the global financial crisis, european labour market...

The Global Financial Crisis, European Labour Market Regulation and the Future of Industrial Relations in the International Civil Aviation Industry

Geraint Harvey * and Peter Turnbull **

* Swansea University School of Business and Economics, Singleton Park, Swansea SA2 8PP.

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**Cardiff Business School, Cardiff University, Aberconway Building, Colum Drive, Cardiff CF10 3EU.

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Abstract

This paper considers the future of industrial relations in the European civil aviation industry in a period marked by three distinctive features. First, the civil aviation industry has been hit harder than most by a global financial crisis that has damaged the industry to a far greater degree even than 9/11. Second, the industry in Europe has become increasingly liberalised and competitive. Low cost airlines such as (non-union) Ryanair and easyJet are much more prominent players in the market, forcing other (legacy) airlines to bear down on (labour) costs. More so than ever, it is an industry wherein airline management is confronted with the motive and opportunity to cut (labour) costs (Blyton et al. 1999). Finally, European Court of Justice rulings in the case of Viking, especially, and Laval have thrown into question the legitimacy of industrial action in the industry, as demonstrated by the recent dispute between the British Air Line Pilots’ Association (BALPA) and British Airways (BA). It is clear that organised labour faces a phenomenal challenge - the global economic crisis and the regulatory environment for civil aviation present major challenges for organised labour that can only be addressed at the international level.

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Introduction

While the global crisis of capitalism has wrought its effects on virtually all industrial sectors, the impact on the international civil aviation industry is especially severe. Two features of the industry become especially important in the advent of any economic downturn. These are the pro-cyclical pattern of demand for air transportation and the fact that labour costs are one of the few (short- to medium-term) costs directly under the control of management. Moreover, labour costs typically account for a large proportion of total operating costs. The pro-cyclical nature of demand for air transport exaggerates the impact of any economic downturn, such that as passenger revenues nose dive so too does airline profitability. The large proportion and malleability of labour costs effectively guarantee that cost reduction strategies are focused on workforce restructuring. Not surprisingly, the global crisis has dramatically and detrimentally impacted on civil aviation, which in turn entails dramatic and detrimental restructuring of the industry’s labour force, making for a highly adversarial industrial relationship. In the USA, the crisis coincides with major contract negotiations at many airlines, leading Tom Kochan to predict a ‘perfect storm’ for industrial relations (Kochan, 2008). The storm clouds are also gathering over Europe.

It might be said that the industry has been here before, most notably in the wake of the terrorist attacks of 11 September 2001, which led to major job losses and airline restructuring (Turnbull and Harvey 2001; Harvey and Turnbull 2002). However, three factors mark out the current crisis. First, the civil aviation industry has been hit harder than most by a global financial crisis that has damaged the industry to a far greater degree even than 9/11. Second, the industry in Europe has become increasingly liberalised and competitive. Low cost airlines such as (non-union) Ryanair and easyJet are much more prominent players in the market, forcing other (full service) airlines to bear down on (labour) costs. The low cost airlines share of the European market topped 43 per cent in 2008 (compared to only 17 per cent in 2003). These carriers are fast becoming the dominant players in certain European states, commanding more than 50 per cent of the civil aviation market in Spain, Ireland, Poland, Italy and the UK. And so, more than ever before, it is an industry wherein airline management is confronted with the motive and opportunity to cut costs (Blyton et al. 1999). Cost cutting initiatives in the industry inevitably focus on labour as personnel costs accounts for a high proportion of overall costs and it is one of the few costs directly under management control. Finally, European Court of Justice rulings in the case of Viking, especially, and Laval have thrown into question the legitimacy of industrial action in the industry, as demonstrated by the recent dispute between the British Air Line Pilots’ Association (BALPA) and British Airways (BA). Civil Aviation and the Financial Crisis

There is no doubting the social and economic significance of the civil aviation industry to the world economy. The global economic impact of civil aviation is estimated to be around US$3.5 trillion, equivalent to 7.5 per cent of world GDP (ATAG 2008). In 2006, civil aviation contributed US$408 billion directly to global GDP, as much as the pharmaceuticals industry, and a further US$465 billion indirectly through the ‘multiplier’ effects of aviation related jobs and economic activity (ibid). The industry supports 31.9 million jobs globally; it created 5.5 million jobs directly in 2006 (with 4.7 million people employed by airlines and airports and

around 800,000 employed in the civil aerospace sector) and a further 6.3 million jobs via the purchases of goods and services in the air transport supply chain; 2.9 million jobs are created by the spending of employees; and 17.1 million jobs are created through air transport’s ‘catalytic’ impact on tourism (ibid). However, the synergy between the global economy and demand for air transportation means that in any economic downturn, civil aviation companies will suffer – and suffer more than most.

Demand for air transport is pro-cyclical. That is, air traffic generally expands (contracts) with increased (reduced) economic growth, but at a much faster rate and to a much greater extent. Economic downturns are therefore especially problematic for airlines, with disproportionate effects arising not simply from falling passenger numbers but from the switch of many business class journeys to economy class. The latter has a particularly damaging effect on the revenues of legacy airlines.

Figure 1 – Pro-cyclical Demand for Air Transport

Adapted: IATA (2008: 2)

Add to this pattern of demand the very high proportion of labour costs – typically around 25-35% of the airline’s operating costs for European and North American airlines (Doganis 2006: 119) – and the fact that the cost of labour is also one of the few variable costs under the direct and immediate control of management (unlike fuel and landing charges, for example) and we have all the elements for turbulent industrial relations. As we have argued elsewhere, ‘labour costs have now become the largest single cost element differentiating one airline’s unit costs from another’ (Harvey and Turnbull 2002: 9).

As expected, the industry’s response to previous economic crises has been to cut labour costs. In the wake of falling demand following the events of 9/11, for example, airlines

initiated major job losses1 and introduced alternative HR policies. For example, a study conducted for the ILO on the impact of the crisis on aviation labour revealed the widespread use of recruitment freeze; non renewal of temporary contracts; probationary staff not transferred to full time contracts; pay freezes; and work sharing (Turnbull and Harvey, 2001). Several of these were deemed unacceptable under any circumstances by a large proportion of the unions representing workers in the industry.

The global financial meltdown has occasioned a profound crisis in civil aviation. The impact of the global financial crisis on the industry has already eclipsed that of 9/11. In June 2009, Giovanni Bisignani, Director General of the International Air Transport Association (IATA), stated that the current economic crisis has produced a civil aviation context without ‘modern precedent ... This is the most difficult situation that the industry has faced’. Comparing the current crisis with that which followed 9/11, Mr Bisignani noted that revenues fell by 7 per cent post-2001 whereas the decline in 2008 was around 16 per cent. No geographical region has been immune to the crisis with losses of around: US$1 billion among US carriers; US$1.8 billion among European carriers; US$3.3 billion among Asia-Pacific airlines; US$1.5 billion among Middle Eastern carriers; US$900 million among Latin American airlines; and US$500 million among African carriers. These conditions have exacerbated the dire economic conditions faced by airlines in 2008. Airline share prices in December 2008 had fallen to levels almost 60 per cent less than the start of 2008. Industry losses for that year were around US$5 billion. In the words of Paul Coby, Chief Information Officer at British Airways, “This economic crisis which we are facing today is different to any other we have faced in our lifetime. It is hitting every region. What next? The four horsemen of the apocalypse?”2

Despite periodic crises, as Figure 1 demonstrates the airline industry is highly resilient and the long-term prospects for the sector are good. In Europe, for example, the growth of air passenger transport from 2000 to 2020 is expected to be 108% (CEC 2006a).

Airline unions and the industry’s workforce appear to be equally resilient – labour might suffer in the downturn but any losses are generally recouped in the upturn, especially among well-organised groups such as pilots. But it would be wrong for labour to assume that the industry ‘has been here before’, albeit not on quite the scale of the current crisis. Changes to the competitive and legislative environment of the civil aviation industry, especially in Europe, mean that, for airline employees, this is not just another crisis.

Changes in the Competitive Environment of Civil Aviation

The world’s skies are now open for competition. In the past, routes were regulated through a system of Bilateral Air Service Agreements (BASAs) between countries, which typically specified the airports, airlines (usually the two national ‘flag’ carriers), capacity, flight frequency, and prices that would apply. Liberalisation of both the domestic and international

1 For example, the US ‘majors’, with the exception of Southwest laid off between 14 and 20 per cent of their

workforce, while BA, Lufthansa and Qantas announced 7000, 2000 and 1500 job cuts respectively.

2 Airline Business (August 2009).

market (e.g. US deregulation in 1978 and the creation of a ‘single aviation market’ within the EU in the late 1980s and early 1990s) has created a very different competitive landscape. In particular, the entry of low cost airlines has challenged the dominant position of ‘flag carriers’ in established (short-haul) markets such as the EU while ‘open skies’ agreements on inter-continental routes (e.g. the US-EU Open Aviation Agreement) has created new competitive challenges on long-haul routes.

The competitive strategy and employment practices of low cost airlines such as Ryanair are just one indication of why the current downturn in the industry is unlikely to be ‘just another crisis’. Low cost airlines operate on average at 43 per cent of the full service airlines’ operating costs. Ryanair achieves even lower costs (Alamdari and Fagan 2005). When they first entered the market the low cost airlines were regarded as ‘novel’ but hardly a serious threat to the major carriers. By 2002, however, Ryanair had a stock market valuation of £1.8 billion, some £30 million more than BA. In 2005 it became the largest international airline in Europe (by numbers of passengers carried), operating from 23 bases in 8 EU member states. For labour, the airline is no longer ‘novel’ but notorious. The European Cockpit Association (ECA) is adamant that ‘the worst forms of management practice exist in this *low cost+ segment of our industry’ (ECA, 2006) and Ryanair is typically singled out as the worst low cost employer (O’Sullivan and Gunnigle 2009). While Ryanair employs workers in the UK on UK contracts, it employs all other staff on Irish contracts because of their comparatively low social costs. French aviation unions recently alerted their Transport Ministry that Ryanair was deliberately avoiding some of the additional social benefit payments that its French workers should receive if they were employed on French contracts. Ryanair employees pay for their own training costs. The firm loans them the money initially and they must then repay the company from their monthly wages. For example, cabin crew are required to pay between €3,000-4,000 for training and repay between €300-400 per month from their salary of around €1,000. For many workers, especially from eastern European states, this could be seen as a form of indentured labour. Of course, this eliminates training costs and so labour turnover is less of a problem.

Even more insidious, perhaps, was the airline’s attempt to use training costs to frustrate union organisation. When Ryanair switched from Boeing 737-200s to 737-800s in 2004, the company wrote to all its pilots who were to be retrained. Pilots were informed that the company would not refund the €15,000 training costs “if Ryanair be compelled to engage in collective bargaining with any pilot association or trade union within 5 years of commencement of your conversion training”.3 A significant proportion of company’s workforce, estimated to be around a third, is employed by an agency, rather than by

3 Ryanair brought a legal case against several pilots for allegedly bullying fellow flight crew to join a union. In a

telling judgement, Mr Justice Thomas Smyth concluded that it was in fact Ryanair who was guilty of bullying. He described management’s behaviour as ‘unburdened by integrity’ and ordered the company to pay costs. The International Air Line Pilots Association has brought a number of cases against Ryanair, for example, in support of the pilot who was demoted after refusing to fly extra sectors at the end of his rostered duty day, or the pilot who was working at an overseas base for the company long after he had been dismissed, which he know nothing about as the termination of contract had been sent to his home address in Ireland and had sat unopened for almost a month.

Ryanair, which provides flexibility and allows the company to operate a payment system with no basic pay – workers are simply paid for flying their hours. If competition in a liberalised market triggers a ‘race-to-the-bottom’ for workers’ terms and conditions of employment, then the lowest common denominator in the European civil aviation industry is Ryanair.

Changes in the Legislative Environment of Civil Aviation

Ryanair’s aggressive anti-unionism presents a major challenge for organised labour, especially as the low cost model has been aped by several full-service carriers (e.g Aer Lingus), many of whom have established their own low cost subsidiaries (e.g. BA/Go, bmi/bmibaby, KLM/Buzz and Lufthansa/Germanwings) (Harvey and Turnbull 2006; Harvey and Turnbull 2010). But one of the latest low cost subsidiaries to enter the market presents an even greater challenge for civil aviation unions. In response the EU-US Open Aviation Agreement, BA established OpenSkies, a low cost airline that will initially fly from Brussels and Paris to New York. While all European airlines already enjoy the right to offer services between any two Member States of the EU, the first stage of the Open Aviation Agreement between the EU and the USA (effective from 2008) allows US carriers to operate between any two European cities and gives European airlines the opportunity to fly from any European city to the US (and then on to South America, Asia, the Caribbean, Australasia, etc, although not to fly between US cities). BA’s plans for OpenSkies led to a dispute between the company and the British Air Line Pilots Association (BALPA), the outcome of which threatens the very right to strike in the UK (the so-called ‘golden formula’ that grants unions immunity for action ‘in contemplation or furtherance of a trades dispute’) and constitutes a threat to systems of collective bargaining in all twenty-seven Member States.

The dispute centred on BA’s plans to hire a new pilot workforce for OpenSkies that would not be covered by existing collective agreements – even though Paris is closer to London Heathrow than Newcastle (as the plane flies). BALPA accepted that the new subsidiary should initially operate with lower pay rates and less generous benefits, but the Association wanted to extend the airline scope agreement – ‘Schedule K’ – to OpenSkies. Schedule K is the current agreement for mainline pilots which protects employment security and career opportunities for all pilots on the BA seniority list. At the time it was agreed (in 2003), Schedule K only covered relevant BA operations in the UK because the regulatory environment did not permit the airline to fly from another EU Member State to the USA. BALPA’s concern was that OpenSkies could provide leverage for BA to reduce or at least restrain labour costs within mainline operations. A common seniority list for all BA mainline and OpenSkies pilots would protect UK-based pilots against social dumping.

As the disputes procedure was exhausted without agreement, even after involvement of ACAS, BALPA organised a strike ballot and secured a mandate for industrial action (86 per cent in favour on a 93 per cent turnout). By this stage, BA was already recruiting pilots for the new OpenSkies operation. BALPA issued 7 days notice of strike action, in accordance with the law, but BA threatened BALPA with an injunction and unlimited damages if it called for any action pursuant to the ballot. At issue was not whether BALPA had acted in

accordance with UK employment law – which it had4 – but that any strike action, if called, would be unlawful by virtue of the European Court of Justice (ECJ) reasoning in the cases of Viking and Laval.

The detail of the first case5 is worthy of further consideration because of its implications for the legitimacy of international action. In this case, the Finnish ferry firm Viking Line launched a successful legal action against the Finnish Seafarer’s Union in response to industrial action undertaken by the latter. The industrial action had been called by the Finnish union because the firm, which had traditionally employed Finnish seamen on Finnish contracts, set up an Estonian subsidiary, re-flagging its ferry as an Estonian vessel and employing Estonian sailors on lower Estonian conditions. The strike by the Finnish Seafarer’s Union, called to protect its members’ terms and conditions and lawful under Finnish national law, was ruled unlawful by the European Court of Justice because it was deemed to be an infringement of Viking Line’s ‘freedom of establishment’. On the facts, both the Finnish Seafarers Union strike, and the subsequent International Transport Workers’ Federation (ITF) boycott, was deemed to impose an unfair restriction on Viking’s freedom to establish a business in Estonia. The principle of proportionality was applied and the right to strike revoked as it improperly impeded the establishment of a new company by Viking Line. Thus, it was no defence that the industrial action was lawful according to the relevant national law.

The detail of this ruling ensured that BA would not only be able to block BALPA members from taking strike action against the airline in relation to its OpenSkies subsidiary in France but that it could also block industrial action by members of a French trade union against OpenSkies. Moreover, Viking might be also be invoked to block action by members of BALPA against an airline, the parent company of which happened to be based in another EU country. An employer which has bases in more than one European State, now possible as a result of the Single European Market for Aviation, can now block industrial action if it can be proven that it is adversely affecting the operation of a sister company in another EU Member State. Thus, it is possible for employers in one EU State to locate tactical ‘head’ offices in a second EU State so giving the existing enterprises in the first State subsidiary status with consequent Viking protection.

The effect of Viking and Laval is that the national courts must consider whether the industrial action taken by unions against companies operating in two or more EU states is suitable and proportionate. If we follow this principle to its extreme then providing the employer can prove an imbalance of outcome, whereby the proposed industrial action will cause great cost to the employer, then such industrial action will be outlawed and the efficacy of collective bargaining itself is undermined. The principle of proportionality might be invoked to prohibit industrial action if the action does not meet three criteria. First, the action must be motivated by the protection of workers and that such protection amounts to

4 When BA recently (December 2009) went to court to prevent a strike by cabin crew, organised by the general union

UNITE, they secured an injunction on the basis of balloting irregularities (papers were sent to former cabin crew who no

longer work for BA).

5 International Transport Workers' Federation and the Finnish Seamen's Union v Viking Line ABP: C-438/05

[2008] IRLR 143

http://www.lexisnexis.com/uk/legal/search/runRemoteLink.do?service=citation&langcountry=GB&risb=21_T4223362113&A=0.5158229793958642&linkInfo=GB%23C%23year%252005%25page%25438%25sel1%252005%25&bct=A

http://www.lexisnexis.com/uk/legal/search/runRemoteLink.do?service=citation&langcountry=GB&risb=21_T4223362113&A=0.27064131542921566&linkInfo=GB%23IRLR%23year%252008%25page%25143%25sel1%252008%25&bct=A

an overriding reason of public interest which justifies the industrial action. Second, the action must be of a kind suitable for securing the protection sought for the workers in question. Finally, the action must not go beyond what is necessary for that purpose.

In many cases it will be a matter of speculation as to whether the employer would or would not have conceded to a lesser form of action. Moreover, whereas it may be straightforward enough to quantify the cost of industrial action on the airline, in this case BA (in terms of lost revenue and customer confidence, disruption to travel plans and the loss of bonuses for staff), it is very difficult to measure the benefit of industrial action in terms of future employee protection. In short, advantage overwhelmingly favours the airline in any legal dispute.

VIKING and LAVAL were fortuitously invoked by BA in a legal action against BALPA which forestalled industrial action. In court, BA claimed that the cost of even a one-day strike would run to £100 million6. BALPA realised it would be hard pressed to demonstrate that its action would be “proportionate”. Moreover, the financial risks involved if the Association lost the legal argument were simply too great (i.e. it would bankrupt the Association). BALPA conceded. It now seems that neither low cost airlines nor full service airlines can be held to account by civil aviation unions in the open skies over Europe and beyond.

It is in this environment that labour faces airline restructuring in the wake of a crisis that has eclipsed that of 2001. The global impact of the crisis on airline employment has been evaluated by a recent International Labour Organisation (ILO) commissioned study. Full details of the study, and related research, is provided in the Appendix.

The Impact of the Current Financial Crisis on Civil Aviation Labour

In Europe, the crisis has brought about several bankruptcies, for example, UK based XL Airways, which employed around 1,700 staff, and Dalavia, the Russian carrier formerly employing around 2,800 staff, have ceased trading. Job reduction schemes have been widespread among European airlines. In the autumn of 2008, Aer Lingus announced 1,500 job losses. In July 2009, the airline proposed a further headcount reduction of 800 staff. Scandinavian Air Services has announced the most radical job reduction plans in Europe with 9,000 job losses (some 40% of the employee workforce). Due to the pro cyclical nature of demand for air transport, many airlines have adopted short to medium term policy alternatives to job reduction schemes. We examine these more fully and consider those policy alternatives favoured by trade unions representing members within the industry.

Policy alternatives to job cuts were seen at Lufthansa, which planned to reduce the working hours of 2,600 employees at its air freight operations.7 Meanwhile, pay freezes were imposed on staff at BA, bmi and Virgin. Finnair has limited its redundancies, to around 120

6 In fact, the total cessation of flights as a result of the volcanic eruption in April 2010 cost BA an estimated £25

million per day.

7 Lufthansa was ranked as the most profitable airline worldwide in 2008. It is also the world’s top carrier by

revenue (Airline Business, August 2009).

jobs lost, by temporarily laying off 380 staff along with 3,000 staff furloughed for a month. Fellow Finnish airline Blue1 has implemented a scheme whereby each of its 100 pilots was laid off for 11 days between January and May 2009.

The survey of trade unions representing airline staff reveals the most common response to the current crisis globally to be a recruitment freeze (reported by 80 per cent of respondent airline unions).8 Other common cost cutting measures designed to avoid the enforced lay-offs of core staff include voluntary redundancy (reported by 57 per cent of respondent airline unions); non-renewal of temporary contracts (57 per cent); pay freeze (51 per cent); probationary staff not being transferred to full time contracts (44 per cent); voluntary retirement (43 per cent); and unpaid holiday leave (43 per cent). Despite all of this, 38 per cent of unions reported compulsory redundancy.

The policies were more likely to be introduced by international or major airlines rather than at domestic or regional carriers (as they were among ground handling firms as opposed to catering, maintenance or airports). Compulsory redundancy, voluntary furlough and compulsory furlough were more likely to affect North American employees than their counterparts in either Europe or Asia Pacific.

The survey of airline management asked respondents to assess the impact of the crisis on various employee groups on a scale of 1 to 5, whereby 1 indicates a marginal impact and 5 indicates an extensive or severe impact. These data indicate considerable variations between regions in terms of the impact on particular employee groups. For example, both cabin crew and ground handling staff appear to have been far harder hit in North America then in other regions (see Table 2).9

Table 2 – Mean Management Assessment of the Impact of the Crisis by Region

Region Cabin crew Ground handling

Middle East 1.0 1.0

Europe 2.0 2.3

Asia Pacific 2.7 2.3

North America 4.0 3.5

In Europe, several examples of good practice have emerged. AirFrance-KLM announced that 3,000 job cuts would be achieved through suspending hiring, not renewing temporary contracts and not replacing retiring members of staff thereby avoiding redundancies. In the UK, consultation between British Airways and the British Air Line Pilots Association (BALPA), the trade union for pilots in the UK, led to agreement over a cost reduction package that will

8 Recruitment freeze was also the most common policy introduced in the wake of 9/11, with 83 per cent of

respondent unions recognising this policy at airlines in which it represented workers.

9 Data from trade unions indicate that the crisis has not affected men more than women or vice versa.

However, cabin crew, predominantly female, appear to be the group worst affected by the crisis.

save the airline £26million per year. The deal will entail a 2.61 per cent cut in basic pay and a 20 per cent reduction in flying time allowances (leading to a saving of £16million). Moreover, an increase in annual duty hours, a reduction in turnaround times on short haul flights and reduced crewing arrangements on some long haul flights would save the company a further £10million. The pay reduction and productivity deals have been exchanged for shares worth £13million, to be given in June 2011 if certain company targets are achieved.

Similarly, Thomson Airways has engaged in elaborate discussion with BALPA in order to arrive at an agreement on a 5% pay cut for pilots employed at the airline in order to save up to 100 pilot jobs. The latter has been described by the union as a ‘landmark agreement’, which ensures that the 96 pilot jobs that would otherwise have been lost as a result of the airline’s decision to operate eleven fewer aircraft. The agreement entitles pilots to additional days off in lieu of their loss of pay. BALPA General Secretary, Jim McAuslan, said of the deal that it reflected a partnership of ‘mutual trust and mutual respect’ between the union and the airline and their shared ‘desire to find an answer, not a problem’.10

As indicated above, the knock on effects of the reduction in the capacity of airlines can be substantial, both inside and outside of the civil aviation industry. The impact of the current crisis in civil aviation on the air navigation service provider (ANSP) is especially potent as many ANSPs are prevented from holding financial reserves or obtaining commercial loans. With falls of up to 20 per cent in revenues, ANSPs are, in the words of Alexander Ter Kuile, Secretary General of Civil Air Navigation Services Organisation (CANSO), ‘facing an unprecedented financial crisis which may result in them not being able to meet their financial obligations’.11 Moreover, ANSPs are restricted in their HR policy response to the crisis due to the Spartan staffing of ANSPs by air transport control officers (ATCOs).12 The International Federation of Air Traffic Controllers (IFATCA) claim that around 3,000 air traffic control officers (ATCOs) are required to meet the present needs of the world’s ANSPs, adding the caveat that this is a conservative estimate as many ATCOs are currently working excessive overtime.13 CANSO claims that ANSPs have responded to the crisis by reducing staff overtime and/or external staff numbers; freezing pay; offer voluntary early retirement; and reducing training.

Unions representing ATCOs report the use of far fewer HR policies that affect their members: only 24 per cent of respondents identify a recruitment freeze; no respondent identified voluntary or compulsory redundancy, reflecting the staff shortages, while compulsory furloughs were reported by only 5 per cent. Far more widespread was the use of non-renewal of temporary contracts (24 per cent) and remuneration adjustments such as pay freezes (reported by 29 per cent).

10

www.balpa.org

11 CANSO’s Open Letter to Aircraft Operators, 27

th March 2009

12 Michaels, D. And Pasztor, A. “Staffing shortages raise concerns about air safety”, Wall Street Journal Europe,

8th

May 2008.

13 Ibid.

The most widely used policy was that of reduced training (reported by 38 per cent of respondents). This is of considerable concern to IFATCA, and its affiliate unions representing ATCOs, who claim that training is fundamental to the safe operation of air traffic management. Moreover, they argue that the ‘concept design, development, prototyping, testing and validation’ of the new SESAR and NEXTGEN technologies will require experienced air traffic controllers. The safe introduction of these new advanced technologies necessitates not only greater levels of staffing, but also more extensive training. Reduced training is thus seen as a considerable threat to the general operation of air traffic management and certainly to the safe introduction of this new technology.

Preferred response to the crisis

In order to determine what might be regarded as “socially responsible ways to respond to the crisis”, trade unions were asked how acceptable a range of different human resource policies would be to their members, (i.e. “Acceptable under normal circumstances”, “Only acceptable as a short term/crisis measure” and “Unacceptable under any circumstances”). The response of trade unions representing airline employees is reported in Table 3, while the response of trade unions representing ATCOs is reported in Table 4.

The majority of respondents considered voluntary early retirement and educational leave as policies that might be implemented at any time. The majority of the policies listed, however, were considered acceptable only as a short term or crisis response. For airline employees, several of these such as recruitment freeze, non-renewal of temporary contracts and pay freeze had been widely implemented.

A previous study has shown that a significant number of the human resource policies listed, such as compulsory redundancy and unpaid holiday leave, were deemed unacceptable (see Turnbull and Harvey 2001). Despite vehement opposition in the previous study, and in this study, these policies have been extensively used by airline management.

Table 3 – Implementation of, and trade union response to, human resource policies at airlines (percentage)

Policy Implementation rate

Acceptable under normal circumstances

Only acceptable as a short term /crisis measure

Unacceptable under any circumstances

Recruitment freeze 80 16 59 8

Voluntary early retirement 43 36 34 3

Voluntary redundancy 57 26 41 10

Compulsory redundancy 38 2 15 54

Voluntary furlough 31 21 38 10

Compulsory furlough 16 3 30 38

Unpaid holiday leave 43 16 28 36

Short-time working 39 5 59 15

Shorter working week 25 7 56 10

Fewer shifts per month 33 7 54 15

Part-time working 36 23 39 10

Work-sharing 20 16 38 15

Probationary staff not transferred to full time contracts

44 7 33 33

Non-renewal of temporary contracts

57 15 48 20

Reduced training 33 5 28 43

Educational leave 25 33 18 13

Pay freeze 51 3 44 33

Forgo holiday pay 7 3 8 57

Forgo bonus pay 18 8 23 34

Pay cut (management) 33

Pay cut (staff) 26

Pay cut 0 20 61

N.B. these data reflect the omission of response and so the percentages for the acceptability of the policies do

not sum to 100.

Due to the critical import of training to the safe operation and technological evolution at ANSPs, no respondent considered the policy of reduced training to be acceptable under normal circumstances, whereas more than two thirds deemed this policy to be unacceptable under any circumstances. As noted, this policy was the most widely implemented by management at ANSPs for the reasons expressed above.

Table 4 - Implementation of, and trade union response to, human resource policies at ANSPs (percentage)

Policy Implementation rate

Acceptable under normal circumstances

Only acceptable as a short term /crisis measure


Recruitment freeze 24 5 38 5

Voluntary early retirement 14 29 14 0

Voluntary redundancy 0 10 24 5

Compulsory redundancy 0 0 5 38

Voluntary furlough 10 19 19 5

Compulsory furlough 5 0 14 29

Unpaid holiday leave 19 5 14 24

Short-time working 5 14 19 10

Shorter working week 0 14 24 5

Fewer shifts per month 5 10 24 10

Part-time working 10 24 14 5

Work-sharing 0 14 24 5


10 5 24 14


24 19 14 10

Reduced training 38 0 14 29

Educational leave 5 14 14 5

Pay freeze 29 0 24 19

Forgo holiday pay 5 0 5 33

Forgo bonus pay 19 0 29 14

Pay cut (management) 19

Pay cut (staff) 14

Pay cut 0 0 43

N.B. these data reflect the omission of response and so the percentages for the acceptability of the policies do

not sum to 100.

The human resource policies discussed thus far relate primarily to company-level decisions, although given that many flag carriers are publicly owned these policies will often involve government input (e.g. financial support for early retirement programmes and voluntary severance packages or partial assistance for short-time working). Unions were therefore asked about the policies they believe national governments should pursue to support the civil aviation industry during the current crisis. A summary of the results are reported in Table 5.

Mirroring responses to the survey of aviation trade unions after the 2001 industry crisis, there was strong approval of funding for retraining programmes, whereas financial compensation for loss of business/traffic received far less support. A US union official quoted in the previous study explained the attitude in this way: “The airlines demanded privatization and deregulation in the 1980s. They should not now be turning to the Government for financial assistance”.14

Once again, the promotion of mergers, acquisitions and consolidation received very little support (although far fewer respondents disagreed with the policy) as these issues are closely associated with questions of public interest and public services.

14

Interview quote from Turnbull, P., and Harvey, G. (2001) The Impact of 11 September in the Civil Aviation Industry: Social and Labour Effects, Working Paper No. 182, Geneva: International Labour Office.

Table 5 – Government policies preferred by unions/management (percentage)

Policy Agree (unions)

Agree (management)

Initiatives to promote social dialogue 76 23

Funding for retraining programmes 72 46

Funding for medical/health insurance 65 39

Extending unemployment benefits 59 54

Contribution to pension funds for early retirement 56 23

Funding compensation towards maintaining employment 56 N/A

Financial support to airlines/airports for improved security 52 62

Funding for severance pay 48 9

Payments to partially cover short time working 44 30

Low cost loans to civil aviation employees 43 16

Payments to fully cover short time working 39 15

Protect services to remote communities 37 31

Financial compensation to other companies (e.g. air traffic services, catering, aircraft manufacturers, etc.)

29 16

Promote mergers/take-overs/consolidation 28 31

Financial compensation to airlines for loss of traffic 27 31

Financial compensation to airports for loss of business 23 8

Relaxation of foreign ownership rules 22 31

The policy that elicited the strongest trade union support was initiatives to promote social dialogue, as it did in 2001. Unions clearly see the need for legislative intervention requiring management to engage labour in restructuring deliberations and policy decisions. Therefore, arguably the most ominous response for aviation employees and their trade unions, given the changes to the regulatory environments identified above, is the lack of support for government intervention to promote social dialogue. Legislative changes in the industry have enhanced managerial prerogative – these data indicate that management do not desire governmental involvement potentially forcing them to consult with unions.

Conclusions

It is clear that trade unions face an enormous challenge in the new civil aviation industry. Airlines such as Ryanair have always been able to work outside the reach of organised labour, but now full service airlines are presented with a similar opportunity. Ten years ago, Blyton et al. (1999) discussed the motive and opportunity for airline management to cut costs in the past. Recent changes to the competitive environment enhance this managerial motivation to reduce costs in order to compete with the likes of Ryanair whose cost base is forever diminishing as it seeks concessions from employees and additional revenue from passengers at every possible turn. In order to compete, the full service airlines are forced to replicate some of the practices that bolster the success of such carriers. Changes to the legislative environment likewise increase the opportunity for airline management to reduce costs at the expense of labour and trade unions.

The new environment enables airlines to: outbase operations; to outsource work at a reduced cost to the firm and reduced remuneration to the employee; and to out flank trade unions that face particularly unforgiving legislation which all but nullifies the ultimate sanction of industrial action. This is certainly not just another crisis. It is a crisis for civil aviation unions the like of which they have not faced before.

References

Alamdari, F. and Fagan, S. (2005), “Impact of the Adherence to the Original Low-cost Model on the Profitability of Low-cost Airlines,” Transport Reviews, 25, 3, 377-92. ATAG (2008) “The economic and social benefits of air transport 2008”, Switzerland. Blyton, P., Martinez Lucio, M., McGurk, J., Turnbull, P. (1999) Employment Relations Under Deregulation: A Study of European Airlines, End of Award Report, London: Leverhulme Trust. CEC (2006a) Keep Europe Moving – Sustainable Mobility for our Continent (Mid-term Review of the European Commission’s 2001 Transport White Paper), COM(2006)314, Brussels: Commission of the European Communities. Doganis, R. (2006), The Airline Business, London: Routledge. ECA (2006), Upheaval in the European Skies: Low Cost Carriers in Europe: Economic Data, Market and Pilot Demand Forecast, Brussels: European Cockpit Association. Harvey, G., and Turnbull, P. (2010) ‘On the Go: Piloting High Road Employment Practices in the Low Cost Airline Industry’, International Journal of Human Resource Management, 21(2), page 230. Harvey, G. and Turnbull, P. (2006) ‘Employment Relations, Management Style and Flight Crew Attitudes at Low Cost Airline Subsidiaries: The Cases of British Airways/Go and bmi/bmibaby’, European Management Journal, 24(5), pp 330-337. Harvey, G. and Turnbull, P. (2002), Contesting the Crisis: Aviation Industrial Relations and Trade Union Strategies After 11 September, London: International Transport Workers’ Federation. Kochan, T.A. (2008) “Airline Labour Relations: 1980 to Today and Beyond”, EU-US Aviation Forum on Liberalisation and Labour, December. O’Sullivan, M. and Gunnigle, P. (2009) ‘"Bearing All the Hallmarks of Oppression": Union Avoidance in Europe's Largest Low-cost Airline’, Labor Studies Journal, 34 (2): 252-270. Turnbull, P., and Harvey, G., (2001) The Impact of 11 September on the Civil Aviation Industry: Social and Labour Effects, International Labour Office Working Paper No. 182, Geneva, December. ISBN 92-2-112937-3.

Appendix I

In this paper we consider the responses of civil aviation trade unions to airline restructuring activities in the wake of the global financial crisis and strategies for meeting the challenge of the new legislative environment. The paper draws on primary and secondary source data in its analysis. Secondary source data were drawn from a variety of sources including official aviation industry associations such as the International Civil Aviation Organisation and the International Air Transport Association; trade journals such as Airline Business, Travel Trade Gazette and Air Transport Intelligence; and news paper reports. Primary data collection began in May 2009. These data are drawn from interviews with airline management, trade union officials and representatives of the International Transport Workers Federation (ITF). A questionnaire survey was distributed among senior HR management of airlines affiliated to both by the Airline Personnel Directors Conference (an informal network of 29 major/flag carrying airlines from around the world) and the Association of European Airlines (which represents 34 major European airlines). A similar survey, in English, Spanish and French, was also sent to aviation trade unions affiliated to the International Transport Workers Federation (ITF), International Federation of Air Traffic Controllers Associations (IFATCA) and the International Federation of Air Line Pilots Associations (IFALPA).

The surveys concerned the impact of the crisis on airline labour. However, the managerial questionnaire differed slightly in content to those submitted to union respondents. Union respondents were asked to evaluate the acceptability of a range of HR policies (see Table 2) that reflect four broad areas of flexibility: numerical flexibility, or changes to the total workforce; temporal flexibility, or changes to working time; functional flexibility, or changes to job boundaries or skills; and financial flexibility, or changes to remuneration, while management were required to evaluate the impact of restructuring on various employee groups. Union respondents were asked separate questions on which aviation firms had implemented the various HR practices and on which employee types had been affected by these practices. Consequently, data from managerial sources are analysed separately from data from union sources.

The paper features analysis of data from senior HR personnel at 13 major/flag carrying airlines based in Europe (n=6); North America (n=2); Middle East (n=2); and Asia Pacific (n=3). Data from trade unions representing airline employees based in Europe (n=33); Asia Pacific (n=10); Africa (n=8); Latin America (n=5); Middle East (n=1); and North America (n=4), and air traffic controller employees (13 from Europe; 3 from Asia Pacific; 2 each from Latin America and the Middle East; and 1 from North America). Where possible the data from a previous study, of the impact of 9/11 on civil aviation labour (see Turnbull and Harvey 2001), are used to provide a comparison. The data were analysed using SPSS 16.

Appendix II – Management questionnaire

The Impact of the Financial Crisis on Civil Aviation

Research into the impact of the financial crisis on civil aviation has been commissioned by the International Labour Organisation and conducted by a research team based at Cardiff University and Swansea University. Please participate in this study by completing the following questionnaire survey. Please answer all questions by clicking on the relevant box. If you make a mistake (e.g., by clicking on the wrong box), click on the box a second time to remove the cross. To include typed information, please click on the appropriate grey box and type your response. This will expand to accommodate any length of response. What is the name of your organisation? In which country are you based? If you are agreeable to further contact with regards to this study please include your name and contact telephone number/email address:

1. Which of the following policies have been introduced at your organisation in response to the current financial crisis? Please click on all that apply.

Policy

Recruitment freeze

Voluntary early retirement Voluntary redundancy

Compulsory redundancy Voluntary furlough

Compulsory furlough

Unpaid holiday/leave Short-time working

Shorter working week Fewer shifts per month

Part time working Work sharing


Non-renewal of temporary contracts Reduced training

Educational leave Pay freeze

Forgo holiday pay

Forgo bonus pay Pay cut – management

Pay cut – other staff Other (please specify)

Further comments:

2. How has the current crisis affected employees at your organisation in terms of job losses, introduction of more flexible work practices, and other changes to terms and conditions of employment? By clicking on the relevant box, please report the impact of the crisis on a scale of 1 to 5, where 1 indicates a limited or marginal impact and 5 indicates an extensive or severe impact. Please click on n/a if your organisation does not employ the employee group.

Policy n/a 1 2 3 4 5

Management Flight crew

Cabin crew

Ground handling

Check-in staff

Customer services Marketing/strategy

Air traffic control Catering

Cleaning

Fuelling Administration/HR

3. Please consider the policies in the list below and for each that has been introduced at your organisation indicate, by clicking on the appropriate box, whether the policy was introduced as a result of collective agreement; or whether it is a policy that was based on a legal provision; or whether it was introduced as a result of some other arrangement (e.g. initiative by management).

Policy Measures determined by collective agreement

Measures based on legal provision

Other arrangement

Recruitment freeze

Voluntary early retirement

Voluntary redundancy Compulsory redundancy

Voluntary furlough Compulsory furlough

Unpaid holiday/leave

Short-time working Shorter working week

Fewer shifts per month Part time working

Work sharing Probationary staff not transferred to full time contracts


Reduced training

Educational leave Pay freeze

Forgo holiday pay Forgo bonus pay

Pay cut Other measures (please specify)

Further comments:

4. What policies, if any, should national government pursue to support the civil aviation industry during the current crisis? Consider the following policies and tick the appropriate response, where SD = strongly disagree (i.e. government should not intervene), D = disagree, N = neither disagree nor agree, A = agree (i.e. that government should offer support), and SA = strongly agree. Please click on the appropriate box.

Policy SD D N A SA

Contribution to pension funds for early retirement

Funding for severance pay

Low cost loans to civil aviation employees Payments to partially cover short time working

Payments to fully cover short time working

Extending unemployment benefits Funding for medical/health insurance

Funding for retraining programmes Financial compensation to airlines for loss of traffic

Financial compensation to airports for loss of business


Financial support to airlines/airports for improved security

Relaxation of foreign ownership rules Protect services to remote communities

Promote mergers/take-overs/consolidation Initiatives to promote social dialogue

Further comments:

Many thanks for your cooperation.

Appendix 3 – Trade Union Questionnaire

The Impact of the Financial Crisis on Civil Aviation

Research into the impact of the financial crisis on civil aviation has been commissioned by the International Labour Organisation and conducted by a research team based at Cardiff University and Swansea University with the support of the International Transport Workers Federation. Please participate in this study by completing the following questionnaire survey. Please answer all questions by clicking on the relevant box. If you make a mistake and wish to remove a cross from a box, click on the box a second time to remove the cross. You are able to click on as many or as few boxes as is appropriate. To include typed information, please click on the appropriate grey box and type your response. This will expand to accommodate any length of response. Please save the document, complete it, resave after completing it and return it to [email protected]. What is the name of your union? In which country are you based?

Which of the following policies have been introduced by aviation companies in which you have members in response to the current financial crisis? Please click on all that apply. Policy In

tern

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nal

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Do

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Low

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char

ter

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ine

Air

po

rts

Cat

erin

g

Gro

un

d

han

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g

Mai

nte

nan

ce

ATC

OTH

ER

Recruitment freeze



Compulsory furlough Unpaid holiday/leave

Short-time working





Reduced training

Educational leave

Pay freeze Forgo holiday pay



Further comments:

Which groups have been affected by the following policies introduced by aviation companies in which you have members in response to the current financial crisis? Please click on all that apply. Policy C

abin

cre

w

Flig

ht

crew

Ad

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Ch

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er

Recruitment freeze




Short-time working





Reduced training

Educational leave




Further comments:

Have the policies introduced by aviation companies since the onset of the financial crisis affected men more than women, women more than men or both equally? Please click on the appropriate box. Policy Affected men

more than women

Affected women more than men

Applied equally

Recruitment freeze Voluntary early retirement

Voluntary redundancy



Short-time working Shorter working week

Fewer shifts per month



Non-renewal of temporary contracts Reduced training

Educational leave


Forgo bonus pay Pay cut

Other (please specify)

Further comments:

How acceptable to your members are the different policies listed below? Please consider whether the policy in question would be accepted under normal operating conditions, would only be acceptable as a short term response to the current crisis, or is it unacceptable under any circumstances. Please click on the appropriate box. Policy Acceptable under

normal circumstances

Only acceptable as a short term measure


Recruitment freeze Voluntary early retirement

Voluntary redundancy


Compulsory furlough

Unpaid holiday/leave Short-time working





Reduced training

Educational leave


Forgo bonus pay Pay cut

Other (please specify)

Further comments:

What policies should national government pursue to support employment in the civil aviation industry during the current crisis? Consider the following policies and tick the appropriate response, where SD = strongly disagree, D =

disagree, N = neither disagree nor agree, A = agree, and SA = strongly agree. Please click on the appropriate box. Policy SD D N A SA

Contribution to pension funds for early retirement

Funding for severance pay

Low cost loans to civil aviation employees Payments to partially cover short time working

Payments to fully cover short time working

Extending unemployment benefits Funding for medical/health insurance

Funding for retraining programmes Financial compensation to airlines for loss of traffic

Financial compensation to airports for loss of business


Financial support to airlines/airports for improved security

Relaxation of foreign ownership rules Protect services to remote communities

Promote mergers/take-overs/consolidation Initiatives to promote social dialogue

Funding compensation towards maintaining employment

Further comments:

Many thanks for your cooperation.

the global financial crisis, european labour market...

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