Things just happen when things move too far too fast.
Wow. All I could say after Tuesday night’s victory for Scott Brown in Massachusetts was wow. I am still in a head shaking wow mode as is much of the country. Then again, this has been one amazing 40 days for the country when it comes to politics. Much of the political power grabs have been occurring within the health care reform debate arena where the “Cornhusker Kickback” and the unions wringing a “Cadillac Plan” tax exemption out of the White House emerged.
During these amazing 40 days, the airline industry was not immune from political meddling and arrogance that somehow manage to turn politicians into CEOs and airline route planners either. Nevada Senator Harry Reid went so far as to write a letter to US Airways CEO Doug Parker expressing concerns about the airline’s decision to significantly downsize operations at Las Vegas’ McCarran International Airport. Reid’s letter provides a lot of fodder for comment, but there are a few I want to highlight.
Reid writes, “As I am sure you are aware, Nevada has been particularly hard hit by the recession affecting our nation.” Hey Harry, have you noticed the U.S. airline industry lost nearly $60 billion during the 2K decade. Or that airlines shed 150,000 jobs because of economic conditions that plague the country and, thus, this industry which is inextricably tied to the health of the economy? Or that taxes and fees on airlines increased while the revenue environment deteriorated? Or that you chose to pursue, and fund, a railroad serving a few rather than funding an air traffic control system and equipping an industry now serving the masses? I suppose not.
Then Reid has the audacity to write, “Because of the commitment you have shown to Nevada, I have been a longtime supporter of your airline. From the merger with USAir to accessing additional slots on the East Coast, we have worked together to build the airline into one of the premier national carriers.” Wow, how arrogant is that? Does that mean if US Airways pulls down Las Vegas, Reid will stand in the way of a commercial arrangement that would make US Airways stronger? Then again, that line of thinking is more typical than atypical of this Congress and its view of an industry that facilitates commerce.
Politics are the rule of the day even with quasi-government agencies charged with minimizing instability within those very industries. The way the National Mediation Board is going about changing a 75-year rule that worked until organizing possibilities presented themselves at Delta Air Lines is another example of politics run amuck.
Speaking of the National Mediation Board
There is a lot of talk in the mainstream and industry press about airline strikes. The process by which airline and railroad unions can strike is quite different than other industries – and it all runs through the National Mediation Board. It is explained better by some reporters than others.
This round of negotiations is the first since the restructuring negotiations of 2002 that resulted in significant salary and work rule provisions being stripped from many collective bargaining agreements. Some of those negotiations were done under Sections 1113 and 1114 of the U.S. Bankruptcy Code and others were not. The current round of talks will involve the National Mediation Board in many, if not most, instances. Complicating matters is the sheer number of cases already being negotiated under the auspice of the NMB. And there are more cases on the way.
As I write, all organized groups at both American and United Airlines (per a reader: except the IBT, PAFCA and IFPTE) are in mediation. At some point, certain of those negotiations will have gone as far as they can before the NMB determines the two sides are at an "impasse". Once an impasse is declared, then the parties are put into what is known as a “30 day cooling off period.” If no agreement is reached inside that 30 day period, then either side is free to engage in “self help.” Self help permits management to either “lock out” employees or to "impose its last offer" on the work force. The union can choose to withdraw its services – otherwise known as a strike - - or utilize other “work actions.” The parties can mutually agree to continue talks until such point that further discussions are deemed fruitless by either side.
Dilemmas for Obama As He Considers a Request from Airline Workers to Strike
Going into this negotiating period and suspecting difficult, if not impossible, negotiations, I wondered aloud about how decisions would be made to release parties into a cooling off period. I wondered aloud if strikes would be more prevalent than they have been in the past. I have wondered aloud about who might be this decade’s Eastern Air Lines. I have wondered just how the NMB is possibly going to manage this work load all the while promising a more speedy negotiating process as part of its new charge. And recently I have been wondering how politics might affect NMB thinking when it comes to releasing parties from mediation.
In my prior thinking I believed that this round would result in more Presidential Emergency Board proceedings to ultimately decide the terms of a contract. A Presidential Emergency Board? Yes, as the 30 day cooling off period expires and, more often than not, the union decides to engage in self help, there is a parallel decision that must be reached by the White House.
The White House must determine how commerce might be disrupted if a certain airline were to go on strike. That calculus involves, at a minimum, the level of unaccomodated demand in certain markets if one carrier were to strike. Or said another way, can the remaining service in the market accommodate the passengers that cannot travel on the carrier they booked on due to the strike?
In the era where 80+ percent load factors are the norm, the case for suggesting that demand can be accommodated by the remaining service is increasingly difficult. It was already starting to get difficult when the Northwest pilots decided to strike in August of 1998.
So if Obama, in this case, determines that a strike would provide too much harm to certain air travel markets, he could stop the strike and order a Presidential Emergency Board to be convened… just like President Clinton did in 1997 when the American pilots chose to strike. In the case of a PEB, a panel of neutrals, usually arbitrators, is formed to hear the economic case presented by each side. If the parties cannot agree, then the panel will suggest a "non-binding" settlement. There is still the possibility of a strike and also the possibility that Congress could legislate a settlement to avert such strike – more than likely the settlement offered by the PEB.
But that is a long way down the road. I only raise the issues in this piece because politics prior to Massachusetts at least would seem to be nothing more than promises made to special interests (unions) in a dark room in order to garner their support for Obama. And it worked and has worked. But might things change?
Compunding the complexity of White House decisions in this round is the possibility of interstate commerce disruption when government stimulus money is in play.
Dilemmas for Airline Labor As They Decide to Strike
About the only thing that you can predict is that a strike at a major, legacy airline will more than likely result in yet another tombstone in the airline graveyard. Said another way, if a union wants to strike one of today’s legacy carriers, I can see a lock out, use of replacement workers or the sale of assets to another airline that does not include employees. Ultimately, the majority of the flying done by the striking airline will be replaced. Should a strike result in the liquidation of an airline, the flying will be done by companies that can do it more efficiently – which means fewer jobs. And that cuts against this administration’s agenda too – doesn’t it?
As hard as it might be for unions to understand, not enough was done on the productivity side of the equation during the restructuring negotiations. Yes, a judge presided over most of the restructuring negotiations. But the unions were largely permitted to “pick their poison” when it came to making contractual changes with pensions being the exception. The poison chosen was to reduce pay more than it needed to be reduced in order to preserve work rules. The tenet that rules the day in any union caucus room is that you can never get work rules back.
In order to get more money in the pockets of workers, more efficiencies need to be found in this industry. For unions, that will mean fewer dues paying members. But, this smaller work force would be earning more cash compensation.
One can only hope that a Presidential Emergency Board fully understands the tradeoff between pay, benefits and productivity.