees International Union (SEIU), recently broke from the AFL-CIO to form a rival coalition.  That defection has created a fragmented labor industry in which the old rules no longer apply. Already, unions in rival coalitions have tried to “raid” members from other unions – something the old rules prohibited. Herein lies the rub.

Arguably, one of the fundamental issues that airline labor has struggled to recognize and reconcile in a constructive way is the fragmented airline market.  Yes, fragmentation leads to hyper competition, but it also creates an unstable industry structure.  This unstable structure has forced airlines to seek wage cuts and productivity gains from labor in order to prevent competing airlines from entering markets and stealing the incumbent carrier’s traffic and revenue - and to live to fight another day.

In my view, changing long-established rules that are intended to promote stability has the potential to exacerbate an already unstable situation. Consider the scenario played out by AMFA following restructuring at United.  Because AMFA is not an AFL-CIO union, it could raid - or threaten to raid - at will mechanic groups at those airlines where unions had gone along with deep concessionary agreements under bankruptcy or other financial pressure. In fact, it won a few elections along the way only to lose later when they failed to deliver on their promise of securing “snapbacks” and wage and benefit increases the industry simply couldn’t afford.

I have seen many airlines struggle in negotiations with AMFA-targeted groups.  In many cases, the company and the incumbent union could probably have reached agreement earlier but for the union’s fear that by agreeing to some perceived negative change to the agreement, they would invite a raid from AMFA hoping to steal their dues-paying members.  This created a destructive and mercenary element to contract negotiations that too often delayed deals and hurt airlines and their employees.

Another question worth asking, but unresolved, is if a majority rule provision were replaced whether a minority of the class and craft could then move to force an election to decertify the union?  (The RLA would seem to be silent on this subject) Imagine the destabilizing effect of that situation.  Just about any tentative agreement I can think of would have elements or aspects that may not be palatable to some vocal minority.  So if an agreement ultimately passes by a razor thin margin, the vocal minority begins a campaign to replace the union that made the deal, looking to a new union that will promise that it can accomplish what the incumbent could not.  And so it goes.......

I may be going out on a limb here, but I’d guess this is a scenario that the Teamsters have already thought through in trying to change the RLA.  The minority rule should allow for raids that could bring new members into the Teamster ranks.

Concluding Thoughts

There’s a real risk to the change the union seeks, particularly during a collective bargaining cycle like this one in which the expectations of employees are so far from most airlines’ ability to afford. There is enough instability in this industry without creating a situation that would bring even more.

Labor has asked the NMB to move toward quicker resolutions of cases on the docket.  But the debate over the RLA must also consider the perspective and concerns of incumbent unions who will be hard pressed to make a deal that offers airlines something of what they need – namely, greater productivity – without facing a raid from a hungry competitor.  A hungry competitor that will promise anything without the corresponding responsibilities of working with management and putting together agreements that serve the long-term best interests of the companies and their employees.. 

It is the burden of management to make very difficult decisions based on the competitive environment in which they operate.  In this labor environment, union leaders could very well face the same challenges and be forced to make decisions that are not in the best interests of dues paying members but in the best interest of the institution. And that would be just one unintended consequence of a change in the rules of the game in order to “possibly” achieve a short-term gain.

The alteration sought by the TTD would prove to be a bad NMB policy change I fear -- particularly when one of the most important goals of the new NMB is to resolve cases in a timelier manner. 

Tuesday
Oct072008

Just Who Will Inherit the US Domestic Market? Don’t Forget Today’s “Regional Carriers”

Will the legacy carriers today be the domestic providers tomorrow?

This post has been partially written for about six weeks. The US domestic market presents us with many things to consider as it evolves. “Darwinists” will say it will be the “survival of the fittest”, or the strongest competitor will be the last standing. In October 2002, Eric A. Marks wrote a book: Business Darwinism: Evolve or Disolve: Adaptive Strategies for the Information Age. Marks was writing on the critical importance of information technology in accelerating the necessary grab for global market share. He used the phrase the “survival of the fastest”.

Whether it applies to the US airline industry and its participants or not, the use of a phrase like “evolve or disolve” certainly applies to the current carriers of all ilk providing service to customers within the US domestic airline market. So as we move into the season of capacity cutting in a significant way, one could ask if we are dissolving or simply engaged in a practice of attrition of uneconomic capacity? No matter how we choose to refer to this period, it is an evolution of an industry structure that is unknown.

Republic Airways, SkyWest and Possibly Others

In the past weeks, Republic Airways, a “US Regional Carrier”, has made some aggressive financial plays at each Frontier and Midwest. Both carriers have strong local market followings and that could be described as an understatement. Warren Buffett likes brands. Are hub markets brands? And if these hubs are joined?

Pilots at Midwest might say that the current ownership is using the Indianapolis-based carrier as a stalking horse to win pay and productivity relief from current contracts. In Frontier’s case, Republic is part of the group that provided the “Debtor In Possession” financing necessary for the Denver-based carrier to construct its plan of reorganization.

Neither Frontier nor Midwest are vital to tomorrow’s US domestic air transportation system - as we know it - and they are joined in that regard by Sun Country in Minneapolis. Whereas this observer has been vocal of a need to consolidate carriers in the “regional space”, I am thinking that there just might be something more to consider. I refer from time to time to a piece I did in 2003 entitled: Low Cost Carriers: Thou Shalt Not Inherit the Earth.

Not so much that there is a need to consolidate carriers in the regional space as many of them will simply dissolve as hubs are closed in the face of high oil; an overall slowing of demand; and less reliance on domestic traffic flows for the network legacy carriers. But I am thinking that carriers like Republic, under it visionary CEO, Bryan Bedford (who should have been a CEO at a legacy carrier already – but then again why would you want to do that?), and SkyWest just might be tomorrow’s US domestic capacity providers. Carriers like Republic and SkyWest just might be the competition for the surviving “Low Cost Carriers” like Southwest, jetBlue, AirTran and possibly Virgin America.

It is Republic and SkyWest that are buying the right-sized aircraft for a market with higher prices and slowing demand. It is Republic and SkyWest that are building fleet scope that provides each of them with the economies of scale that are critical to manage any and all associated costs. It is Republic and SkyWest that have aircraft to serve communities of all sizes that will make "narrow-minded" lawmakers happy. It is Republic and SkyWest that will be looking for "natural partners" to code-share with as they will need international network scope in order to maximize onboard revenue. Republic and SkyWest have learned the lessons from Independence Air and ExpressJet (edited) that built failed models focusing only on the US domestic market.

SO……….

Hey Bill, what are you saying? I guess what I am saying very simply is that this labor negotiating period remains the most critical since deregulation – just as I have been saying for the past couple of years. As Aristotle first said, and was recently used by my dear friend Jon Abbet on the putting green when comparing the banking industries to the airline industry, “nature abhors a vacuum”. The US domestic airline system presents the greatest potential for a vacuum. Controllable costs have converged. But that will not last. Service from Lubbock to London would produce a vacuum if American were to leave and that will be filled. Lansing to Lagos would produce a vacuum if Northwest/Delta were to leave.

Carriers like Republic and SkyWest have the opportunity to take advantage of technology that ensures a “survival of the fastest” path. Remember the UPS whiteboard guy and the cargo industry - no real legacy impediments. Tomorrow they will be the carriers that deal more with an inefficient air traffic control system. STAR, SkyTeam and oneworld will only want to ensure that international connections arrive on time. Northwest and Delta have committed themselves to the US domestic market. But I am not sure that United, Continental, US Airways and American have. In the case of the latter two, they have more commitment today.

Whether it is seniority or a different compensation scheme for tomorrow’s "seniority" that works best for the future industry, never overlook a potential competitor - as it is present. That competitor is not the obvious but rather the well managed companies that have been tasked to adapt to the network model. Republic and SkyWest have.

So in this negotiation, labor will either figure it out or they will not. The US domestic network still provides the most jobs to the labor organizations representing the employees at the legacy network carriers. Will that be the case tomorrow? I am not sure. This is a time to negotiate a construct that rewards blood, sweat and tears. This is also a time to negotiate a construct that recognizes that tomorrow is different. And in the course of doing so, membership numbers can be protected, and possibly augmented.

So ask Boeing and the IAM if a strike is worth it? I am not sure. Ceding competitive advantage to Embraer and Bombardier and others in tomorrow's narrowbody market is the ultimate question. The same is true for airline labor. Domestic economics are different from international economics. Beware of the underdog as is it not the LCCs to fear, it is Republic and SkyWest. Attrit and dissolve; attrit and resolve. That is the question?

Never doubt that nature abhors a vacuum. For ALPA and pilot's unions this is a watershed issue as you represent both sectors. For the flight attendants, membership numbers might not grow but at least you will protect what you have. This is big. Really big.

More to come.

Friday
Sep262008

“Capital Is Global, Labor Is Local”

The title is not my words but rather those of the International Federation of Air Line Pilots’ Associations (IFALPA). On Tuesday of this week, I sat on a panel with Captain Paul Rice of IFALPA to discuss consolidation at the ACI World Conference in Boston. Captain Rice is a most articulate and passionate speaker when it comes to issues important to labor.

As our panel progressed in its discussion, I challenged Captain Rice on his use of his phrase describing events occurring in the industry on consolidation. My basic assertion was: that labor is capital and its flow is being hindered by seniority and other fundamental union rules that probably will not serve tomorrow's work force as currently designed. Restrictions on the flow of capital, or anything, are good for no one. The Boston Beacon reported on our panel.

Yesterday’s Northwest – Delta Shareholder Vote

There is no event currently taking place that highlights the “Labor is Local” mantra more than the pending Northwest - Delta merger. Susan Carey of the Wall Street Journal writes: Northwest's Unions Face Tough Reception at Delta. This comes on the heels of the Association of Flight Attendants – CWA testifying before Congress earlier this week that the rules for union elections at airlines need to be altered. Ah, we are again back to that contemporary law that governs airline labor relations: the Railway Labor Act of 1926 as amended in 1936.

What is interesting to me is that unions negotiate hard to have Sections 3 and 13 of the Allegheny-Mohawk Labor Protective Provisions in their contracts. In February of this year, I wrote a piece entitled: F + E = LPP^DL: Fairness and Equity; Seniority Integration; Union Representation; and Lee Moak Again. Delta had offered these protections to its employees ahead of the announcement of a deal, and they did not have to bargain for it.

There will almost certainly be elections among the IAM and AFA-CWA work forces but now union leaders are concerned that, under NMB rules, a ballot sent to an employee that is not returned is counted as a no vote therefore making a representation election most difficult to win. Just as it has been for years and years.

But like any election, isn’t it up to the union to convince potential new members that being represented by a collective bargaining representative is better than not being represented at all? So, if labor is going to ask that we review only Sections of the Railway Labor Act that serves their local interests only, I say no. If labor is going to ask that an Act of Congress that is more than 70 years old be amended to address issues and concerns that prevent the US airline industry from fully participating in global capital flows because current labor capital says no, then I say yes.

If nothing else, the two mature airline industries in the US and Europe should be able to find common ground that separate continental seniority lists could provide.

Monday
Sep082008

STEEEEEE….rike 1

It is September and pennant races are in full stride. The “wild cards” are up for grabs too as Major League Baseball works its way toward the playoffs.

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?

I am thinking this a precursor of things to come. Not quite sure if it is a yawn just yet. Whereas the aerospace/defense industry is quite different than the airline industry, there are similarities. The similarities begin with the simple fact that the manufacturers are a most important stakeholder in the virtuous circle of airline industry success; or failure as they represent an important cost element to the industry. For certain airline class and crafts of employees, a Boeing contract represents a trend.

Boeing is outsourcing. The airline industry is outsourcing. The world is outsourcing.

As J. Lynn Lunsford reports in this morning’s Wall Street Journal: “Resentment over outsourcing has been festering since the mid-1990s, when Boeing began a sweeping campaign to modernize its factories. The company has relied increasingly on contractors across the world to build larger and larger sections of its airplanes. By adopting many of the methods pioneered by the automobile industry, Boeing has been able to reduce the time it takes to build some of its jets by 50%.”

Resentment over Outsourcing - Airlines Too

Beginning in the mid 1990s, US airline industry labor has been festering over outsourcing too. First it was pilots and scope clause restrictions (1995 – 2001) that govern who could fly the first regional jets (50 seats and under for the most part). Those airlines with the fewest limitations placed large numbers of the small jets into service and garnered a “first-mover” advantage to be sure. There should be no mistake as to why US Airways was among the first to file for bankruptcy protection as the carrier had the most restrictive scope clause language and their network was attacked by those with freedom to overfly it. Finally, by 2001, relaxation of the scope limitations, allowing this size jet to fly, had largely been won in return for unaffordable fixed price contracts. Some mainline pilot agreements permitted the flying of 70-seat jets; others did not.

During the restructuring round of negotiations, scope clause limitations on the flying of 70-seat jets by regional partners were significantly relaxed. During that same period, the industry turned to outsourcing more of its heavy maintenance work as carriers looked to find ways to trim costs ala Southwest Airlines that has historically outsourced its heavy maintenance. Well here we go again. I see a pattern. And I do not like what I see because it just simply ignores fundamental issues.

Whereas the Boeing business/economic climate has been quite good and has produced significant profits of late, let’s not forget that the order book is full. Some say until 2017 and some say 2020. Whatever it is, profits can be forecast as the revenue stream can be calculated with some measure of certainty. Adjustments will need to be made to account for pre-strike delivery problems. And there may be some adjustments to be made for strike-related delays. But if the supply chain has been the issue, doesn’t a strike possibly allow certain suppliers to “catch up”? No matter, with the revenue stream reasonably certain it becomes a cost issue just like it did for the airline industry beginning in 2001.

Labor Arbitrage

This is what is at play for each Boeing and the US airline industry, isn’t it? As I turned to the financial dictionary online for a definition of labor arbitrage, this is what I found. Outsourcing: A practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally.

Notes:
Outsourcing is an effective cost-saving strategy when used properly. It is sometimes more affordable to purchase a good from companies with comparative advantages than it is to produce the good internally. An example of a manufacturing company outsourcing would be Dell buying some of its computer components from another manufacturer in order to save on production costs. Alternatively, businesses may decide to outsource book-keeping duties to independent accounting firms, as it may be cheaper than retaining an in-house accountant.

Damn, that outsourcing word again.

Where is the Crux of the Problem? Or Begin to Really Think About It

This is what few want to explore it seems. This round of negotiations simply needs to be a continuation of the transition/transformation period for the US airline industry and the contractual relationships with its labor force. I am not going to perfume the pig here. This is about a different set of wages and rules for the new workers that will comprise tomorrow’s industry that will be increasingly impacted by the ebbs and flows of global trade. The airline and aerospace industries can do better than the automobile and steel industries who acted much too late to protect the many good-paying jobs that remain.

And yes, there does need to be something in it for those that make up the industry today as well. The crux of the problem for labor as I see it is a lack of appreciation of the delicate balance between pay and productivity. Boeing is looking to balance an economic offer with flexibility if the business cycle requires it. Without recognition that balancing the formula is critical, the industry, and individual carriers, will continue what has become known as the "September Swoon" and miss the playoffs altogether. The “spiral down” - read job loss - will continue, strike or no strike. Markets will continue to be successful in finding the most efficient provider - they always are.

The simple question: why are job losses among the legacy US carriers approaching 200,000?

Or maybe the real crux of the problem is the seniority system. Ever wonder if tomorrow’s workers will really want such a system because it stands in the way an individual’s right to participate in the free market?

So I do think we will see strike 2. And probably a high, hard one that produces a swing and a miss that will cost someone the opportunity to continue on in the chase for the title of World Champion.

We are going to be bringing up many issues over the next couple of months.

More to come.