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Autos, Airlines and the Question of Union Relevance

Last month I had the honor of being invited by Wolfe Trahan’s Hunter Keay to participate on a Labor and Policy Panel at the firm’s Global Transportation Conference.  I shared the dais with Dave Bates, President of the Allied Pilots Association; Lee Moak, President of the Air Line Pilots Association; and Sharon Pinkerton, Senior Vice President for Legislative and Regulatory Policy at the Air Transport Association. 

With Keay as our moderator, we had a lively discussion on a number of subjects including the always controversial topic of variable compensation for union workers.  Of course, I was the lucky panel member to be asked the first question, and as Swelblog readers know, I’ve been a longtime proponent of variable pay structures for airline industry workers.  Why? Because I believe that workers should benefit on the upside, just as companies should be able to hold costs stable on the downside.  History shows very clearly that each time labor concessions were made in this industry, management later overcompensated labor for those give backs in subsequent negotiations.  Ultimately the overpayment was not sustainable.

Swelblog readers also know that I like to write about the similarities between two legacy industries; autos and airlines.  The issue of variable compensation in the auto industry is coming to the fore as the United Auto Workers (UAW) made clear that it is open to exploring such pay in lieu of fixed wage increases as negotiations with Ford, General Motors and Chrysler begin in earnest in July.

But before we go there, an interesting editorial appeared in the Wall Street Journal on March 2, 2011.  In “Winds of Change in Unionland” (subtitle: “The end of the road for the UAW, except as an administrator of retiree health benefits”) the author talks about the UAW’s presence in union strongholds in the Midwest. But now, as public sector unions in the region are under attack and these states are less successful attracting new business, the UAW is shifting its strategy accordingly. The grand plan under new leader Bob King is to instead look outside the heartland states, instead focusing organizing efforts on Toyota and other auto factories in the largely right to work states in the South. The WSJ piece points to King’s success in organizing parts suppliers but attributed those victories to the union’s “politically-protected labor monopoly over the Big Three.”  In it, the author also points out that:

  1. The union had little to offer the suppliers’ employees but the false promise of job security, and the companies put up little resistance for fear of losing their Detroit contracts;
  2. The supplier campaign was a distraction from the fact that the Big Three's own workers were giving ground on jobs and job security; and
  3. Mr. King is blowing smoke about Toyota. The UAW has no card to play. The union's labor monopoly gives it no leverage over the transplant factories, and the union's current appeal to their nonunion workers is, realistically, less than zilch.

The article then points to the outsized labor concessions that have helped restructure Detroit’s auto industry and the UAW’s cooperation prior to bankruptcy as part of a deft political play in Washington to appease those politicians that protect the UAW’s monopoly hold on the U.S. auto industry.

The parallel with today’s airline industry negotiations, as the Wall Street Journal makes clear, is that every airline industry union complains that contract talks are taking too long and blames management. “Mr. King knows, in the current political atmosphere, he can't go back to playing his monopoly card to extract anticompetitive terms from the Big Three,” the author writes.

So, too, is the case with airline industry unions that seem to think that the world will revert to days past when companies continually “paid back” workers, plus, for prior concessions.  In each instance, anticompetitive terms contained in airline labor agreements remained or were augmented.

In a June 10, 2011 article the Wall Street Journal's Matthew Dolan and Sharon Terlep reported that the UAW had signaled that it is “open to discussing wider use of profit-sharing plans instead of fixed pay increases for its members, a key shift as the union nears contract talks with Detroit auto makers.”  Like airline unions in the past, “The UAW has historically resisted linking large portions of workers' pay to profits because its members would suffer in down years. Another fear: The auto makers were simply not making profits on a consistent basis.“

Why the UAW’s change of heart? The Journal report said King wants a “non-adversarial” relationship with management. Maybe that’s because the union doesn’t have much choice. As the newspaper asks: “What exactly has the UAW got to offer? Evidence is lacking that organized labor actually adds value, creating gains workers and stockholders can share. If it did, Toyota et al. would be clamoring to have the UAW in their factories. They're not.”

The Journal continues:  “Mr. King's dilemma is evident in his lukewarm response to the Big Three's opening gambit in this year's quadrennial contract talks, an offer of enlarged profit-sharing. Here's the problem: Incentive pay is earned pay; workers see profits as something businesses create, not something union bosses create. And the foreign transplants will only be too happy to compete on the basis of performance-related pay. If the industry is headed toward compensation based on success, what are workers getting for their UAW dues?”

Good question.

I certainly never looked at variable pay that way.  I see it clearly as a way to better align the interests of workers and management across an entire business cycle and as a way to avoid the crazy cycle of take/give/take and the resulting bad blood and mistrust between union leadership, employees and management. 

Think about this:  If variable compensation was in place following the concessionary period of 1993 – 1995, workers would have gained far more between 1996 – 2001, the most profitable period in airline history when U.S. airlines earned in excess of $40 billion.  Instead employees received nothing with few exceptions. 

Today, the goal of most airlines is to reach “responsible” contracts with union employees with costs sustainable over the term of the contract.  That’s a much better approach than the patterns of the past, when buying labor peace in one contract only forced airlines into asking for concessions before the amendable date because they could no longer afford the terms. And sustainability benefits employees, too, particularly if it avoids the need for concessionary bargaining in a downturn and provides protection on the upside to prevent companies from earning outsized profits on labor’s back. 

This is the area where unions have missed the boat in the past.  Too often, labor leaders spend too much time negotiating protections on the downside and ignore similar protections on the upside.  Think back to the more profitable periods in U.S. airline history during which, for many, employees were still in the middle of concessionary agreements. As industry fortunes improved, employees sat and watched because their unions did not negotiate protections on the upside that would have ensured their sharing in the profits – some of which were made possible from lower labor costs.

Of course, the industry has been anything but profitable over the past decade except for a brief blip of black ink in 2006-2007 and 2010.  So upside protections would have returned little if anything following restructuring, with some companies instead giving performance bonuses when they met stated operational goals.  But let’s suppose the U.S. industry now sits on the brink of a profit cycle.  If upside protections had been negotiated during the mid 1990s, employees would have shared in $40 billion of profits while new collective bargaining agreements were under negotiation. That would send a far stronger signal about the connection between productivity, competitive costs and profitability than has the long and painful cycle of give-some, take-some negotiations.

One thing is clear: carriers with relatively expensive labor rates today will need to adjust expectations at a time that industry economics, particularly domestic market economics, do not support above-market increases in rates.

Unions:  Irrelevant or Just In Need of a Total Overhaul?

Unlike some in the Wall Street Journal article that suggests unions are increasingly irrelevant because profits are earned by companies and not union bosses, I believe that unions are relevant but need to be totally restructured. 

Airline unions are just like the airline companies before restructuring; trying to be everything to everyone.   Unions have become too democratic.  Decision paralysis creeps in because an agreement must satisfy so many disparate interests – at least in the eyes of the leadership who may represent workers with a wide variety of skills, experience and education.  With few exceptions at the local levels, airline union leadership simply does not lead.  Rather they succumb to the pressures of the most vocal factions. 

Unions need to start relying on professionals at the negotiations table who have an ability to divorce themselves from the rhetoric and the politics and instead focus on reaching agreement. They need to lengthen the terms of their elected leaders so that leaders will be less likely to overpromise during their campaigns and be accountable to members for the hard work of negotiations. Anyone can make bold promises. Real leaders set realistic expectations and perform accordingly.

Longer terms for elected leaders might also help speed the course of contract talks. Unions would face less risk of elections distracting from their work at the bargaining table, and less time training members of the bargaining committees on the hugely complex set of issues, factors and finances that go into negotiations.

This type of internal chaos every two years can occur because the union, at least in collective bargaining, is a monopolist.  Monopolists have power.  But the days of union monopolies wielding power as in the past are quickly coming to an end as suggested by auto workers’ considering variable compensation as a significant component of this upcoming round of negotiations gets underway.  The automobile industry is a mature industry.  The U.S. airline industry is a mature industry.  Mature industries grow slower.  Mature industries tend to be more risk adverse than emerging or growth industries.  As a result, industries like autos and airlines need to look at alternative forms of compensating their people because mining new revenue takes time and often involves adding more risk than mature industries prefer. 

To remain relevant, U.S. airline unions need to begin a process of rethinking how they think.  Just as Ford, GM and Chrysler have unique needs in negotiations, so do individual airlines.  As author Susan Sontag once said:  “Existence is no more than the precarious attainment of relevance in an intensely mobile flux of past, present, and future.”  Unions exist because of the relevance attained in the past and the present.  What about the future? 


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?


Empathy for Ron Gettelfinger

What, Swelbar showing empathy for a labor leader? Yes. In fact, my feelings are not dissimilar to the emotion I felt for airline labor leaders a few years back, when the solvency of so many carriers was in question and some of the biggest went on to file bankruptcy. Trust me, no one wanted to be a labor leader in the airline industry following 9/11. Today, I’d bet that there is no human being that wants to sit in for Ron Gettelfinger, the damned-if-you do, damned-if-you-don’t President of the United Auto Workers (UAW).

On Tuesday, Fox.com posted a piece entitled: With GM's Wagoner Ousted, Should Union Head Have Met the Same Fate? In my view, absolutely not. In the early days of Swelblog.com I wrote a piece entitled Self Help in which I praised the negotiating strategy of the UAW. This was on October 11, 2007, long before the spike in oil prices, the freeze in credit markets and the downturn in the economy that has left consumers with little to no confidence in the future and contributed to a decline in consumer spending.

The contracts Gettelfinger negotiated at GM 18 months ago attempted to address many of the competitive disadvantages the US auto industry faced. Those negotiations resulted in, among other items: 1) freezing base pay for 4 years; 2) shifting a significant share of the burden of retiree health care from GM to the union; 3) creating a two-tier compensation structure in return for job protections for the current workforce.

Think about these terms. Unpopular? Anti-worker? Unsuccessful? Yes to all. But the new contract made significant ground in bringing about some of the necessary changes to a collective bargaining agreement born of decades of negotiation between the UAW and the Big Three carmakers and costs that had spiraled out of control. These were well-intended fixes to contractual language written when times were different – but the fixes allowed some historical language to remain. This was well-intended language that would only produce real benefit if the industry grew.

It is like pilot scope clauses: there is only value in the language when it happens. Some might argue this point – don’t scope clauses restrict airlines from even considering new routes/planes/partners when it would potentially violate scope – even when company growth presents itself? Only growth is not in the cards for U.S. auto industry, - or the US airline industry - at least not unless, and until, there is real change.

Just like the automakers, the legacy airlines continue to negotiate from outdated language. Most of these contracts were written when technological changes facilitated productivity improvements that could offset pay increases, and when targeted capacity growth would build airline markets where there was no evidence that the market could support new air service. At the time, collective bargaining agreements did more to ensure that labor would take advantage of technology change rather than to adjust work rules and expectations to account for the advantages new technology brought.

Unfortunately for the airline industry, there is no techological change on the horizon that will increase the speed of the aircraft in a meaningful way.

I have written many times here that the auto industry cannot make the necessary changes without a court-assisted restructuring. The same was true for the airline industry. The problem is that, even in bankruptcy, the airline industry still left decades-old and largely irrelevant language in their collective bargaining agreements. Bankruptcy was effective in dealing with the low-hanging fruit, but did not do enough to position the airlines for long-term success.  Simply, the flexibility to match the work force to the demand environment was not negotiated.

So here we sit with significant negotiations to be done at United, American, US Airways, Continental and AirTran. No labor leader at any of these carriers has stepped up the way Gettelfinger did 18 months ago when he was willing to challenge decade’s worth of old-labor ideas and ideals in return for better positioning GM in tomorrow’s world.

Lee Moak, the head of the pilots’ union at Delta, came closer than any other union leader in acknowledging that change was inevitable as the Delta-Northwest merger moved forward. Moak did what any first-mover in a merger world would do and negotiated the best deal for his members. The problem is that Moak did too good of a job given the state of international markets. I only hope he can hang on to what he negotiated.

We have new contracts getting done across the industry. Interesting and different mindsets at Alaska and Hawaiian have produced some very different agreements. Southwest ground workers have ratified a deal. Southwest has announced a tentative agreement with its flight attendants.

And Southwest this week revealed details of an agreement with its pilots that in my view will prove to be a mistake – with the company caving to the union and giving pilots too much specificity in scope. Southwest did show amazing restraint in agreeing to wage increases, but I had expected it to come without “handcuffs” on code sharing. With this contract, we can see quite clearly how Southwest is aging and facing many of the very same labor struggles that have long dogged the legacy carriers.

I feel for those employees that have “given back,” whether through concessionary contracts or at the demand of a bankruptcy court. But that doesn’t change the fact that the give back was from a level that was unsustainable and would have occurred, eventually, come hell or high water.

This current negotiating period is important to both management and labor. Hopefully, the airline industry will produce leaders like Gettelfinger that recognize that tomorrow has different challenges than yesterday, and that labor leaders have a crucial role in negotiating contracts that protect the workers who helped build the industry, while at the same time ensuring that US aviation can be competitive in the future.

Some call this approach “eating their young”. I call it smart. Because there is nothing that Gettelfinger and the UAW can do today to fix what was done 20 years ago. But labor leaders in the airline industry should do everything in their power to avoid the situation automobile labor now faces. Labor leaders who succeed in the long term will be those who set realistic expectations for their members, resist the urge to overpromise and, like Gettelfinger, recognize that change is inevitable and that labor can and should be a key player in making it work.

More to come.


Olympic, Alitalia, American and the Wings Club

And we thought the last 10 days of news regarding financial institutions was interesting. In this industry we have legacy flag carriers dying on many continents. We have continued, and even aggressive, consolidation activity in Europe. In the US we have Delta and Northwest pointing to a date before year end to complete their deal. All that remains a constant, it seems, is the Allied Pilots Association creating press releases that ignore the realities of the world to virtually everyone except Lou Dobbs. But before we go there………

Today, Greece finally announced that it would shut down Olympic Airlines and start anew. The Greek flag carrier has only been going through gyrations of Olympic-sized restructuring efforts since I began to study the industry. Nearly 30 years later, its legacy carcass is finally put to rest.

All the while, the investor group that has been assembled in Italy to rescue Alitalia has given certain unions that have not signed on to their business plan until Thursday to do so. Today, a small union caused the carrier to cancel flights as it struck. The bankruptcy laws in Europe are different than in the US and honestly, they are the kind that should be adopted here. If the investor group were to walk away, there is a high probability that Alitalia could be liquidated. Not that Rome is burning, but maybe a “Flying Pig" Roast is in the offing.

Whereas saving Alitalia has become a front-burner issue for newly elected Prime Minister, Silvio Berlusconi, Rome will not burn; Milan will not burn; and all other markets in Italy will not burn if flag carrier Alitalia does liquidate. The world really will not miss Alitalia. Just like the hub closures that have occurred in the US over the years, replacement capacity will be sure to find the market opportunities that are presented. Lufthansa and Air France and others have already identified markets where they will deploy capacity to address the void left by Alitalia should it exit the space.

So, two more carriers in Europe, each once proud flag carriers, are close to succumbing to the high cost of jet fuel, a slowing economy, a strengthening of the dollar, hyper-competition for traffic flows over European hubs/gateways and high intrinsic cost structures that simply cannot be supported.

Now we turn our attention to the US. Similar pressures are forcing its carriers to engage in gut-wrenching decisions of resizing networks in order to adapt to the new economic order. Leave it to the Allied Pilots Association to cause most interested observers of this industry to scratch our heads yet again. Not only did APA’s President write to the CEO’s of British Airways, Iberia, Finnair and Royal Jordanian advising them not to enter into an immunized alliance structure with American Airlines, they also wrote to the US Government urging them to postpone their review of the application.

When all other carriers, including Southwest, are actively seeking new revenue sources that can only work to bolster the bottom line, the APA continues to act in the most destructive of ways. The revenue sources its company is seeking to participate in are those carried by American’s competitors today. To ignore them only initiates American's walk down the path of Olympic, Alitalia, Sabena, and the many US carriers that have ultimately succumbed to the same fate.

But only APA’s membership can decide if they are being led for the better or ultimately to their detriment. I cannot answer that.

Finally, James Hogan, the Chief Executive of Ethiad, spoke to the Wings Club in New York about a 'New Wave' in Global Aviation. If anyone does not believe for a minute that this “new wave” coming from Dubai, Doha and Abu Dhabi will challenge the European partners of the US carriers in a big way, then you are just not reading the tea leaves.

There are traffic flows that are critical for American and British Airways to participate in that require competitive strength. There are possibilities for Iberia that do not exist today. Today, each of the carriers have a strong position in some markets. Absent a relationship similar to that of STAR and SkyTeam, oneworld’s global market position will only continue to erode and will result in less and less flying for US pilots working under the American Airlines’ seniority list.

Just look at the loss of legacy carrier employment in the US today. American has not suffered the half of what United, US Airways and others have suffered. There is no growth at home and that is precisely why APA’s actions of today just simply ignore the evolution of the global industry and the forces of a global economy. Tomorrow’s world is not about Abilene, it is about Asia. It is not about narrowbodies to Eugene, it is about widebodies to Europe. And it sure as hell is not about Midland/Odessa, it is about the Middle East.

It is also not about 12,000 American pilots that Captain Hill states he represents, it is about the other 65,000+ proud employees of American Airlines.

Thank god for Lee Moak and his counterparts at Northwest. At least they recognized that changes were needed to compete in tomorrow's marketplace.


F + E = LPP^DL: Fairness and Equity; Seniority Integration; Union Representation; and Lee Moak Again

In a Delta Air Lines Deal, Labor Protective Provisions Were Board Approved Before the Law Was Passed

Well, leave it to Susan Carey, along with Dennis K. Berman and Paulo Prada, of the Wall Street Journal to again write, and break the most recent period of silence surrounding a potential deal between Delta Air Lines and Northwest Airlines. In the same story, she reports that the preliminary talks that have taken place between United Airlines and Continental Airlines “have grown more serious”.

Whereas news on the deal side has been quiet, I have also noted the deafening silence from Lee Moak, the Chairman of the Delta chapter of the Air Line Pilots Association. My guess is Captain Moak is doing what all labor leaders should be doing and that is preparing for what is arguably going to be the most important period for organized labor since the passing of the Airline Deregulation Act.

A Recent Law Was Passed…..but the tenets had already been adopted by the Delta Board of Directors

SEC. 117. LABOR INTEGRATION. (a) LABOR INTEGRATION- With respect to any covered transaction involving two or more covered air carriers that results in the combination of crafts or classes that are subject to the Railway Labor Act (45 U.S.C. 151 et seq.), sections 3 and 13 of the labor protective provisions imposed by the Civil Aeronautics Board in the Allegheny-Mohawk merger (as published at 59 C.A.B. 45) shall apply to the integration of covered employees of the covered air carriers; except that--
(1) if the same collective bargaining agent represents the combining crafts or classes at each of the covered air carriers, that collective bargaining agent's internal policies regarding integration, if any, will not be affected by and will supersede the requirements of this section; and
(2) the requirements of any collective bargaining agreement that may be applicable to the terms of integration involving covered employees of a covered air carrier shall not be affected by the requirements of this section as to the employees covered by that agreement, so long as those provisions allow for the protections afforded by sections 3 and 13 of the Allegheny-Mohawk provisions.
(b) DEFINITIONS- In this section, the following definitions apply:
(1) AIR CARRIER- The term `air carrier' means an air carrier that holds a certificate issued under chapter 411 of title 49, United States Code.
(2) COVERED AIR CARRIER- The term `covered air carrier' means an air carrier that is involved in a covered transaction.
(3) COVERED EMPLOYEE- The term `covered employee' means an employee who--
(A) is not a temporary employee; and
(B) is a member of a craft or class that is subject to the Railway Labor Act (45 U.S.C. 151 et seq.).
(4) COVERED TRANSACTION- The term `covered transaction' means--
(A) a transaction for the combination of multiple air carriers into a single air carrier; and which
(B) involves the transfer of ownership or control of--
(i) 50 percent or more of the equity securities (as defined in section 101 of title 11, United States Code) of an air carrier; or
(ii) 50 percent or more (by value) of the assets of the air carrier.
(c) APPLICATION- This section shall not apply to any covered transaction involving a covered air carrier that took place before the date of enactment of this Act.
(d) EFFECTIVENESS OF PROVISION- This section shall become effective on the date of enactment of this Act and shall continue in effect in fiscal years after fiscal year 2008.

As we move forward there will be lots of stories about labor issues, air service to communities of all sizes, domestic issues, international issues, consumer issues and of course the horror stories of past deals gone bad to name a few. I sincerely believe that “smart labor” recognizes that the current speculation of possible combinations is not just talk but may be their best hope to position themselves for the future. Naïve thinking that Section 6 bargaining will return to its historical nature – well it is just naïve.

As we have written here many times and in many different ways, the current industry construct does not work for many, if any, major industry stakeholder(s). Any concept of change is difficult to accept on both the emotional and rational levels for sure. Short- term displacements and pain for some -- yes. Being forced to step back and accept that tomorrow will be significantly different -- absolutely.

But the burning question for me is: is the implementation risk of a merger deal (seniority integration, single collective bargaining agreement etc.) any greater than a leader having to manage the expectations of any employee group that actually believes they can make themselves whole in the next round of Section 6 negotiations? I do not think so with the industry facing an oil environment that was imagined by only a few, a weakening economy, increased global competition, general lack of an investment thesis, presence everywhere and pricing power no where -- no matter who you are.

My guess is Captain Moak has taken the basic tenets (fairness and equity) of the Allegheny-Mohawk merger protection provisions to heart and is studying the same merger scenarios that his management is. The primary difference in his due diligence is that he is focused on seniority lists and not EBITDAR. In his diligence process, I am sure he is figuring how to best analyze and “game out” the combination that treats each his own pilots as well as all pilots of a combined entity fairly and equitably. That is what leaders do and in this case it is leaders from both management and labor.

The integration process has evolved over the years since the Allegheny-Mohawk Labor Protective Provisions were originally enacted. There have been more failures at adopting fairness and equity than not to be sure. But it is incumbant for labor and management leadership this time to ensure that career expectations are met for all employees. Simply this concept means that the relative seniority of a combined list is not significantly different for a respective employee in a combined entity than it is for that employee today.

On the labor side, rigorous analysis of seniority lists can be done ahead of an announcement. My only hope is that Moak is being joined by his counterparts in Chicago, Minneapolis/St. Paul, Houston and other airline corporate homes. From what I read, Moak understands that a short implementation period is a friend of the deal and a long implementation period is well – just look at US Airways. Moreover, if pilots and other employees are seriously interested in a piece of equity ownership of the new entity, labor should absolutely want a short implementation period too.

Yes, There Are Employees Other Than Pilots

What makes any Delta combination interesting is the fact that other than the pilots and dispatchers, the company is non-union. Delta is a company that has trumpeted the idea of fair and equitable throughout its existence whether in union avoidance strategies directly or in the day to day management of its various class and crafts of employees. Whether conscious union avoidance or not, along the way you have to walk the walk and not just talk the talk. And in Atlanta there has obviously been more walkin’ the talk than talkin’ the walk.

Just How Might Delta’s Current Non Union Workforce Play Out

Any deal led by Delta, or involving Delta, opens up a potential union representation box. Stated otherwise, if a combination of any class and craft of employees involves two different unions, then more than likely there will be an election; and if there is a combination of any class and craft of employees where one is union and the other non-union, and the unionized group comprises 35% or more of the total employees, then there would likely be an election.

In the Delta combinations being discussed, in each case the pilots are organized and members of the same union so no representation elections are expected.

But the flight attendants are a different story. The Northwest and United flight attendants are represented by the Association of Flight Attendants, AFA-CWA. And given that a combined entity would be comprised of 35% or more union represented employees, a representation election would likely occur. In that election the flight attendants could either vote for AFA-CWA, another flight attendant union or for no representation in either merger scenario.

AFA-CWA has an organizing campaign underway at Delta. The decision point for the combined work force would be simply: am I better off working under a collective bargaining agreement or under the wage and working conditions employed by Delta with its current flight attendant work force.

As for the mechanics, this one also has some interesting nuances to it as well. Delta’s in house maintenance work force is unorganized and the company has begun to increase its insourcing of maintenance work. Each United and Northwest have been outsourcing an increasing amount of their maintenance work albeit for different reasons. Northwest’s mechanics were in effect disenfranchised by AMFA’s poorly conceived decision to strike Northwest and therefore, based on my read of the LPPs, the mechanics of a combined Delta – Northwest entity would not trigger a representation election. In a United - Delta combination, an election would be triggered but who the incumbent union would be is not known at United because currently the Teamsters are challenging AMFA. Got that?

As for the ground and related employees, the scenarios for either a Delta and Northwest or a Delta and United combination are the same. An election would more than likely be triggered given that the International Association of Machinists and Aerospace Workers (IAM) represent the various class and crafts of employees in this broad group at each Northwest and United. The definition of class and craft here will be a story to watch and they include ramp, customer service and reservations.

And more than likely, a representation election would be triggered by combining the dispatch groups. Although small in number, they are governed by the same rules as well.

Bigger Concerns than Unionization

In addition to the capable leadership of Moak, Delta management is led by Michael Campbell, their EVP of Human Resources, Labor Relations and Communications. Campbell was Gordon Bethune’s head of labor at Continental. The issues of representation and combining collective bargaining agreements are complicated for sure - but in capable and professional hands.

Should the investment community be concerned of union representation at Delta? No. The investment community should be more concerned with seeing that labor integration is done as quickly as possible, whether it involves unions or not, as this provides the shortest pathway to realizing merger synergies. For Delta, fairness and equity has been adopted at the Board level. Now it is law and this is important for many to consider when the naysayers repeatedly and continually tell us all to remember the menu of historic disasters.

At the end of the day, what was important for Delta yesterday will carry the same weight for Delta tomorrow. Given the current lack of unionization at the carrier, some might say that something was done right. Delta has historically understood that higher wages in return for commensurately higher productivity has served its employees and the company well. This concept is a most important model for the industry to sustain and will promise to be a most important theme in any upcoming negotiation. Further, it will be important for any combination to maintain - and sustain - the highest productivity possible as the industry needs to continue to shed fixed costs and not add to them.

Isn’t that really the issue behind today’s consolidation push anyway? I think Delta and others have learned from past mistakes.


Consolidation, Mediation and an Explanation


On Thursday, January 10, the Wall Street Journal breaks the news that Delta Air Lines will ask its Board of Directors for permission to explore a merger with either Northwest Airlines or United Airlines click here. The article is entitled: Delta’s Merger Buzz May Stir the Industry. And stir, and buzz, it did. After a month of sustained stock price declines, the airline sector rallied by more than 15% following the story finding its way onto the newswires.

While news regarding the Board’s deliberations is quiet at this writing click here, the news of a deal involving Delta should come of little surprise to airline industry watchers and readers of swelblog.com. Further, at this point, we do not even know how, or if the story will play out. But……

In a November AP story covering a New York investor conference, Delta’s President and Chief Financial Officer, Ed Bastian, called consolidation a “front burner” issue for the carrier. As the company discusses consolidation, its message to all stakeholders has been consistent – a deal that is good for shareholders, employees and communities will be explored.

It has been reported that Delta would like to answer the consolidation question before it makes any decisions regarding asset or subsidiary spin offs. Delta's public statements on this subject have held true and the carrier announced that it will delay a decision to spin off its Comair unit click here. Delta has not denied these reports.

In either merger scenario suggested by the Journal, Comair and Cincinnati will be a source of discussion. Beginning the process of paring 50 seat capacity and secondary hubs are certainly synergies in my analysis supporting any good, and viable, merger proposal. If it is a Delta/Northwest combination, what about Pinnacle and Memphis?

There Is Something Different In Atlanta

And it is labor. It is pilot labor. It is pilot labor leadership. His name is Lee Moak click here.

History has taught us that simply negotiating a term sheet does not a successful merger make. The two speed bumps to a successful culmination of negotiated terms are: the regulators; and labor.

For serious industry watchers, Captain Moak has been on the scene for some time. His presence was felt during Delta’s bankruptcy reorganization. But his real persona emerged following Pardus Capital’s announced intention to facilitate a combination of Delta and United in mid November 2007 click here. Moak then wrote in a letter to his pilots: "Pardus' demand for a merger between Delta and United is a poisonous vision built upon an artificial timeline and focused primarily on a financial transaction…"

Moak has publicly opined that he sees structural change ahead in the industry. And to the extent that it impacts his carrier and therefore his pilots, he will play a role. Just a day before the Wall Street Journal wrote its story, Moak wrote a letter to his pilots suggesting that consolidation was at the door click here. In my opinion, Pardus’ big mistake was that it proposed a deal that could easily be perceived by labor as a “cram down”. And suffice it to say that after bankruptcy/restructuring, labor’s appetite for a "cram down anything" is nil.

It is refreshing to see a real leader emerge in the labor space. Right now the labor space is generally devoid of good leadership -- with a few exceptions to be sure. Whether this story plays out or not, what is different is that you have a union leader who has made it clear that he will represent his constituents and a CEO who will do the same. More importantly, Moak is not saying no for the sake of saying no. Rather he must see an opportunity to better position his pilots in a changing world. How refreshing.

Parallel paths that may ultimately converge to create something better than today’s fragmented and fragile platform?

Concluding Thoughts

What is sure is that US Airways’ CEO Doug Parker’s idea to be a first mover in the consolidation arena was a good one. What is also sure is that Parker provided a blueprint for the industry to merge networks, ensure access to the air transportation system for communities of all sizes while at the same time reducing fixed costs. Now Parker is hamstrung by pilot leadership blinded by the prospect of an unlikely outcome – a better arbitration decision. For Parker, bringing labor along would certainly have proven expensive – and maybe just too expensive.

At Northwest, CEO Doug Steenland is mirroring statements made by Delta’s CEO Richard Anderson that the right transaction – one that benefits employees, shareholders and communities will be considered click here. Steenland and his pilots had to work through a very difficult, and adversarial, operational situation shortly following its emergence from bankruptcy. An outcome was reached that seemed to quiet the rhetoric emanating from the Twin Cities. A platform to build on?

As for United, a new pilot leadership is settling into office. They are presented with a potential opportunity to find a meeting of the minds with a management team that has been most vocal, and visionary, on industry change. Is there a sufficient blueprint out there for the two sides to work as a single mind so as to ensure that United will not just sit on the sidelines and watch others implement Tilton’s strategic vision? Maybe the holiday operational breakdown can be used as a platform -- like at Northwest?

Network and labor blueprints are emerging. Maybe the historic speed bumps to successful structural change are being reduced as a result?


The Allied Pilots Association announced this past week that they will apply for mediation, with or without American management joining them in the formal request, to the National Mediation Board after the close of business on January 14, 2008. I guess we are now getting a window into a strategy designed for a quick resolution?? My guess is it will still ensure a very long and protracted negotiation that ultimately lands in front of a Presidential Emergency Board.

Is the APA making a bet early in the Presidential and Congressional election cycle that somehow a PEB will fall short of Congressional action? Sounds risky to me. From my viewpoint and based on APA's current table position, there is no "splitting the baby".

In a widely read blog post here click here I borrowed a term often used among the professional negotiators at the Board: put it on ice. The term of art describes a situation where the gulf between two sides is too wide and as a result progress is difficult to measure. In that circumstance, a case is put on ice. Mediation is suspended and the parties are sent home to reevaluate their respective positions.

In this case, I do not see newly elected APA officers moving off of an uneconomic, unpalatable and untenable position anymore than I see American management remotely willing to entertain many, if any, of the economic proposals put forth by the union.

Another widely used term of art by a negotiator is underbrush. Underbrush refers primarily to negotiations on non-economic issues that should largely be concluded before the NMB is engaged. Well, suffice it to say there is plenty of underbrush.

Yes -- the Board will probably take the case but not before encouraging the parties to engage in more direct negotiations. Once the Board accepts the case, the parties will/can meet with and without a mediator.

As Terry Maxon of the Dallas Morning News asked on his blog (and I paraphrase): who will the lucky mediator be to get assigned this case?

So -- while the airline world surrounding “today’s” largest US carrier is certain to be engaging in commercial transactions that strengthen their respective companies, American and the APA will be spending time discussing: a secondary revenue source like cargo and its relevance to commercial passenger pilot rates of pay; executive compensation; inflationary adjustments to 1992 rates of pay; Super Bowl Sunday -- and probably not at the water cooler; and hourly rates of pay that when used in isolation make a nice story but fail to address the productivity side of the equation just to name a few of the issues. Oh, and computer allowances so that everyone can log on and read how American lost its leadership position.

Pretty sad story. No, a really sad story.


Chitragupta, in a comment to my most recent post, suggests I return to my heritage and find some sympathy toward the executive compensation issue. As I wrote in click here my beginnings in this industry as a flight attendant, union leader, ESOP Steering Committee member and numerous consulting assignments have their roots in distressed negotiations. Variable compensation for employees, executive pay packages and labor advisor fee negotiations have been a part of my professional world for as long as I have participated.

Whether the amounts paid to Stephen Wolf on multiple occasions (Republic, United and US Airways) were excessive or not, labor was aware. Amounts paid to ALPA advisors in the 1990s for a failed deal and ultimately a successful deal exceeded $30 million. Whether excessive or not, labor was aware and made the decision to write those checks. Amounts paid to the ALPA and IAM chosen CEO to lead United in the post ESOP era, Gerry Greenwald, were significant at the time and labor was aware. The ALPA and IAM labor directors were present and engaged in the hiring of Glenn Tilton at United. At the time it was certainly not easy to find a qualified CEO for that troubled airline and under Tilton's leadership it has emerged from a bloody period with eyes on being part of a new airline industry structure.

So as I am asked to return to my heritage, I am constantly reminded of other points in history where executives and labor advisors were paid significant amounts of money and, in most instances, labor was at the center of the conversation. This is not different at AA today or any other carrier where executive compensation has been, and will be, paid. In every negotiation I am aware of, labor had access to all information in the distressed discussions that have transpired during the 2002 – 2007 period. Underscoring this fact is that each the IAM, AFA and ALPA were members of the Unsecured Creditors Committee at United – the very committee that approved the plan of reorganization.

I recognize the issue is an emotional one. I was concerned about the timing of the most recent payouts, but my history/heritage - or whatever it may be - is dotted with points in time where significant money was paid to certain individuals. My lack of "sympathy" regarding the issue is that labor knew about most of the payment schemes. Further, in each case, labor was armed with a battery of advisors.

The terms of the current executive compensation plans are documented in the public domain and should be considered a part of history. The future can be shaped, history cannot. It is over. It is time to move on. This issue is not confined to the airline industry. The last 8 years have been an ugly period in American business. There have been many casualties. My assumption is that the next time around, labor will be more aware and thus will be smarter on the issue. So will management.

I grow weary of emotional rhetoric. I have referred to the exec comp issue as a “one trick pony”. My words on the issue are in the public domain. I am more concerned about the competitive positioning of the US industry and its place in the global sphere, not what a CEO makes in Ft. Worth, Atlanta, Chicago or Minneapolis. If the same amount of energy was spent putting forth new ideas to replace the outdated and outmoded ways of doing business in the labor negotiations arena, I might have a different view.

Labor is not a victim. What I am hearing is that management cannot lead, cannot innovate, cannot implement. Labor has a seat. Where there is a seat, there is an opportunity. Just like the Democrats steal a page out of the Republican playbook from time to time, and vice versa, why doesn’t labor take a page out of management’s playbook and negotiate at risk compensation that has the possibility of providing income when the business cycle and the negotiating cycle do not line up. And this happens in most cases.

There has to be a better way. Ask Lee Moak. To others, stop bitchin’ and start doin’. And if that means burn the furniture, then burn the furniture as employees at other carriers in the industry will benefit from your arson. Otherwise, plenty of opportunity exists to make the world better and more secure for your members.


Ringing Out the Old, Ringing In the New.  NOT

It is the last day of 2007, and as I prepare to write my final blog post for the year, I want to say something positive about where I see the industry – particularly the US industry. There are plenty of encouraging things happening in Latin America, Europe, Asia and the Middle East with carriers like LAN, Air France/KLM/Alitalia, Lufthansa/Swiss, Singapore, Cathay and the Chinese airlines. The global marketplace is where it is happening

In the US, however, we seem stuck with the old and little hope for new – with only a few exceptions.

While CEOs are speaking to the structural deficiencies plaguing the US airline industry, there is little “public” effort being exerted to address those deficiencies. I am encouraged at what seems to be the beginnings of US carriers like United and American, who have been sitting on the sidelines for too long, again investing in their product. But my excitement is muted by the endless news accounts of poor customer service and flight delays that work only to chase travelers away.

There should be a connection between product and customer and revenue – right? Gary Kelly at Southwest sure seems to be focused on product; the one word that never leaves the LUV vernacular is “customer.” Many are questioning Southwest’s recent actions to expand its customer base. Not me. This is a great story unfolding– the low cost leader and low fare provider now openly discussing its need to change. This means a need to find new revenue and a need to make its product attractive to a wider range of customers. And they are actually doing something about it.

I encourage readers here to visit the Dallas Morning News’ blog click here and read Terry Maxon’s take on the top 10 aviation issues in 2007, and the Air Traveler’s Association’s Top 10 issues for 2008 click here. Finally, click here to read an interview with Herb Kelleher, Southwest Airline’s departing Chairman, in the Southwest Economy published by the Federal Reserve Bank of Dallas. Kelleher’s comments on globalization are particularly interesting.

For another barometer of how the financial markets view the US airline industry, consider select carrier’s stock price performance over the course of this past year. As of December 28, 2007, US Airways, jetBlue and American share prices have dropped by more than 50 percent; Continental, AirTran and Alaska shares have all declined between 30-50 percent; and Frontier, Southwest and United shares have fallen between 20-30 percent.

In the six months after coming out of bankruptcy, Northwest shares are down 36 percent, while Delta’s shares fell 26 percent.

Suffice it to say that I’m joined by many other industry watchers in failing to find many positives in the US airline industry space. Let’s hope that in 2008, the US industry makes some positive steps toward reclaiming a leadership role in this critical sector.

2007: Looking Back.

1. Crowded Skies: This was the (another) year of air traffic congestion and its troubling impact on airlines. Authorities have now enacted limits on air traffic in both New York and Chicago – an approach that can only be viewed as a Band-Aid solution to a much more serious problem. It’s time for Washington to get serious.

2. Consolidation: US Airways’ “hostile” play for Delta took talk of industry consolidation from a murmur to a roar. It was the right idea for the right reasons, only to again be thwarted by labor, the regulators and the legislators. At what point are the naysayers going to accept the fact that the current industry structure does not serve the best interests of the airlines, employees the transportation infrastructure or any stakeholder for that matter?

3. Fuel: The eye-popping price of fuel underscores the ongoing need for the industry to identify ways to cut fixed costs, despite the fact that most of the low-hanging fruit is already plucked. And that’s before we even begin to calculate the price tag of anticipated environmental mandates on an industry already groaning from the weight of taxes and fees.

4. Labor Voice: Lee Moak, Chairman of the Delta ALPA Master Executive Council, emerged as a new voice in the industry labor front with his nod to the need for structural change in the industry. Because he combined straight talk with a serious commitment to representing his pilot members when faced with an unwelcome advance to Delta from Pardus Capital, Mr. Moak demonstrated real leadership by suggesting that he will play a significant role in structuring any deal that impacts his constituents when his carrier is put in play.

5. Foreign Capital: Lufthansa’s investment in jetBlue appears pretty benign on the surface. But Lufthansa, with this investment, has put its money behind carriers housed in two of the most important airport markets in the world – jetBlue at JFK and bmi British Midland at LHR. At the end of the day, this business is nothing more than a real estate game connected by sexy things with wings. No real estate, no access. Ultimately, foreign capital in US carriers only ensures that the weak market structure surrounding the US industry remains intact. These investments are no different than the good money chasing bad business plans that allowed US carriers to fund their exits from bankruptcy.

6. Staffing Woes: The Northwest Airlines system breakdown that followed its emergence from bankruptcy was the fault of productivity changes that were too fast, too aggressive, and resulted in a staff shortage that wreaked havoc on its flight schedule. The only good news was the negotiation between ALPA and the company that provided incentives for flight crews as a way to man the planes. This may be one of brightest spots in the labor arena in 2007.

7. Capacity Chokehold: The sharp slowdown in capacity deployed by the low cost and regional sectors offers important perspective for regulators as consolidation talk continues. Too bad Congress remains convinced that every congressional district is entitled to air service, no matter whether the industry can fly all of these routes profitably.

8. Labor Leading with its Chin: The extraordinary opening proposal made by the Allied Pilots Association as it begins its Section 6 negotiations with American Airlines sought pay increases some estimate at more than 50 percent -- and that is before we even try to incorporate the headcount increases with the remainder of its initial demands. While the aggressive proposal underscores the deteriorating relationship between labor and management at the airline – and in the industry overall -- the question remains whether the APA’s gambit will be a bellwether for the industry or the first in a long line of mediation cases making their way to a Presidential Emergency Board.

9. Capital Connections: In an administration that has not had much to cheer, the US Department of Transportation has served the airline industry well under the leadership of Assistant Secretary’s, Andy Steinberg and Jeff Shane. Unfortunately, these two soldiers of change will be moving on this year at a time when their skill and expertise will be sorely needed.

10. Detroit’s Deal: The agreement forged between the United Auto Workers and the Big Three automakers click here, illustrates the many similarities between the auto and airline industries. Will we see these kind of talks at the airlines? No sign of it yet. Leaders please step forward.

11. Integration Frustration: That US Airways' East pilots believe a new, independent union will right the wrongs of an arbitrator’s decision and do better by pilots than ALPA, demonstrates the triumph of hope over experience. Experience shows us that there is no entitlement clause that applies in these situations. Under globablization, there will be fewer and fewer entitlements left in an increasingly competitive marketplace. But there is opportunity, and the US Airways' pilots should be working together to figure out how to make their airline stronger, and their members better off, rather than fight among themselves.

A Toast to the Customer

Some readers may interpret my views as unrealistic – that I’m looking for some incarnation of Air Nirvana without any of the usual industry friction – but neither is true. I know that structural change will inevitably lead to friction. And some of that friction will come as part of the reality that the airline industry will look very different in a few years, with some carriers no longer in the picture.

My real fear is not the loss of a carrier or carriers – it is the complete loss of customer confidence in an industry that relies on its reputation. Both labor and management should stop pointing fingers regarding customer issues and instead focus energy there first.

Richard Branson Gets the Final Word Here in 2007

As Virgin Atlantic faces a potential job action by its flight attendants, Richard Branson, the carrier’s flamboyant leader writes the following letter to his employees click here. The closing paragraphs state very clearly where I think we are headed and the words that will need to be spoken.

There comes a time in any negotiation when a good management team has to draw a line in the sand and I agree with them that time has come. To go further would result in unacceptable risks and would set a dangerous precedent to the company as a whole. It would be irresponsible of our management and they, rightly, are not going to take that risk.

For some of you more pay than Virgin Atlantic can afford may be critical to your lifestyle and if that is the case you should consider working elsewhere. For the vast majority of you, the pay rise you were offered was the best in the industry this year, which is why the union strongly recommended it. I’d urge you not to put at risk our ability to solve this dispute by messing up our customers’ travel plans.

We all want to resolve this situation and give the best pay increase that the business can afford. The best way to achieve this is by keeping all of our planes flying and delivering what we do best - making sure that all of our passengers leave with a smile”.

Thank you for making Swelblog.com a read for you. Much more to come as the final chapters are a long way from written.